In a move that could transform the way real estate brokers work with home buyers and sellers, the Justice Department challenged yesterday a national real estate group's new policy permitting brokers to limit the display of home sale listings on the Internet.
The government filed an anti-trust lawsuit against the National Association of Realtors, saying the new rule restrains competition from Web-based, discount real estate brokers, hurting home buyers and sellers.
At the heart of the dispute over how to disseminate home sales information from Realtor-owned multiple listing services, the lawsuit charges, is resistance by traditional brokers to an onslaught of "virtual" brokers who charge less than traditional commissions.
"NAR's policy prevents consumers from receiving the full benefits of competition and threatens to lock in outmoded business models and discourage discounting," the Justice Department said in a statement.
The suit, filed in U.S. District Court in Chicago, highlights the profound transformation the Internet is bringing to the housing market, just as it has changed the way consumers shop for everything from airline tickets to stocks, cars, books and music. The NAR has reported that seven of 10 home buyers turn to the Internet when buying a home.
"The Internet has brought great competitive opportunities to a lot of other industries," said J. Bruce McDonald, deputy assistant attorney general in the antitrust division. "Real estate has been slow to come along to this."
The Realtors contend that brokers who work for their listings should be able to choose whether or not to help their competitors' business.
"A broker gets the opportunity to choose whether or not he wants to facilitate the business fortunes of another competitor, and he ought to have that right," said Ralph Holmen, associate general counsel for NAR in Chicago. "Real estate is unique in that competitors cooperate in the sale of property in a way you don't see in many other industries."
But one local Realtor, John E. Rawlings Jr., a Coldwell Banker agent in Owings Mills, said the Internet has already become a crucial tool for both traditional and Web-based brokers and agents.
"It's the wave of the present," he said. "Most people shop on the Internet for listings before they even call their Realtor. It would do a disservice to the seller if they didn't have the maximum coverage possible. ... A full-service company has to show the value clients are getting for the service we offer."
The lawsuit contends that the NAR rule discriminates against brokers who use password-protected Internet sites that enable customers to search for and get listings over the Internet, replacing the traditional practice of brokers searching for homes for their clients.
Such Web sites, first developed in the late 1990s, have become a competitive alternative to traditional brokers, who worried that the Internet sites would drive down commission rates, and prompted the NAR to draft its new rule two years ago, the suit said. The Justice Department launched an anti-trust investigation and warned this spring that it stood ready to file suit. The NAR delayed its rule, and the two sides began negotiations in May.
The NAR, the nation's biggest trade group, said yesterday it adopted the controversial policy after modifying it to address the government's concerns, ending up with a policy that gives consumers more access to home sale listings than ever before.
"After months of negotiations, we are at a loss to understand why the Department of Justice would bring a legal action," the NAR statement said. "Many of the changes incorporated in the new policy are in direct response to concerns they have raised over the course of the two-year investigation. ...The policy treats all MLS members equally yet respects the rights of property owners and their listing brokers to market a property as they see fit."
The lawsuit does not attempt to open the MLS information to non-members, the Justice Department said. Listings are controlled by the more than 800 member-only multiple listing services across the country.
The rule allows a broker to withhold his own listings from all Web sites - other than his own - or to have listings displayed on all competitors' sites. It does not permit brokers to selectively choose to withhold listings from competitors, the NAR said.
The rule is meant to consolidate the formerly separate policies for Internet Data Exchanges, on which brokers advertise the listings of other brokers, and Virtual Office Web sites, or VOW, virtual real estate offices on the Web.
"We adopted a policy to bring some order to the market of how those listings would get used," Holmen said. "We disagree that the policy and the rules are unlawfully anti-competitive, and we intend to defend that in court."
Holmen said real estate is different from other industries that have been transformed by the Internet.
"Real estate is unique in that there is competitive cooperation in the sale of properties in a way you don't see in many other industries," Holmen said. The question, he said, is: "Must a broker cooperate with another competitor as fully as he is able or can he choose how much he wants to assist that competitor?"
Joseph T. Landers, III, executive vice president of the Greater Baltimore Board of Realtors, said that under current rules governing Internet listings, few brokers in the Baltimore area have opted out of online listings.
But, he added, "The broker needs to have the flexibility to be able to not display [on the Internet] if that's what their client wants."
In an industry where the MSL system works based on reciprocity, some brokers became concerned because "there are agencies out there that don't bring a lot of listings and are not posting them, but they're taking everyone else's listings and posting them on their sites. That defeats that whole concept of reciprocity. There were also some companies that were basically skimming all the information and posting it on their site."
The NAR, he said, has "tried to put in place rules or regulations to create a fair playing field when it comes to Internet advertising."