Industry reacts to DOJ vs. NAR settlement proposal

Consumers may ultimately gain access to a larger and more diverse collection of online real estate information if a proposed settlement between the federal government and the National Association of Realtors trade group is finally approved, industry experts said Tuesday.

And industry participants and innovators now have some clear evidence that a five-year stalemate over NAR policies in the online sharing and display of property information is nearing an end.

Brian Larson, a real estate lawyer and consultant who has written extensively about the U.S. Justice Department lawsuit filed in 2005 against the Realtor trade group, said Tuesday that he believes the floodgates to more industry innovation will open up with the settlement of the dispute.

"There may be this sort of pent-up desire to innovate that will now be free to express itself in the marketplace," Larson said. "There is a meaningful change in the landscape now and that may be enough to open some doors to innovation."

Click here to participate in a group discussion about the proposed settlement. 

The proposed settlement amends policies originally adopted by NAR in 2003 in the use of Virtual Office Web sites (VOW). VOWs allow a broker participating in a multiple listing service to display an extensive set of property listings information to registered consumers.

The VOW policy was recalled on the same day that the Justice Department filed its lawsuit in September 2005, and the association introduced a new Internet Listings Display (ILD) policy in its place. But that policy was quickly suspended after the Justice Department amended its original antitrust complaint.

Another brand of data-sharing among MLS members, called Internet Data Exchange or IDX, is a popular data-sharing mechanism for the public display of MLS participants' information -- and the lawsuit does not challenge or change IDX policies.

While brokers have the ability to opt out of sharing property listings with IDX sites, the proposed settlement between the Justice Department and NAR does not allow brokers to prevent their property listings information from appearing on VOW sites but does give sellers the option to withhold listings information from appearing at VOW sites.

VOW sites will generally be more flexible than IDX sites and can display a broader range of data than IDX sites, Larson said, though the proposed settlement also provides for a required e-mail registration and verification process in order for consumers to gain access to property information through a VOW site.

Some brokers may maintain both IDX and VOW sites under the proposal, he said, and may use the IDX sites as a sort of entry point to property searches that could eventually lead consumers to sign up for access to additional information at a VOW site.

VOWs will be able to display information on a range of off-market properties, such as sold properties or expired property listings that not all IDX sites allow, he noted.

The proposed new VOW policy might also encourage MLSs to "make IDX a better took," he said, as IDX sites do not require users any registration and may be less burdensome for consumers to access to immediately view property information.

Some VOWs had previously allowed consumers to register without verifying an e-mail address, though the proposed settlement would make that verification a requirement, he said.

And in general, the settlement provides that there cannot be restrictions on VOWs that don't apply to brick-and-mortar brokerage offices in general, he said.

"If the settlement is approved, it does finally give us a firm landscape to operate on with regard to virtual brokerage innovation in the future. We know where we're going -- virtual brokers know where they can go with confidence."

Larson said that it's too bad that the industry didn't choose policies five years ago that could have avoided the lengthy and costly federal investigation and lawsuit.

ZipRealty Inc. Chief Executive Officer Pat Lashinsky said the Justice Department accomplished what it set out to do in filing the lawsuit -- protect competition in the industry -- and clarify ambiguities in the online listings policy.

The Justice Department had earlier identified a ZipRealty executive as a potential witness in the case, and ZipRealty had been asked to provide evidence for the lawsuit.

"This is big, because a lot of MLSs and (Realtors) associations weren't sure what the rules were," Lashinsky said.

MLSs in Charlotte and Raleigh, N.C., as examples, have argued that in the absence of a VOW policy they would operate under IDX rules, providing VOWs access only to IDX-approved listings, Lashinsky said.

In some markets that's not a big issue because only a small percentage of listings are not IDX-approved. But in a market like Chicago, where brokers must opt in to IDX sites, the impact of such a policy could be "significant," he added.

