FTC Charges Real Estate Groups with Anticompetitive Conduct in Limiting Consumers' Choice in Real Estate Services

The Federal Trade Commission today charged two real estate groups operating multiple listing services in the Detroit, Michigan, area with illegally restraining competition by limiting consumers’ ability to obtain low-cost real estate brokerage services. The Commission also announced consent agreements with five other groups operating multiple listing services in parts of Colorado, New Hampshire, New Jersey, Virginia, and Wisconsin, that have discontinued the challenged conduct.

According to the FTC, all seven groups adopted rules that withheld valuable benefits of the Multiple Listing Services (MLSs) they control from consumers who chose to enter into non-traditional listing contracts with real estate brokers. Six of the seven blocked non-traditional, less-than-full-service listings from being transmitted by the MLS to popular Internet Web sites. The seventh went further, adopting policies that include blocking such non-traditional brokerage contracts from the MLS entirely. Such policies limit home sellers’ ability to choose a listing type that best serves their specific needs. While five of the groups have entered into consent orders barring such conduct in the future, the two in Michigan have not, and the FTC has issued administrative complaints against them.

“Buying or selling a home is one of the biggest financial transactions most consumers will ever make,” said Jeffrey Schmidt, Director of the FTC’s Bureau of Competition. “The rules these brokers made drove up costs and reduced choice for consumers, and they violated federal law.” The two Michigan complaints will be heard by one or more Administrative Law Judges at the Commission, unless the charges are settled before the cases go to trial. The consent orders settle the FTC’s complaints against the other five associations, and will be subject to a 30-day public comment period before the Commission decides whether to make them final.

Types of Real Estate Listings: Under the traditional type of listing agreement, known as an Exclusive Right to Sell Listing, the property owner appoints a real estate broker as an exclusive agent to sell the property, and agrees to pay the listing broker a commission if and when the property is sold. An alternative form of listing agreement, often used by home sellers who do not wish to purchase the full range of brokerage services, is the Exclusive Agency Listing, which makes the listing broker the exclusive agent of the property owner, but gives the property owner the right to sell the property without extensive help from the listing broker. Under an Exclusive Agency Listing agreement, the listing broker often charges an up-front fee, but may receive a reduced commission, or no commission at all if the owner sells the property without the broker’s further help.

The Real Estate Groups: The FTC today announced seven law enforcement actions against real estate groups in various places across the nation. Two were administrative complaints issued against the following: 1) Realcomp II, Ltd., a corporation owned by several realtor boards and associations, which provides services to more than 2,100 real estate brokerage offices in southeastern Michigan, and has more than 14,800 members; and 2) MIRealSource, Inc., which is owned by the real estate professionals it serves, and provides services to more than 840 real estate brokerage offices in southeastern Michigan and has more than 7,000 members.

The Commission also announced complaints and consent orders against the following five groups: 1) Information and Real Estate Services, LLC, based in Loveland, Colorado, which operates a regional MLS for northern Colorado, that is used by more than 5,000 real estate professionals; 2) Northern New England Real Estate Network, Inc., which is based in Concord, New Hampshire, and operates an MLS for the state that is used by several thousand real estate professionals; 3) Williamsburg Area Association of Realtors, Inc., which is based in Williamsburg, Virginia, and operates an MLS for that area and surrounding counties that is used by approximately 650 real estate brokers; 4) Realtors Association of Northeast Wisconsin, Inc., which is based in Appleton, Wisconsin, and operates an MLS for areas including Green Bay, Appleton, Oshkosh, and Fond du Lac, Wisconsin, and surrounding counties, and is used by more than 1,500 real estate brokers; and 5) Monmouth County Association of Realtors, Inc., which is based in Tinton Falls, New Jersey, and operates an MLS for Monmouth and Ocean counties and the surrounding areas of the state that is used by several thousand real estate professionals.

The Administrative Complaints: According to the Commission’s administrative complaints, Realcomp II and MiRealSource have engaged in anticompetitive conduct in violation of Section 5 of the FTC Act. The first complaint alleges that MiRealSource adopted a set of rules to keep Exclusive Agency Listings from being listed on its MLS, as well as other rules that restricted competition in real estate brokerage services. The second complaint alleges that Realcomp II engaged in anticompetitive conduct by prohibiting information on Exclusive Agency Listings and other forms of nontraditional listings from being transmitted from the MLS it maintains to public real estate Web sites.

The complaints allege that the conduct was collusive and exclusionary, because in agreeing to keep non-traditional listings off the MLS or from public Web sites, the brokers enacting the rules were, in effect, agreeing among themselves to limit the manner in which they compete with one another, and withholding valuable benefits of the MLS from real estate brokers who did not go along. In litigating the complaints, the FTC staff will seek to prohibit these groups of competitors from engaging in such conduct to the detriment of consumers.

The Settled Complaints: Five of the FTC’s complaints, which accompany the proposed consent orders, charge the associations with violating the FTC Act by adopting anticompetitive rules or policies that limit the publication and Internet marketing of certain sellers’ properties, but not others, based only on the terms of their listing contracts. According to the FTC, the associations’ rules or policies state that information about properties will not be made available on popular real estate Web sites unless the listing contracts are Exclusive Right to Sell Listings. These policies, when implemented, prevented properties with non-traditional listing contracts from being displayed on a wide range of public Web sites. Each respondent, prior to the Commission’s acceptance of the consent orders for public comment, rescinded or modified its rules to discontinue the challenged practices.

The Commission alleges that the challenged conduct occurred between 2001 and 2005, that the associations have market power in that they are the sole or dominant MLS service in their respective areas, and that membership in each of the MLS systems is necessary for a broker to provide effective real estate services to home buyers and sellers.

As a result of the polices, the FTC charges, MLS members have been discouraged from offering or accepting Exclusive Agency Listings or other kinds of non-traditional listing agreements, limiting their ability to provide consumers with unbundled brokerage services and making it harder to sell homes. The Commission also contends that the Web site policies do not produce competitive efficiencies to balance their anticompetitive effects.

Terms of the Consent Orders: The consent orders approved by the Commission are designed to remedy the associations’ alleged anticompetitive conduct. While the associations recently stopped engaging in the challenged conduct, the orders will ensure that they do not engage in such anticompetitive conduct in the future. They will ensure that the five associations do not adopt or enforce any rules or policies that deny or limit the ability of their MLS participants from entering into Exclusive Agency Listings, or any other lawful type of listing agreement, with home sellers. The orders, which are virtually identical to the one issued in the recent Austin Board of Realtors matter, state that each association must fully comply with their provisions within 30 days of when they become final. Each association also is required to notify its members of the applicable order and must enter into a compliance program with the Commission. The orders will expire in 10 years.

The Commission votes to issue the two administrative complaints were 5-0. The votes to approve each of the five complaints and consent orders were 5-0. The consent orders will be subject to public comment for 30 days, until November 10, 2006, after which the Commission will decide whether to make them final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.

The materials related to each of these cases, as well as a wide range of other real estate competition information and a new “Facts for Consumers” document, can be found on the FTC’s real estate competition Web page, an updated version of which debuted today.

NOTE: The Commission issues or files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the named parties have violated the law. The administrative complaint marks the beginning of a proceeding in which the allegations will be ruled upon after a formal hearing by an administrative law judge.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the administrative complaints, settled complaints, consent orders, and analyses to aid public comment are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.