Friday, July 25, 2008

DOJ v. Realtors: Back in the Ring

Posted by D. Daniel Sokol

J. Bruce McDonald (Jones Day) writes on DOJ v. Realtors: Back in the Ring.

ABSTRACT: The question is not “will” but “when” will antitrust enforcers challenge any new real estate broker association rules prescribing how the brokers compete. The U.S. Department of Justice antitrust lawsuit against the Consolidated Multiple Listing Service is just the latest in the long-running battle between the real estate broker industry and the DOJ and U.S. Federal Trade Commission over what if any limitations the industry can impose on competition by new business models made possible by the Internet.

The development of Multiple Listing Services (“MLSs”) may have been the most significant development in the residential real estate market in the twentieth century. A joint venture among brokers, an MLS allows brokers to communicate to other brokers their listing information on homes their clients want to sell, obtain information on homes their clients may want to buy, and cooperate in other ways, including making arrangements to share commissions. By providing a mechanism to pool their listings on all or nearly all homes in a locality, an MLS increases the quality and lowers the cost of the services brokers provide to buyers and sellers of houses. These joint ventures are largely procompetitive and so valuable that participation in the local MLS is necessary for a broker to compete in almost any local market.

As it has for so many other industries, the Internet has revolutionized how Americans shop for homes. Since the MLS was conceived, the Internet more than anything has improved communication of listing information among brokers—and now directly to home buyers. Obtaining listing information once required an in-person visit with a broker, who could search the MLS “book” or later a brokers’ electronic database. Today brokers and broker associations can make the MLS database available immediately and efficiently to their clients. Brokers’ websites have become known as Virtual Office Websites because they make available all the services once found only in a broker’s office. VOWs now are present in many real estate markets, although not all. Beginning in the late 1990s, the introduction of VOWs has changed how Americans shop for homes, just as the Internet has changed how they shop for books, music, clothing, and even cars, insurance, and other products and services.

Incumbent brokers responded to VOW entry in various ways. Some incumbents immediately embraced the new technology themselves, to face off against the new entrants. Others advocated that there be less cooperation among traditional brokers and the web-based entrants. Their arguments have raised a number of antitrust law and policy issues that still are being addressed by local broker associations, government agencies, and the public—and are making their ways through the courts. Some broker associations have imposed rules that limit the ability of VOW-based brokers to be members of a local broker association and its MLS or to have access to the MLS listing information. There now have been numerous actions challenging these rules by government antitrust authorities: the DOJ’s Antitrust Division, the FTC, and some state attorneys general. The CMLS case is only the latest in a series of antitrust agency enforcement actions against broker associations that have limited VOWs’ use of MLSs.

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