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Phillip C. Querin
Partner - Portland, Oregon Office
philquerin@dwt.com
(503) 241-2300
DOJ Settlement with National Association of REALTORS®
[May 2008]
In 2005, the U.S. real estate market was experiencing one of its greatest periods of growth and appreciation. Traditional real estate brokerages were the direct beneficiaries of the boom. However, at the same time, many entrepreneurs sought to develop real estate business models that existed primarily on the Internet – as opposed to the traditional “bricks and mortar” companies. These new models came to be known as a “virtual office websites” or “VOWs,” which allowed those Internet brokers participating in an MLS to display listing information to consumers registered with their website. Obviously, the continued success of these new businesses relied heavily upon open and easy access to MLS information.
With the real estate boom, the Internet also made client referral models or “aggregators” into a financially viable stand-alone business, without the need for other revenue streams usually associated with conventional brokerage – e.g. commissions from traditional real estate sales involving offers of cooperation and compensation. With the continued erosion of commission dollars – due largely to high consumer demand and low inventory – coupled with increasing discount brokerage, commission compression, and FSBO companies, it is not difficult to see how purely Internet-based business models would be viewed as a potential threat to the traditional brokerage community.1
In response to the proliferation of these new Internet business models, the National Association of REALTORS® developed first one, then a modified, VOW policy. This action caught the attention of the U. S. Department of Justice, who had been investigating MLSs across the country for approximately two years. In the Fall of 2005, the DOJ filed a lawsuit against NAR claiming that both of its VOW policies had the effect of harming consumers by suppressing technological innovation and discouraging competition on price and quality. NAR has continuously denied these allegations, and significantly, the settlement does not require that it admit any wrongdoing or pay any fines or damages.
After nearly three years of litigation, depositions, and document production – and a looming trial date – both sides have reached a settlement that seems to have met the needs of each: For the DOJ, the settlement provides that NAR will adopt a “Modified VOW Policy” replacing the two earlier ones, and mandates that future VOW restrictions cannot be imposed on Internet websites if they do not also apply to traditional “bricks-and-mortar” brokerages.2 For NAR, a significant point in the settlement affirms that merely possessing a real estate license is not, standing alone, sufficient to qualify for MLS participation; an MLS participant must be actively engaged in conduct that involves offers of cooperation and compensation with respect to listed properties. For a review of all of the terms of settlement go to: http://www.realtor.org/law_and_policy/doj/nar_doj_in_depth.
Overall, the settlement is a good result, since it resolves difficult questions concerning NAR's Internet policies and also provides guidelines for Internet entrepreneurs' access to the MLS. But will things change significantly either for the industry or the consumer? The jury is out. For Realtors® and consumers, the real estate landscape in 2005 was a far different time and place than 2008. More about this in a later article.
FOOTNOTES
1 Significantly, today, many “traditional” brokerage companies have now developed and enhanced their own Internet presence.
2 It is important to note that the DOJ has never claimed that NAR's Internet Date Exchange Policy or (“IDX”) in its current form violates any antitrust laws. IDX is the current data-sharing mechanism used for the sharing of MLS information by its members. VOW sites generally require registration by the consumer and provide broader data than that found by consumers on IDX sites, which do not normally require registration.
© Copyright 2008. Phillip C. Querin, Davis Wright Tremaine. No part may be reproduced without the author’s express written consent.
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