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Do Not Pass Go...Do Not Collect $200

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Mortgage and Lending with NONE

"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages."

Adam Smith

The Wealth of Nations

I have been so busy in the last few weeks that I haven't been browsing the Active Rain Blogs as religiously as I used to. Because of my hiatus, I am not really sure if anybody has addressed this yet, there may have been somebody brave enough to touch it, but then again, this might be something a lot of people in the Real Estate industry might prefer gets swept under the rug.  I know the media has been ultra-quiet about it.  Because of the length, a lot of people will never read this, and I hope they won't because it will save me time from all the people who take everything I say as some kind of a personal assault all the time.  All I ever really aim to do is create intense and intelligent debate.  You all know me though...I never was afraid to put myself out there.

On October 16, 2006 I read a very interesting article in the Wall Street Journal's online Real Estate Section, entitled "Real Estate Services Face FTC complaint on Web Policy."  Now I am sure most Realtors are far more up-to date on info like this than I am, because of the NAR and other local trade groups keep them in-the-know about these kinds of things. In fact I think my favorite Realtor Maureen Francis at the mioaklandcountyblog gets regular updates as most of you probably do.  Maureen has even posted about it on her blog, but the average consumer really should know more about what is going on in our business. When I read this article I have to say I wasn't the least bit shocked, and being from the Metro-Detroit area and working in the Real Estate Industry I was interested to say the least.

It seems The Federal Trade Commission accused two local Detroit area (MLS) multiple listing services of restraining competition by discriminating against a type of service commonly known as "discount real-estate brokers."  The two Michigan MLS operators charged by the FTC are Realcomp II Ltd. and MIRealSource Inc. Since I started writing this monstrosity of a post, one of the two MLS providers, MIRealSource has already settled with the FTC, but the fall-out from this new movement isn't going away anytime soon.  The FTC has already reached consent agreements with MLS services operating in other states, including Colorado, New Hampshire, New Jersey, Virginia, and Wisconsin, to discontinue use of the policies in question.  The FTC claims that the various MLS services owned and operated by the Real Estate Brokers are intended to block the listings of certain homes for sale from being displayed on Realtor.com and other web sites often used by consumers to search for homes.  The listings that are blocked from reaching consumers are typically the listings of homes for sale that are being offered by certain "discount real-estate brokers." 

The far reaching implications of these proceedings in the real estate industry are everywhere and promise not to be going away anytime soon.  Just look at the Law suit the government has brought against the standard oil company, I mean the National Association of Realtors.  Peter Coy over at Business Week's Hot Property Blog, posted back on November 30th that:  "There was big news this week in the government's antitrust case against the National Association of Realtors, but the press missed it. The news is that a federal court in Chicago on Nov. 27 allowed the Department of Justice's antitrust suit against the Realtors to proceed. The DOJ argues that the Realtors' rules illegally limit competition from brokers who use the Internet."    "Consumers who work with brokers that operate Discounted Real Estate Service Brokerages are better able to educate themselves about available properties that may meet their requirements. By working with a discount broker, customers can search the database of local property listings on their own, using their home computers to obtain the same information other brokers provide by less convenient means, such as by hand at their office or via fax, mail or e-mail. Because these alternative service providers enable consumers to research and learn about the marketplace at their own pace and on their own time, brokers who provide this service can, in turn, lower their costs by reducing the time that their agents spend searching the Multiple Listing Service (MLS) database or showing homes the customer dislikes, the Department alleged. Because the Internet can be used to deliver brokerage services more efficiently ­ resulting in better service and lower prices to consumers ­ brokers who utilize the Internet represent a competitive challenge to traditional brokers, the Department said."

What has been the NAR's response to this festering, expanding mess?  A revised policy.  The policy, approved by directors of the NAR at the convention in New Orleans, involves information about homes that real-estate brokers get from their local MLS for their individual websites.   "The revised policy states that brokers must use "objective criteria" if they screen out some listings. The criteria could include location, type of property, compensation offered for agents who find a buyer, or the level of service provided by the listing company. Thus, listings from brokers providing limited service for lower fees could be excluded from other brokers' sites...By contrast; the policy now states that multiple-listing services must make all types of listings available to the Web sites of participating brokers. It would be up to brokers -- not the MLS -- to decide which listings are used on individual brokers' sites."  This is the NAR's response, to take a step back and tell the justice department and the FTC," hey. As a group we no-longer are encouraging unfair trade practices, we are now leaving it up to our individual members, and if they want to restrict competition and ultimately hurt the American consumer, well that is up to them on an individual level.

