Residential Real Estate and Home Sales and Realtors and Real Estate & Retail

MIBOR under scrutiny by FTC

July 24, 2006

The Federal Trade Commission recently slammed the Austin Board of Realtors for how the Texas organization runs its multiple-listing service, charging that a policy change barring certain homes from Web search engines runs afoul of federal antitrust laws.

The Metropolitan Indianapolis Board of Realtors adopted an identical change in early 2005 and is apparently under federal scrutiny for the move.

According to the FTC charges, Austin's MLS is the dominant player in its local market. The MLS is a large database where Realtors can enter information on houses and properties they have for sale. That data is then exported to popular Web searches, such as www.realtor.com, that are available to the public.

In spring 2005, the Austin Board of Realtors adopted a rule that only MLS listings with exclusive right-to-sell agreements would be made publicly available. Under a right-to-sell agreement, which is standard in the industry, the seller's real estate agent gets a commission regardless of who lines up the buyer.

But many nontraditional brokers, such as For Sale by Owner, offer exclusive agency contracts instead. Under such contracts, the seller can use the real estate firm's services but reserves the right to find a buyer and not pay a commission to the listing agent. And when listing the property, the homeowner can decide whether and how much of a commission he or she is willing to pay a buyer's agent.

Austin's rule change meant Board of Realtor members--Realtors--could view homes for sale under nontraditional contracts, but the public couldn't.

In a unanimous vote, the FTC found its action limited consumer choice. The commission proposed a settlement agreement that would require the Austin Board of Realtors to undo the policy or face an $11,000 fine for each subsequent violation. The FTC will vote again as early as Aug. 11 on whether to make that decision final.

"We expect the result [of the charges] will be to put home sellers back in the driver's seat," said Jeffrey Schmidt, director of the FTC's Bureau of Competition.

Locally, MIBOR made the same MLS policy change in February 2005, keeping any home that wasn't for sale under an exclusive right-to-sell agreement from appearing on publicly accessible search sites.

MIBOR CEO Stephen Sullivan said members voted to adopt the change.

"We had long conversations and debates about it," Sullivan said. "When we began to put [the nontraditional listings] on the Web site, what began to happen was that the ... exclusive agency listings had some unfair advantages."

Sullivan said a group of members pushed the rule change, but it wasn't adopted until it passed muster with the National Association of Realtors.

FTC officials said they're investigating MLS rules in cities besides Austin, but they declined to say which are targeted.

But another federal agency--the U.S. Department of Justice, which is also charged with enforcing pro-competition laws--has been looking into MIBOR's policy change.

MIBOR's Sullivan said the organization has fielded questions from the department and at least two nontraditional real estate agents said justice officials interviewed them at length about MIBOR's MLS and Indiana's recent law change that requires all agents to provide a minimum of services.

A U.S. Department of Justice spokeswoman declined to comment for this article, but others are talking.

Roughly two months ago, Lawrance Morrissey, director of operations for the FSBO Store LLC, said he got a call from department officials who questioned him in detail about how the MLS change, and Indiana's new law that requires brokers provide certain services, changed his business.

"They were absolutely doing research in this area to see whether they felt that any illegal activity was going on," Morrissey said.

He told investigators he woke up one day in February 2005 to find that all the homes he listed for sale in the MLS were suddenly dropped from public Web sites.

Before the policy change, Morrissey said, his firm offered a package where homeowners could pay $395 to list their home for sale on the MLS but then handle all other responsibilities themselves.

When MIBOR dropped those listings from the publicly available portion of MLS, most interest in the package dried up. Morrissey still offers several other nontraditional arrangements to sell homes for a total commission ranging from 2.5 percent to 4.9 percent.

John Slimak received a similar call. Slimak used to run HomeYeah!, which listed homes for sale through a flat fee service. He now runs HomeChoice, which is a full-service broker for home sellers that charges a 1-percent commission.

He said when the MLS change came, he had to argue with MIBOR officials for months to determine what he needed to do to qualify as an exclusive right-to-sell agent. He eventually started charging clients $1 at closing in order to keep their MLS listings on the public sites.

Slimak said Justice officials interviewed him about MIBOR's change in its MLS service and the new Indiana law.

MIBOR's Sullivan said the scrutiny isn't resulting in another rule change, at least not yet.

"At the moment, we will stick with the rules we've got," Sullivan said, adding that the group has a policy review scheduled for August.

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