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Feds Sue Realtors Over Internet Listings

WASHINGTON - The Department of Justice (DoJ) sued the National Association of Realtors (NAR) today, charging it with engaging in anti-competitive behavior against online home brokers.

The suit comes on the same day NAR unsuccessfully revised its Internet listing policy in hopes of appeasing the government.

Concerned those online sites might lead to lower commissions to real estate brokers, NAR two years ago passed rules allowing traditional brick-and-mortar brokers to selectively block their home listings to competing brokers using Virtual Office Websites (VOWs). The block is widely known as the opt-out provision.

The DoJ almost immediately objected to the policy, contending it denies consumers the full benefits of competition, discourages commission discounting and threatens to lock in outmoded business models.

"Consumers benefit when real estate brokers are free to compete vigorously by offering innovative services," Deputy Assistant Attorney General J. Bruce McDonald said Thursday at a Washington media briefing.

In most markets, real estate brokers who are members of NAR share their listing information through a local Multiple Listing Service (MLS) owned and controlled by the Realtors. The MLS allows brokers to offer consumers listings for virtually all properties for sale in a community.

Traditionally those listings were available only at a brick-and-mortar real estate office. The Internet, however, gave rise to password-protected VOWs that allow consumers to shop listings at their convenience. Brokers operating VOWs pass on their savings to consumers through lower commissions.

VOWs complained that without unlimited access to listings, their online business models would be crippled.

"The purchase of a home is one of the most significant financial decisions a family can make, and NAR's policy stifles competition to advantage some of its members at the expense of home buyers and sellers across the country," McDonald said.

Anticipating the concerns of the DoJ, NAR issued a new VOW policy Thursday morning in which brokers are no longer allowed to selectively block their listings. Instead, brokers are still allowed to block listing but they must block all Internet listings or none at all.

"This policy does not discriminate against any brokerage model, including discount brokers," NAR President Al Mansell said in a statement. "Buyers will be able to find all the listings available for public display on the Web site of the broker of their choice and sellers will be able to work with the listing broker of their choice."

"Sounds like the same policy to us," McDonald said.

When contacted about the DoJ's lawsuit, a NAR spokesman told internetnews.com the trade group would have no comment until it had reviewed the legal documents, which were filed Thursday morning in U.S. District Court in Chicago.

According to the DoJ lawsuit, the NAR working group drafting the VOW rules "understood that the opt-out right was fundamentally anticompetitive and harmful to consumers."

The complaint contends that at least two members of the VOW working group wrote that the opt-out rule would be "abused beyond belief" as traditional brokers selectively withheld listings from particular VOW-based competitors.

"The chairman of the working group admitted that the opt-out right was likely to be exercised by brokers notwithstanding the fact it may not be in the seller[']s best interest to opt out," the lawsuit states. "But he took comfort in the fact that the rule did not require brokers to disclose to clients that their listings would be withheld from some prospective purchasers."

The DoJ characterized that decision as providing brokers "flexibility without conversation."

The lawsuit further claims members of the VOW working group urged quick action against online brokers because they were "scooping up market share just below the radar."

"One broker complained that because of the lower cost structure of brokers who provide listings to their customers over the Internet, 'they are able to kick back one percent of the sales price to the buyer.'"

The DoJ concluded, "The VOW policy restricts the manner in which brokers with efficient, Internet-based business models may provide listings to their customers and imposes additional restrictions on brokers operating VOWs that do not apply to their traditional competitors."

The court will determine a pre-trial schedule once NAR files it response to the government lawsuit.