It is a widely documented fact that the majority of consumers begin their search for a new home on the internet.  (Estimates indicate that something like 80% of new-homebuyers start looking online)  By limiting or restricting what houses can actually be found on the internet, they can control what houses consumers see and therefore what houses they ultimately buy. Since the Real Estate Industry controls the primary means by which this information is shared, but then restricts any listings that are offered with a "discounted" commission, then we could have a major problem. A reasonable person might agree that the Real Estate industry is engaging in anything from a kind of ex-post-facto price fixing or other violations of the Sherman and Clayton Anti-Trust Acts.  I am not quite sure that I agree with the FTC entirely, but more on that later.

The various multiple listing services are owned and operated by the local area Real Estate Brokerages.  While these MLS systems claim to have a right to set up rules that are favorable to the interests of the brokers who operate and own the systems, The FTC maintains that restrictions on certain listings deprive consumers of the right to save money by using limited-service brokers.  While I agree that as privately owned and operate service, MLS providers do have the right to make rules that are favorable to the interests of the brokers who operate and own the systems, They need to understand that even though Craig's List and Google and Yahoo Real Estate, and other internet portals are tapping into the real estate realm, the majority of internet listings still come from the same place:  Industry operated sites like Realtor.Com or the individual broker and Realtor sites in the smaller geographic areas.  They therefore control the market, and have a responsibility to the consumer to not only make available all the listings within their databases, regardless of compensation offered, but to also make all listings available to all paying members of the MLS, regardless of what these members decide to charge for their own real estate services.

 I think that with the NAR's new policies, in full swing, it will be much more difficult for the government to pin any anti-trust conspiracy on them, either illicit or tacit, but even though in my opinion their new policies mean they technically no longer will be violating any rules, I am not so sure the consumer will ultimately benefit.  In my own industry, the mortgage industry, the bank I work for severely limits the amount of compensation I can make on a given loan, but there are still many brokerages nationwide that can make as much or as little as they want, provided the cost is disclosed.  My industry has been turned-upside down though in the last 10 years with all of the "Internet based lenders" who offer the lowest rates around, discounted services, and flat fees for mortgages.  Many clients decide to go there, and many still come back for my services, after they have a poor experience with a discount or online lender.  They are usually unhappy, because the discounted fee is not worth the poor service they received.  Every Realtor I know is an expert in their field and I would never work with them if they weren't.  They are worth every penny they charge and I would never think twice about recommending them to any of my friends, family or clients.  I guess what I am trying to say is this:  There is room for many, many different business models in our market.  Supply and demand and competition ultimately bring out the best of all possible outcomes for consumers...the best service possible for the best price, determined by the market, not by the individuals providing the goods and service.  There is no reason to fear competition, if the demand for your service is that great, and you are worth the price you charge, then the consumer will forgo all other options and pay any price for it.  I don't fear my competition, I am confident in the product and service I provide, and you shouldn't fear your's either.

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings by any law which either could be executed, or would be consistent with liberty and justice."

--Adam Smith

The Wealth of Nations

Comments(21)

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Brian Brady
Matthews Capital Markets - Tampa, FL
858-699-4590

JP: You've missed a bunch here on AR.  We had a price-fixing blog war about discount mortgage brokers, have dissected the commission debates (full service v discount) and most recently discussed Zillow.

I have some thoughts about this that will take me a while to figure out.  My knee-jerk reaction is that the MLS/NAR cartel is conspiring to fix pricing commissions nut I know that not to be true.  Are they practicing  restrraint of trade bu disallowing lsitings from non-members?  Well,  yes and I would hope they would.  Let me explain with an example from our industry:

Let's assume that the California Association of Mortgage Brokers (CAMB), 3800 members strong, offered a website that was hugely poular with the consumer.  Let's further assume that the disallow acces to the advertising to non-members.  Maybe they encourage their member brokers NOT to sell loans to lenders who aren't members.  Is that fair?  

I only have questions right now...no concrete answers.  Thanks for coming back and contributing. 

