“When we came back from the war the banners and flags hung on everyone’s door
we danced and we sang in the street and the church bells rang…” -Pink Floyd, “The Hero’s Return”
The National Association of Realtors is poised to resolve what has been one of the least meaningful of federal regulators’ beefs with organized real estate: squabbles over whether multiple listing services can withhold so-called “exclusive agency” listings from advertising sites such as IDX and Realtor.com, while sharing the predominant “exclusive-right-to-sell” listings. (IDX is the program under which brokers in an MLS can advertise other participating brokers’ listings on their Web sites.) The NAR’s MLS policy-making body will consider a proposal at its national meeting on Nov. 11 to amend NAR policy on the topic. I fear many will view the proposed policy as a capitulation to the FTC, but NAR should adopt it because it may bring an end to a pointless war of attrition. The FTC should welcome the change and move on to its own more important issues.
Inman News and others have reported frequently on FTC investigations of MLSs that withhold exclusive agency listings from IDX and third-party Web sites, including a recent FTC announcement that it had settled with several MLSs and an earlier agreement between FTC and the Austin Board of Realtors. At least two MLSs have announced that they plan to fight the FTC on this issue. Both FTC and MLSs will be wasting their time. The only meaningful difference between exclusive agency and exclusive-right-to-sell listings is trivial and easily skirted by any broker who wants to skirt it.
The (only) difference between “exclusive-right-to-sell” and “exclusive agency” listings:
Surprisingly few brokers know the actual definitions of exclusive-right-to-sell and exclusive agency (which I’ll call ERS and EA). NAR has adopted definitions that MLSs affiliated with it must use unless state law offers other definitions. The laws of most states do not define ERS and EA, and some that do have adopted NAR’s definitions. Here are the relevant portions of the NAR definitions:
Exclusive-Right-to-Sell Listing: A contractual agreement under which the listing broker acts as the agent … of the seller(s), and the seller(s) agrees to pay a commission to the listing broker, regardless of whether the property is sold through the efforts of the listing broker, the seller(s), or anyone else. … (The portion of this definition dealing with “exempted” buyers is deleted, as it is irrelevant for this discussion.)
Exclusive Agency Listing: A contractual agreement under which the listing broker acts as the agent … of the seller(s), and the seller(s) agrees to pay a commission to the listing broker if the property is sold through the efforts of any real estate broker. If the property is sold solely through the efforts of the seller(s), the seller(s) is not obligated to pay a commission to the listing broker.
The only difference between ERS and EA listings is the circumstance under which the listing broker receives a “commission.” Provided the agreement says the listing broker gets a commission if the property sells during the term of the agreement, no matter who is responsible for the sale, then the listing is ERS. If a seller’s own efforts to sell the property could result in the broker being deprived of a commission, then the listing is EA.
Confusion about EA listings and limited service brokers
Many folks (including some MLSs, the Wall Street Journal, and the FTC itself) from time to time have mistakenly concluded that limited-service brokers take EA listings and not ERS listings. Limited-service brokers are those who take listings, often for a flat fee up front, and put them into the MLS, but provide few or no other services to their sellers. Limited-service brokers are unpopular with some traditional brokers but appear to have a champion in the FTC.
The ERS/EA distinction and limited-service brokerage, however, have little to do with each other. A limited-service broker can take, and many do take, ERS listings. Here, for example, is how it can work: Imagine a 120-day listing agreement that requires the listing broker to put the listing in MLS but to do nothing else. In it, the seller agrees to pay the listing broker $500 upfront and a further $1 if the listing sells during the term of the agreement, no matter who is responsible for the sale.
The last clause is the key to making such an agreement an ERS listing. It takes only a $1 commission to shift the listing from an EA to and ERS listing. In fact, the listing broker need not even make any effort to collect the $1 to which she is entitled, as long as the seller agrees to pay it. MLSs cannot require that the amount be more than $1 because of price-fixing concerns under antitrust laws.
So, in the course of one cycle of listing agreements, limited-service (and other) brokers that have been using EA listings can convert them into ERS listings merely by adding this nominal commission-on-sale provision, without altering any other rights or duties of the parties.
Why the dispute is silly
You may already have worked this out: The difference between ERS and EA listings is trivial and easily skirted by anyone who cares. Consequently, whatever ends MLSs hope to serve by withholding EA listings from IDX and Realtor.com are not likely to be achieved; any broker taking EA listings now can convert them to ERS listings without changing business model or charging the consumer more money. In fact, many MLSs that have adopted the EA exclusionary rules have seen the percentage of EA listings drop dramatically. It just does not make sense for MLS to adopt these restrictions.