"People were afraid to do things because they were not sure what the rules were," Lashinsky said. "This makes it clear that you can't treat someone operating a (VOW) differently than a brick-and-mortar office."

Some MLSs, Lashinsky said, tried to limit the use of data provided to VOWs. "If someone came in your office, you could print out sold data, but you couldn't put them online," he said. "The new rules say that if you can hand it to them in an office, the same rules apply online."

Some MLSs have objected to VOWs putting information on sold, expired or withdrawn listings on the Internet, saying that it makes it easier to mine data that belongs to their members.

The settlement, in effect "says the Internet and innovation is going to be supported, and you have to allow competition to come into this space," Lashinsky said. "Some brokers don't like the changes and are trying to protect their business. This says you have to compete fairly."

Richard A. Smith, president and CEO for real estate brokerage and franchise company Realogy, said in a statement, "We're pleased that the Department of Justice and the National Association of Realtors have reached a settlement in their long-standing dispute about the display of property listing information on the Internet.

"While the settlement is a good outcome for both parties, we don't envision that the settlement will have any material impact on the industry or our business. Brokers are far more comfortable today with a broad and varied distribution of property listings on the Internet. We believe the U.S. real estate industry is highly competitive, and its embrace of technology promotes even greater competition and transparency for the benefit of homebuyers, sellers and real estate professionals."

Smith and Dave Liniger, co-founder of the RE/MAX international franchise network, were among NAR's list of potential witnesses. RE/MAX, in a 2003 white paper, had supported the brokers' opt-out provision of NAR's original VOW policy that was challenged by the Justice Department, and other brokerage companies, too, had supported this provision.

Robert D. Butters, a lawyer for Arnstein & Lehr LLP in Chicago who has represented real estate brokerages, technology companies and MLSs, said the proposed settlement agreement can be viewed as a victory for the Justice Department on most points -- particularly the elimination of the opt-out provision in the VOW policy -- but in some ways is a victory for NAR.

For example, NAR did score a victory in the definition of an MLS participant that appears in the proposed settlement, he said. That definition provides that "mere possession of a broker's license is not sufficient to qualify for MLS participation," and that a participant "actively endeavors to make or accept offers of cooperation and compensation with respect to properties of the type that are listed on the MLS in which participation is sought."

Butters said that he has seen a clear adoption of Internet technologies by traditional brokerage companies in the years since the Justice Department filed the lawsuit against NAR.

The settlement agreement is perhaps an indication that "the industry has moved past this to the point that ... members actually want to operate VOWs, and this is not a fight worth fighting."

He noted that major companies have already been in a major development push for Web-based functions, “particularly in this market where finding qualified buyers is the key.”

And the registration requirements under the proposed settlement could assist brokers in securing more registered users to their Web sites.

He noted that “the mere registration at a VOW does not constitute a client relationship -- you’re not able, according to this rule, to create a relationship at the registration level.”

But there are potentials for conflict in which a VOW user who is already in a relationship with a broker registers for VOW access at another broker’s site, said Butters and Larsen.

Albert Hepp, owner of BuySelf Realty Inc., a brokerage company that offers flat-fee real estate services for sellers, said he would like to see another side to the lawsuit’s settlement that ensures greater disclosure for IDX sites that “hide listings or exclude listings.”

“How are the public and innovating brokers protected from a broker removing certain kinds of listings from public display?” he said.

In addition to the Justice Department’s lawsuit against the Realtors trade group, the Justice Department and antitrust-enforcement counterpart Federal Trade Commission have actively opposed MLS-imposed restrictions related to specific categories of property listings and listings contracts with sellers. And both agencies have opposed industry-backed, state-approved measures that seek to mandate a minimum set of real estate services for all real estate transactions performed by licensees, and anti-rebate measures.

The Justice Department is currently engaged in a lawsuit over policies adopted by an MLS in South Carolina, as an example, and the Federal Trade Commission is engaged in a lawsuit with a Michigan MLS.

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