US takes estate agents to court over internet policy

Realty check

The US Justice Department last week filed an antitrust suit over a real estate industry rule that it considers unfair to online estate agents and consumers by allowing estate agents to opt-out of having their properties exhibited on internet listings.

This policy prevents consumers from receiving the full benefits of competition and threatens to lock in outmoded business models and discourage discounting, said the Department in its case against the National Association of Realtors (NAR).

According to the Department, in most markets, real estate brokers share information about properties for sale, known as listings, through the local Multiple Listing Service (MLS) – a joint venture among competing brokers. Participation in the local MLS makes it possible for a broker to provide customers with listings for virtually all properties for sale in the community, which is critical to compete in the local market.

Traditionally, brokers provided listings for properties to their customers in a variety of ways, such as by hand at their offices, or by mail, fax, or email. But some brokers have recently begun offering brokerage services to their customers over the internet, using so-called virtual office websites, or VOWs.

VOWs are password-protected internet sites that allow the broker's customers to search the MLS database on their own, using their home computers to obtain the same information that would be available in a broker's brick-and-mortar office.

This gives consumers more control over their search for a home, allowing them to educate themselves about their options at their own pace and on their own time. It also allows brokers to reduce the time that their agents spend searching the MLS database or showing homes the customer dislikes.

But because the internet can be used to deliver brokerage services more efficiently – resulting in better service and lower costs to consumers – brokers who use the internet represent a competitive challenge to traditional brokers. Some brokers are therefore unwilling to participate in the scheme.

According to the Justice Department, the NAR developed a policy that required NAR-affiliated MLSs to adopt rules that will allow brokers to withhold their clients' listings from other brokers' websites by means of an opt-out.

In essence, NAR's policy enabled traditional brokers to block their competitors' customers from having full online access to all of the MLS's listings. When exercised, the opt-out provision prevents web-based brokers from providing all MLS listings that respond to a customer's search, effectively inhibiting the new technology.

“The purchase of a home is one of the most significant financial decisions a family can make, and NAR's policy stifles competition to advantage some of its members at the expense of home buyers and sellers across the country," said J Bruce McDonald, Deputy Assistant Attorney General in the Department's Antitrust Division. "Consumers benefit when real estate brokers are free to compete vigorously by offering innovative services."

The Justice Department has therefore filed suit – on the very day that the NAR announced a revised policy.

According to the NAR, its new policy will ensure that all MLS property listing data available for display will automatically be available to all MLS members unless a member notifies the MLS in advance that he or she does not want to participate. In that case, none of the listings he or she enters into the MLS will be available for display on other brokers’ websites nor will he or she be allowed to display other brokers’ listings on his or her own website.

The new policy also contains an entirely new feature that allows brokers who have opted out of displaying their listings on competitors’ websites the opportunity to make an exception at the direction of a particular seller who wants to have his or her property displayed on the websites of all other members of the MLS.

“After months of negotiations, we are at a loss to understand why the Department of Justice would bring a legal action," said the NAR in a statement. "Many of the changes incorporated in the new policy are in direct response to concerns they have raised over the course of the two-year investigation."

But the revised policy does not go far enough, according to the Justice Department.

The complaint alleges that NAR's policy significantly alters the rules that govern MLSs by permitting traditional brokers to discriminate against other brokers based on their business model, denying them the full benefits of MLS participation. The lawsuit seeks to ensure that traditional brokers, through NAR's policy, cannot deprive consumers of the benefits that would flow from these new ways of competing.

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