As for the FTC, its job is to protect competition. Because any new model broker currently using EA listings can transform them to ERS listings practically overnight, with no other modification to its business model or cost structure, it is hard to see how the MLSs’ EA exclusionary rules can really affect competition. At most, making the switch would cost $1 per transaction (the nominal commission the seller must agree to pay no matter who sells the listing).
The EA exclusionary policies are thus not really helping or hurting anyone; consequently, I can’t see why the FTC and MLSs continue to waste valuable energy and effort on this issue. NAR, to its credit, appears ready to bring an end to the pointless bloodshed.
The proposed NAR policy
NAR’s MLS committee will discuss a proposal on Nov. 11 that would change the landscape significantly. The proposal has four parts:
1. It requires MLSs to include EA listings in IDX. MLSs will thus not be deciding whether brokers can display other brokers’ EA listings. This helps to take MLSs out of the “antitrust hot seat” on the issue.
2. It expressly permits brokers with IDX sites to exclude from display on their sites the listings of other brokers based on whether the listings are EA or ERS. In other words, the broker displaying the listings gets to decide whether to display the EA listings of other brokers. This properly leaves the decision of what listings to advertise in the hands of the brokers paying to do the advertising. Practically speaking, I expect almost no brokers will take the time to “screen” exclusive agency listings out.
3. It requires that MLSs include EA listings on MLS public Web sites and in data feeds to third parties like Realtor.com.
4. It permits MLSs to withhold from MLS public Web sites and from data feeds to third parties “any listing where both of the following conditions are present: (a) the listed property’s street address will be displayed to the public; and (b) the seller displays on the property a “For Sale By Owner” sign or another sign or notice indicating that the seller is soliciting direct contact from buyers.”
NAR’s long-standing rationale for the fourth part, what I’ll call the “buyer-seller-direct prohibition,” is that MLS is a tool to foster broker-to-broker cooperation, not to foster direct buyer-to-seller contact. The proposed policy allows MLSs to prohibit display of a very narrow set of listings on MLS and third-party sites (but not IDX sites) based upon MLSs compelling interest in fostering interbroker cooperation.
Practical problems remain. Enforcement of the buyer-seller-direct prohibition requires inspection of the listed property to see what signs appear there. As MLS staff members are unlikely to visit these properties personally, they will have to rely on reports by other brokers and licensees. The “tattle tale” approach to rule enforcement is well established in MLS, but it is also subject to unevenness and abuse.
Brokers who want to pursue a buyer-seller-direct approach will be able to continue doing so with slight modifications. Some such brokers have already set up the following system: A “for sale” sign of the listing broker appears on the property, along with a phone number for the consumer to call. The phone number is that of the listing broker, but the listing broker’s receptionist or automated phone system refers the caller immediately to the seller, with whom the buyer conducts all further contacts. Clearly, there is a cost for the listing broker who uses this approach to skirt the buyer-seller-direct prohibition, but that cost need not be great.
The NAR has attempted to get the FTC to comment on whether the new policy would satisfy the FTC’s concerns. As a law enforcement agency, the FTC is not accustomed to providing advisory opinions about such policies; and as of the beginning of October, the FTC had not blessed the NAR proposal. To the extent the FTC thinks new-model brokers should be able to do whatever they want in MLSs, flouting rules established to protect MLSs’ reasonable business interests, it may press MLSs not to adopt the buyer-seller-direct prohibition. I believe, however, that MLSs fighting FTC on this issue have a much better chance of prevailing than they do on the EA/ERS distinction.
I’ve never heard the FTC describe MLS as a “public utility,” which should be open to everyone under all circumstances. Use of that phrase seems to come most often from those within the industry who feel beleaguered by current government investigations. The FTC ought to acknowledge that MLS is not a “public utility” and acquiesce in MLSs’ use of this policy to protect their legitimate interests.
In summary, NAR should act promptly to enact the proposed policy, and the FTC should regard it as a satisfactory balancing of the legitimate business interests of MLSs against the desires of a small group of brokers who want to have it their way all the time. Perhaps NAR’s efforts here will not be greeted with a hero’s welcome, but I for one plan to greet it with singing in the street.
Brian N. Larson is an attorney practicing in Minneapolis. The views expressed in this column are not intended as legal advice and do not necessarily represent the views of Larson’s firm, his clients, or their affiliates. He can be reached at blarson@larsonlegal.com.
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