Dec 13, 2006 04:05 PM
Jay Thompson
Jay.Life, LLC - Aransas Pass, TX

Welcome back! I too have been away for awhile. I miss the old "Race For Third" between you and Sarah!

I'm sure MUCH has been discussed in our absences. I indeed read every word of the above, but YER KILLIN ME! I'm on a record setting quest! It's 1:45 in the morning, and I already need to make more coffee. I NEED SHORT BLOGS!

 

A world record for blog commenting!

http://www.ThompsonsRealty.com
http://www.PhoenixRealEstateGuy.com

 

Dec 13, 2006 06:46 PM
William Collins
ERA Queen City Realty - Scotch Plains, NJ
Property and Asset Management
Joshua, Thanks for the post. Here in New jersey, we have two ways to view our database of inventory. There is an access screen for all members and one for non members. All listings, those of full service brokerages as well as, discount brokerages can be viewed. There is no cost savings to a buyer because they have the ability to peruse our inventory. Buyers do not absorb the cost, the seller does. The major discount brokerage in my area does not care about the seller, their interest is in doing the mortgage for the buyer. The fact of the matter is that this discount brokerage purports to offer full service for sellers, when in actuality, the service does not measure up to traditional full service. The fact that sellers are being duped into listing under false pretenses should be the focus of the FTC investigation. These days full service brokerages have enough inventory to meet the needs of a wide range of consumers. Our marketing efforts are what help us move our inventory. The discount brokerage by definition does not spend the same marketing dollars and therefore does not give their seller's properties the exposure they need in order to get them sold. We have numerous complaints about the lack of service and misinformation from disgruntled sellers who have lived through a listing agreement with a discounter, only to list with a full service firm, post listing expiration. They are struggling with their business model and it is not my problem!
Dec 13, 2006 07:41 PM
Steve Dalton
219-465-8352 - Valparaiso, IN
Northwest Indiana Home Builder

First I will direct you to my post today oddly enough based on a fictional work by Crichton ... Do you have the change gene?

The internet cannot be controlled by any one group.  Eventually information will be searched and presented to the public the way they want to see it.  If the REALTOR think they can control information, they are wrong in their theory, not in law though.   They have every right to control the stream of access through their proprietary websites. 

When enough customers want to see "all" the listings or "all" the homes on the market, listed by agents or not, then the technology exists to deliver that information to the customers.  There is no legal issue here but one of opportunity.

Dec 13, 2006 11:40 PM
Maureen Francis
Coldwell Banker Weir Manuel - Bloomfield Hills, MI
Coldwell Banker Weir Manuel
JP, today is our Christmas party, and your blog requires me to have my thinking cap on to give it the attention it deserves.  I will bookmark you so I can find you quickly once my mind becomes available!
Dec 13, 2006 11:44 PM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Jason.....  excellent post and good to see you pop back in. I hope all is well. In regards to the states that are allowing these listings to be present outside the MLS, I thought this took place for the most part, at least in NJ. Any NJ realtors, would love to hear more about this.

I totally agree with your last paragraph. I have no fear of competition. I have fear of those that abuse it or bait and switch....  Jason... you and I being in the same business, this is the part that can hurt at least myself. I network not even locally, but in 4 other states. Clients shopping for a certain program and a loan officer giving them the wrong info or misleading them. If they don't know about this, poor training. If they know about it, even worse.

Sorry for getting off the true topic. I didn't read the comments, because it took me a while to read your post. But also in regards to the internet as a marketing tool.

I just read the comments and William answer most of my question. Okay....  Jason, great post again and good to see you around. 

Dec 14, 2006 12:11 AM
Stefan Scholl
Buyer's Broker of Northern Michigan, LLC - Petoskey, MI
Northern Michigan Real Estate

Josh,

After seeing your smilin' mug up on the Michigan AR page for the last couple of months, it's nice to see you actually do exist.

I enjoyed reading your post.  I addressed the DOJ v NAR lawsuit on the Northern Michigan Real Estate Blog.  I agree with you that it was almost totally ignored by the media.  This case is already forcing NAR to change the way it does business, and could have huge ramifications.

Personally, I feel as though NAR is run according to the Golden Rule: He who holds the gold makes the rules.  This has made things difficult for innovative new business models, which are seen as threats by NAR.  I think that the internet and the Court will change everything, whether NAR likes it or not.

