Fight erupts over online real estate listings

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Fight erupts over online real estate listings

When you fish the Web for a house to buy, are you casting a wide net or merely dangling a hook? It's hard to know, and the National Association of Realtors has adopted a policy that keeps it that way.
The Department of Justice's antitrust division has sued the Realtors over the policy, calling it anticompetitive. The Realtors counter that the rule protects their clients' privacy.
This complex issue exerts a multitude of effects on buyers, sellers, brokers and the agents who work for them. The impact on buyers can be boiled down to this: "You couldn't go anywhere online and see all the homes that are available," says Patrick Lashinsky, marketing director for ZipRealty, a discount online broker based in Emeryville, Calif. It makes home buyers "beholden to the agent to see that property," he says -- just as in the days before the Web.
Internet-based real estate companies say you should be able to conduct an online search of all of the properties in the local Multiple Listing Service. The Justice Department agrees. The National Association of Realtors says listings shouldn't appear on the Web if home sellers and their brokers don't want them there, for any reason.
MLS meets the WebA Multiple Listing Service, or MLS, is a database of homes for sale. There are about 850 local MLSs. Only Realtors can add listings to the database, so it doesn't include homes for sale by owner. For decades, consumers couldn't search the MLS; Realtors did it for them. Along came the Web, and a new business model was born: discount real estate brokers who gave their clients password-protected access to the local MLS on the Internet.
Web brokers encourage home buyers to research homes on the Internet and drive by the properties they're interested in. This is intended to cut down on agents' workloads and reduce costs. If the client is still interested in a house after driving by, the buyer's agent arranges a visit. At settlement, the buyer's agent collects the commission and returns a portion of it to the buyer in the form of a check or a contribution toward closing costs.
According to the Justice Department's complaint, traditional brick-and-mortar brokers worry that "these Internet sites would inevitably place downward pressure on brokers' commission rates." The Realtors responded with two sets of rules governing Web listings. One policy would have allowed brokers to withhold their listings from selected rivals' Web sites and allow them on approved competitors' Web sites. The feds threatened to sue on antitrust grounds, and the two sides negotiated for a few months.
Opting out, opting inOn Sept. 8, the Realtors announced yet another set of rules called "Internet Listing Display," or ILD. The ILD policy doesn't let brokers selectively withhold listings from competitors that they dislike. But it does allow brokers to withhold listings from all rivals' Web sites. This rule, called "blanket opt-out," has been in effect for three years, without a peep from the Justice Department. But the ILD policy adds a twist: Even when a broker uses the blanket opt-out, a seller can ask to have a home listed on competitors' Web sites. That's called "selective opt-in."
Hours after the Realtors announced the new policy, the Justice Department filed the antitrust lawsuit in a U.S. district court in Chicago, where the Realtors association is based.
"NAR's revised policies continue to discriminate against brokers who use the Internet to more-efficiently and cost-effectively serve home sellers and buyers," the government alleges in its lawsuit, explaining that "the opt-out provisions provide brokers an effective tool to individually, or collectively, punish aggressive competition by any Internet-based broker."
Privacy issueThe Realtors say they're not punishing anyone; they're protecting home sellers from prying eyes. Listings still appear on the MLS, just not necessarily on Web sites that consumers have access to. The ILD policy "maintains the right of a homeowner not to have a property displayed, and to have it listed on the MLS," says Steve Cook, spokesman for the association. "A lot of people are concerned about privacy, about security." He says rich people and celebrities don't want information about their homes all over the Web, and neither do some elderly homeowners or parents of young children.
You hear a snort of derision when you run that argument past Lashinsky of ZipRealty. "What privacy is that?" he says, explaining that even if a broker opts out, the listing will show up on Realtor.com, which is partly owned by the association.
Sellers give several reasons for not wanting their listings displayed online, says Diane Saatchi, senior vice president of the Long Island, N.Y., office of the Corcoran Group, a traditional broker: The property might be in poor condition and pictures would turn off potential buyers, the seller might want to keep the sale and price quiet because of estate or divorce issues, or there might be conflicts with neighbors.
These issues arise fairly frequently, Saatchi says, for example "in cases where the house was left to one sibling, and the other siblings are really annoyed that they don't have a say in it. The sibling who sells it doesn't want the others to know." She knows of a case where next-door neighbors thought the asking price was too low, so they tried to undermine the sale by encouraging their dogs to bark while the house was being shown.
And, she says, some sellers simply want privacy because that's the way they are. The National Association of Realtors' hands are tied, she says: Brokers and agents have a duty to follow their clients' instructions, and if that means excessive privacy, so be it.
Threat to Internet brokersPrivacy isn't the issue, say executives with Internet brokerages: If just a few brick-and-mortar brokers bar listings from appearing on competitors' Web sites, home seekers won't see the point in searching for homes online. Buyers will want to look for houses the old-fashioned way: by having their agents search the MLS database. That removes the cost advantage of Internet brokers -- indeed, it removes their reason for existence.
Cook says few MLS listings are withheld from Web sites, and that for-sale-by-owner properties are a larger part of the market, "and the Justice case doesn't address that at all."
Internet brokers acknowledge that the withholding of listings isn't a big deal when you look at the nation as a whole, but they point out that the 850 local MLSs cover discrete geographical areas. Some of them have a high withholding rate. In Chicago, Lashinsky says, an estimated 65 percent of MLS-listed properties are withheld from Web sites. An executive with another Internet company says Cleveland and Des Moines have high percentages of opt-outs, too.
"It comes down to control of information," says Manuel Iraola, chief executive of Homekeys, a do-it-yourself real estate Web site based in Miami. "Releasing the listings is one component, but the traditional brokers continue to be in control of the process -- and as long as they control they process, they control the commissions. And that is not in the best interests of consumers."
Traditional commission structureThe Justice Department says the Realtors' Web policies are largely about protecting commissions, and so does Colby Sambrotto, chief operating officer of ForSaleByOwner.com, a no-commission online marketplace based in New York City. "It's not in the best interest of the consumer," he says, echoing Iraola's theme. "It's about protecting the traditional commission structure, which I think is doomed."
Others have said that it's not just about commissions, but about survival of traditional brokerages and of the local MLSs. On the surface, at least, it doesn't appear to be a battle over what's best for buyers and sellers.
"What you want is maximum exposure to your property," Iraola says. "So why restrict it to a few people?"