South Carolina MLS prepares for DOJ legal battle

A broker-operated multiple listing service in Columbia, S.C., which changed some policies in response to a U.S. Justice Department investigation, is now gearing up for a legal battle with the federal government.

The Justice Department last week announced a lawsuit against Consolidated MLS, charging that its rules illegally restrict competition among brokers and limit consumer choice in real estate services.

"We just simply don't think that anything we do is anticompetitive. I don't know what the motivation is here," said Bob Baucom, who owns a RE/MAX franchise in Columbia and also serves as director of operations for the MLS.

While agreeing to loosen some restrictions, the MLS is digging in on other issues targeted by the Justice Department.

A membership fee to join the MLS was reduced from $5,000 to $2,500, Baucom said, and the MLS is in the process of opening up to accept property listings under a previously banned form of contract between sellers and brokers known as "exclusive agency" listings.

Consolidated MLS, which has 372 broker members serving about 3,100 agents, has no plans to change its policy in requiring background checks for members or to change a requirement that members must maintain an office in the seven-county Greater Columbia area served by the MLS, Baucom said.

"I think it's going to end up in court," he said.

Justice Department officials first contacted the MLS in July 2006, stating in a letter that they were taking a look at possible anticompetitive practices, said Baucom.

The following month, several Justice Department lawyers met with MLS officials in Columbia to review documents.

In March 2008, Baucom and a lawyer for the MLS flew to Washington, D.C., to meet with Justice Department officials and discuss a proposed consent order to settle the department's findings about the MLS.

MLS officials later met with Justice Department officials to discuss a possible resolution to the department's concerns about MLS policies, and South Carolina Attorney General Henry McMaster and his office's staff also entered into discussions with Justice Department officials and "hammered out ... areas of contention" over MLS policies, Baucom said.

A former FBI agent, Baucom said that he believes that the criminal background checks that the MLS conducts for prospective new members are reasonable, as the state does not require such checks for real estate licensees.

The MLS rules provides that an authorization for a national background check must be signed by a broker-in-charge "along with all individuals who have interest in the company and/or officer of the company (to be filled out for each individual)," according to the board's Web site.

The one-time, non-refundable "initiation fee" of $2,500 to join the MLS must be submitted with the application, according to a description at the MLS Web site, and all company brokers and owners applying for membership are required to visit the MLS office "for a brief interview with the membership committee."

Member offices must be located in a commercially zoned area "and cannot be located in the home," according to the Web site. And members must submit a resume showing real estate activities for each officer and broker in charge, the Web site states, and provide proof of errors and omissions insurance coverage.

The MLS service areas is defined as Richland, Lexington, Saluda, Kershaw, Calhoun, Newberry and Fairfield counties.

Phil Shepard, a real estate agent for SmartSellerSC.com in Goose Creek, S.C., who offers flat-fee real estate services, said he hasn't been able to join Consolidated MLS "because of all the restrictions in place," though he is a member of five other MLS systems in the state.

The physical office requirement is the biggest barrier to joining Consolidated MLS, he said. "We're missing out on a lot of business in the area."

"If we were a business in another state that wanted to do business here we wouldn't be able to do that," he said.

Baucom said that the MLS rule requiring an office in the MLS service area draws from a state requirement providing that "a licensed broker in charge ... shall establish and maintain a specific office location which must be accessible by the public during reasonable business hours," though this requirement does not specify where the office must be located.

"We just took it a step further that it needs to be in our primary service area," he said.

Also, Baucom said that he is not aware of any instance in which a company that applied to join the MLS was denied membership. "We can find no written record of anyone who ever applied for membership who was denied membership."

The Justice Department civil complaint, filed in U.S. District Court in South Carolina, charges that Consolidated MLS's rules "prevent members from providing a set of brokerage services that includes less than the full array of services that brokers traditionally have provided -- even if a consumer prefers to save money by purchasing less than all of such services."

And the lawsuit charges that CMLS "prevents its members from offering to a home seller the option of avoiding paying the broker a commission if the seller finds the buyer on her own." This refers to the MLS ban on exclusive agency listings, which Baucom said is in the process of being lifted.

A more common form of listings agreement, known as "exclusive right to sell," provides that a seller must compensate the listing broker whether the seller or broker finds a buyer.

The Justice Department maintains that alternative real estate service companies are more likely to enter into exclusive agency listing contracts with sellers.

Baucom said that the MLS does have members with alternative structures, including companies that offer menu-based and flat-fee services. One member, he noted, offers to sell homes for a 4 percent total commission.

Consolidated MLS is not the only MLS that has been targeted by the Justice Department's Antitrust Division, and last year the department announced a settlement with the Multiple Listing Service of Hilton Head Island Inc. in South Carolina over membership restrictions and rules requiring members to perform a specific set of services for clients, regardless of whether they wanted those services.

The U.S. Federal Trade Commission has also opposed industry-backed proposals by state regulators and lawmakers to approve similar service requirements for all real estate licensees -- those measures are sometimes referred to as minimum-service rules or laws.

And the Federal Trade Commission has conducted numerous investigations of MLS restrictions that potentially restrict competition by restricting the marketing of properties under exclusive agency contracts. The FTC is engaged in a lawsuit against Realcomp II, a Michigan MLS, over its exclusive agency restrictions and other policies.

The Justice Department has engaged in numerous actions, too, in opposition to statewide restrictions on cash rebates offered by real estate licensees to consumers.

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