Would you care to cross-post this blog to the Zillow Discussion Group?  I think it would be interesting to incorporate this antitrust litigation into the discussion there. 

   

Dec 14, 2006 12:27 AM
Scott Gormley
Oak Valley Mortgage-California Home Loans and Refinancing - Chico, CA

Hey Josh,

Good post. Even though I'm a mortgage broker and I should have know better....we listed our condo several months ago with a discount broker, simply to get the property on the mls, which he did. However, when it came down to it, we needed much more than that! We needed the services of an agent. The mls in Orange County didn't have a problem with it, but I have heard of others that do. It should be interesting to see what happens with it all. Price fixing?

Scott

Dec 14, 2006 02:50 AM
Wynne Achatz
Real Estate One Westrick - Marine City, MI
Michigan Realtor and Notary Trust,Care, Experience
Josh, I enjoyed your post and you are really right on the button, I just closed today on a listing that was with a discount broker all srping and summer. NO sale - No service. They came to me after the listing expired and asked me to negotiate my commission. I looked at the figures and realized they were close. Read what I did on my Blog
Dec 14, 2006 03:21 AM
Gabriel Silverstein
Angelic Real Estate, LLC - New York, NY
SIOR

To me there are two different issues here - what the NAR & MLS services must legally do (and what their obligations are to the general public vs. their members) and what smart business practices dictate (i.e. Adam Smith's "invisible hand" of market competition, not the iron fist of the FTC). 

Legally, I believe that the NAR and the MLS services have every right to exclude anyone they want, including certain of their own members, so long as their rules are not discriminatory in a way that violates civil rights.  If they refuse to allow "discount brokers" to participate in the MLS, that, to me, is their right.  Don't forget that the NAR, just like the local country club, is a private trade organization with paid membership requirements to benefit.  They have the right to set their own internal rules, just like the country club can have a Men's (only) day on Monday and a Ladies (only) day on Tuesday.

As for the market, I think the MLS policies need to be looked at very differently.  As the largest trade organization in the US, the value of the trademarked REALTOR brand is at stake here.  Realtor.com may be the biggest (?) internet site for public property (home) search, but it won't be if the public perceives that they are not the most complete source of information.  Enter Zillow et al.  Market based decisions are not always the same as legally defendable decisions.  OJ got a "not guilty" verdict in court, but not outside of that courtroom.  Ask him how it feels to win the battle and lose the war (remember he's supposedly been bankrupt since).

Dec 14, 2006 04:00 AM
Professor X
NONE - Ludington, MI

Gabriel,

I am 100% in agreement with you that they should be able to set whatever rules they want, but I do think once a paying member is involved with the MLS, they should have every right as any other paying member.

And you are right on with the public perception part...nobody wants their industry dragged through the mud like this.

Dec 14, 2006 04:37 AM
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Coldwell Banker Realty
But I want to pass go and collect $200 - in fact I want to go past close of escrow and collect $20,000 - just call me forthright!
Dec 14, 2006 11:20 AM
Gabriel Silverstein
Angelic Real Estate, LLC - New York, NY
SIOR
I don't believe that any NAR member is being discriminated against or has any less rights than any other member and I don't think that's what the suit is about, though that's the DOJ spin on it.  I got so into this when I read the DOJ press release and parts of the court ruling I posted my own blog on it.
Dec 14, 2006 12:18 PM
Gena Riede
Riede Real Estate, Lic. 01310792 - Sacramento, CA
Real Estate Broker - Sacramento CA Real Estate (916) 417-2699

Joshua, Interesting post with a few exceptions.  I think you may have accidently put the wrong sentence in with a follow-up. "Consumers who work with brokers that operate Discounted Real Estate Service Brokerages are better able to educate themselves about available properties that may meet their requirements..." I'm thinking this sentence along with that frame of thought was simply put as an error.

Got here from Lenn's post where she links to you. Yes, very long but I did get through it and it was well written and thoroughly understood. In terms of "fear" ... my personal evaluation of discount brokers has not been pleasant. I find for the most part that the discount brokers do not provide quality service to the client nor to the Realtor who is trying to make contact with them on a possible transaction. But, as you said perhaps in a different way is that there are experience heart sugeons with plenty of years behind them and then there are those that just got out of medical school...which one do you want when you need heart surgery? If you can only afford to shop at Walmart, then there should be a Walmart for you. But don't complain about the quality or the lack of service.

