With the continued support of the National Association of Realtors, a Detroit-area multiple listing service will appeal an order requiring the MLS to transmit "exclusive agency" property listings favored by discount brokers to public Web sites.
Realcomp II MLS’s refusal to publish the listings creates a "significant impediment" to consumers’ ability to access listings represented by limited-service brokers, and helps protect full-service brokers from competition, the Federal Trade Commission said in an Oct. 30 opinion (see story).
The commission’s ruling was a setback in Realcomp’s three-year legal battle with the FTC, which began with an October 2006 complaint by the federal agency. Six other MLSs accused of similar practices entered into consent orders with the FTC requiring them to stop.
But Realcomp has defended its practices, racking up more than $2 million in legal expenses in the process.
Exclusive-agency contracts are often employed by brokers offering flat-fee, menu-based services at a reduced cost. Sellers who want their property to appear in an MLS but are willing to take on some of the work traditionally performed by real estate agents, such as marketing and negotiating, may prefer such an agreement to those offered by full-service brokers employing "exclusive right to sell" listing agreements.
Realcomp has argued that it’s not a public utility and shouldn’t be forced to distribute all current listings to public Web sites including Realtor.com and the MLS’s own public-facing site, MoveInMichigan.com.
In December 2007, FTC Administrative Law Judge Stephen J. McGuire dismissed the government’s complaint against Realcomp, saying FTC lawyers had not demonstrated that the MLS restrained competition or harmed consumers, though a unanimous opinion by commissioners reversed McGuire’s decision.
Realcomp Chief Executive Officer Karen Kage said the MLSs board of directors voted unanimously on Nov. 20 to appeal the full commission’s vote. Realcomp’s board members believed the commission "ignored or overlooked" many of McGuire’s findings, Kage said.
Kage said the National Association of Realtors has agreed to continue covering part of the MLS’s legal expenses, which she said totals about $2.4 million to date. Realcomp also has a verbal agreement from the Michigan Association of Realtors to help pay for the cost of an appeal, Kage said, and other MLSs have also provided assistance in the past.
Realcomp has until the end of the year to file a notice of appeal with the U.S. Court of Appeals for the Sixth Circuit, and will likely file a motion next week with the FTC requesting that the commission stay its Oct. 30 order pending an appeal, said Robert W. McCann, a Washington, D.C.-based lawyer representing the MLS.
If the case is argued in April, the court might issue a decision in fall 2010, McCann said.
It’s not unheard of for courts to overturn FTC orders. After the commission revered MgGuire’s dismissal of an FTC complaint against Rambus Inc., for example, a federal appeals court vacated the commission’s decision, and the FTC dropped its complaint against Rambus.
But it’s unclear whether an appeals court victory for Realcomp would give other MLSs — including those currently subject to consent orders — leeway to refrain from publishing exclusive-agency listings on public-facing Web sites. …CONTINUED
The question at the heart of the Realcomp case was not the MLS policy itself, but whether it affected competition in Southeastern Michigan, McCann said.
"I think it’s fair to say that if Realcomp prevails in this case, the FTC would have to think more carefully about (initiating) future enforcement actions," McCann said. "But it certainly would not prevent them from bringing actions."
The FTC’s enforcement actions against Realcomp and other MLSs have had an effect similar to a new regulation, but without a formal rulemaking process, McCann said.
If the FTC loses the Realcomp case but still sees the MLS’s treatment of exclusive-agency listings as an issue, it could seek to implement a new regulation through a rulemaking process — a time-consuming process, he said.
Although courts usually show "substantial deference" to findings by the FTC and other regulatory agencies, they can consider whether enough evidence was introduced in an administrative proceeding to support a ruling, McCann said.
In the Realcomp case, "We feel (the commission) was picking and choosing evidence to make (its) own case" that the MLS’s policy had an impact on competition, McCann said.
In the hearing before McGuire, "The FTC called a number of discount brokers who said, ‘This is a bad thing,’ " McCann said. "Then on cross examination, (the FTC) said ‘I’m making a ton of money.’ I think the record was devoid of any evidence these rules had any adverse effects on competition."
In arguments submitted to the FTC in a February 2009 brief, attorneys for Realcomp argued that many discount brokers were able to get around the MLS policy by offering their clients discounted, flat-fee, exclusive-right-to-sell listings in addition to exclusive-agency listings.
Because Realcomp had eliminated the minimum-service requirement for exclusive-right-to-sell listings, limited-service brokers can use those agreements to get their listings on Realcomp’s public-facing site, MoveInMichigan.com, the MLS argued.
Limited-service brokers could also get around the MLS policy by "dual listing" properties with another MLS, for a "nominal" cost, Realcomp argued.
"This case is not about competition between full-service and discount brokers, and the evidence must be understood in its proper context," Realcomp’s attorneys said.
The FTC’s complaint "rests on the assumption that (exclusive agency) listings are synonymous with discount brokers and (exclusive right to sell) listings are synonymous with more costly traditional brokers. This premise is false."
The FTC brought forward "no credible evidence" that discount brokers were forced to exit the market, Realcomp said. Several discount brokers called as witnesses by the FTC testified that their business had actually increased, Realcomp argued.
One of those brokers was Albert Hepp, the president of a national alliance of flat-fee brokers, the American Real Estate Broker Alliance. …CONTINUED
Hepp, the founder and lead broker of BuySelf Realty Inc., testified that his business had grown by 10 to 35 percent in Southeastern Michigan since 2004, attorneys for Realcomp pointed out.
But Hepp said that since he testified in the case in 2007, BuySelf Realty has pulled out of the market served by Realcomp — in part because of deteriorating market conditions, but largely because of Realcomp’s MLS policy.
"It’s the double whammy of being in a difficult market where the MLS also does everything it can to make it hard to operate," Hepp said of the decision to pull out of Southeastern Michigan, which has been hard hit by job losses in the auto industry.
Hepp said BuySelf Realty is still in Toledo, a market also heavily dependent on the auto industry.
"We don’t do great there, but it works, because the MLS treats traditional and discount (brokers) fairly and equally," he said.
Hepp said he doesn’t think Realcomp should be taken seriously when it notes that discount brokers can still get publicity for their listings by offering flat-fee, exclusive-right-to-sell listings or dual listing properties with another MLS.
"It’s basically saying discounters are going to have to do twice the work to get the same (publicity) as traditional brokers, and since when is doing twice the work not harmful?" he said.
If the Sixth Circuit Court of Appeals vacates the FTC’s order that Realcomp change its MLS policy, Hepp fears that would embolden the bad-player MLSs that don’t want to treat business models equally and fairly, which will ultimately hurt competition, and hurt consumers."
As a dues-paying member of NAR, "I would hope (the association does) not continue to fund all these legal expenses, because I look at hiding listings as a failed strategy for any service provider," Hepp said. "Why would NAR want to spend money to help MLSs obtain the right to hide listings of its members?"
So far, NAR has provided $550,000 in assistance to help Realcomp cover its legal bills. At the group’s annual convention in San Diego last month, NAR’s board approved a recommendation by the legal action committee to pay half of Realcomp’s legal expenses to appeal the FTC decision, up to a limit of $175,000.
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