I don't think that any Full time Realtors show property to clients that they don't thing the client will buy...not sure how the DOJ could possibly assume that we would actually do that...perhaps they too have their facts skewed.

You might want to go read Lenn's post. She has a very good analogy for you that hons right in and compares a Full Service Real Estate Firm with a Loan Broker as well as making it very clear what should also be put at the consumer's fingertips if you actually believe in what you wrote. Go take a peek and perhaps it might shed some light. 

Dec 15, 2006 08:24 AM
Professor X
NONE - Ludington, MI

Gena,

I wish it was the wrong sentence but its a quote, not my own...thats right out of the lawsuit that is being brought against NAR...thats the justice departments wording not mine.

 

 

Dec 18, 2006 05:34 AM
Maureen Francis
Coldwell Banker Weir Manuel - Bloomfield Hills, MI
Coldwell Banker Weir Manuel

Josh, I respectfully disagree.  The MLS is not a public utility or a natural monopoly.  There is no reason for the government to regulate it.  There is actually plenty of competition for every business model in RE today.  Seller's who do not want to play by the MLS's rules have other options.  The MLS was built by my dues and other Realtors dues.  We created the repository.  We should get to decide how it is used.  What you are suggesting is the same as telling Saks that they have to open up their stock room to Kmart customers at Kmart's prices.  Though it is very likely the Realcomp will back down too, and the battle will be lost, they were never wrong for chosing to set their own policies.  

 

 

Dec 18, 2006 08:59 AM
Maureen Francis
Coldwell Banker Weir Manuel - Bloomfield Hills, MI
Coldwell Banker Weir Manuel
PS.  Did you know I memed you on josh plummer.com?  Go to mioaklandcounty.com to see the details.
Dec 18, 2006 09:01 AM
Professor X
NONE - Ludington, MI

Maureen, glad you finally got around to this one....I saw the meme and I am working on it.  Thank you looks like fun

 As far as the blog goes, I didn't put much of an opinion even out there in this one, more reporting than judging, and as always mostly just asking a lot of questions with the writing, but I will say this, since you offered your opinion.

Since the MLS is a private entity, they should be able to make their own rules, I 100% agree, I don't believe in government interference so I think their new policies are good moves to keep the governement off their back, but I think you are walking a fine line, when you have due paying members who don't get the same service as everybody else.

however once they open it up to letting anybody who pays dues be able to belong, then they have to offer the same service to every due paying member, they can't take everyone's money but only make listings available for the people they feel like...If a (for lack of a better term) discount broker pays their dues, their listings should be just as accessable as well as everyone elses listings should be available to them, or else they should never have been allowed to be members in the first place. 

 I don't like your Saks example that much, Saks isn't the defacto care taker of the majority of department store goods in the country, if they were they would have a greater responsibility to the public to make sure everything that is for sale gets to them and not just what saks wants to sell, but since customers have a choice to shop at saks or kmart, it isn't saks responsibility.  Secondly a better example would be if Saks was the only department store in town, and they told all the manufacturers in the country....we will sell your goods, but we will only put them on our racks if they cost more than X and make us X profit...everything else no matter the customers demand for it will be kept in our back stock room and if a customer is lucky enough to wander back there and find it then we'll sell it. 

Dec 18, 2006 10:24 AM
Professor X
NONE - Ludington, MI
Hey John Belonger....Who is this Jason character you keep referring to?
Dec 18, 2006 10:28 AM
Maureen Francis
Coldwell Banker Weir Manuel - Bloomfield Hills, MI
Coldwell Banker Weir Manuel

JP (Jason??)

The MLS is open to everyone with a real estate license.  Nobody is forced to join it.  If one doesn't want to abide by the rules, then they don't have to.  

There is no reason they have to offer the same service to every dues paying member.  ForSalesByOwner.com does just fine without an MLS affiliation.  Brokers who don't like the rules of Realcomp have actually tried to start their own MLS.  Perfect.  Nobody has to use it.  They can start their own thing and make the rules.  Or, in our mutual market, join mirealsource, since they capitulated to the FTC.   

Ultimately, the MLS is not a democracy.  It's a business.  

But the courts will ultimately rule in your favor.

Dec 18, 2006 10:44 AM