Michigan Residential Real Estate Lawyers

MiRealSource Settles Charges it Illegally Restrained Competition

Michigan Real Estate Brokers’ Group to Open its Listing Services to All Home Sellers

The Federal Trade Commission today announced that it has settled charges brought against a group of real estate brokers in southeastern Michigan for violating the antitrust laws by adopting and enforcing rules and policies that block certain property listings from the MiRealSource Multiple Listing Service (MLS), where the property sellers contract with their real estate brokers on terms other than what the group dictates. The FTC also charged the 7,000-member MiRealSource group with enforcing a range of other rules designed to limit the acceptance, publication, and marketing of certain residential real estate listing contracts, thereby limiting home sellers’ ability to choose the real estate brokerage services that best serve their specific needs.

Under the FTC consent order settling the complaint, MiRealSource has agreed to abandon such collusive conduct and provide its services to all member brokers representing potential home sellers, regardless of the type of listing contract that they choose. The Commission’s complaint against MiRealSource was announced last fall as part of a larger real estate competition law enforcement sweep. Of the cases announced at that time, all have settled, except one that remains in litigation.

“As with the six prior consent orders the Commission has announced in this area, this enforcement action will have a direct positive impact on real estate consumers,” said Jeffrey Schmidt, Director of the FTC’s Bureau of Competition. “By requiring MiRealSource to discontinue its anticompetitive rules, the order will allow home buyers and sellers to choose the real estate brokerage services that they wish to purchase.

Types of Real Estate Listings: Under the traditional type of listing agreement, known as an Exclusive Right to Sell Listing, the property owner appoints a real estate broker for a set period of time as an exclusive agent to sell the property, and agrees to pay the listing broker a commission if and when the property is sold, regardless of whether the broker or the homeowner caused the sale. An alternative form of listing agreement, often used by home sellers who do not wish to purchase the full range of brokerage services, is the Exclusive Agency Listing, which makes the listing broker the exclusive agent of the property owner, but gives the property owner the right to sell the property without extensive help from the listing broker. Under an Exclusive Agency Listing agreement, the listing broker often charges an up-front fee, but may receive a reduced commission, or no commission at all, if the owner sells the property without the broker’s further help.

MiRealSource: Comprised of more than 7,000 real estate professionals, MiRealSource is a Michigan corporation whose shareholders are brokers doing business in southeastern Michigan. MiRealSource members supply real estate brokerage services to home sellers and to prospective buyers looking for homes in southeastern Michigan. One of the main tools that members use to carry out their business efficiently is the MiRealSource MLS (multiple listing service), which facilitates the process of matching buyers and sellers for many real estate properties. The MLS functions as a clearinghouse through which members regularly and systematically exchange information on property listings. The Commission contends that MiRealSource has market power, as membership in its MLS is necessary for a broker to provide effective residential real estate services to buyers and sellers of properties southeastern Michigan.

The Commission’s Complaint: According to the Commission’s complaint, issued on October 10, 2006, MiRealSource violated Section 5 of the FTC Act by unlawfully restraining competition among real estate brokers in southeastern Michigan. It did so by adopting rules or policies that limit the publication and marketing of certain sellers’ properties, but not others, based solely on the terms of their listing contracts. Specifically, the FTC alleges that MiRealSource favored Exclusive Right to Sell listings and disfavored Exclusive Agency Listings by, among other things, adopting a rule to exclude the latter entirely from the MLS.

In addition, the complaint states that MiRealSource further adopted a series of rules designed to stifle competition from real estate brokers using alternative business models to provide brokerage services in southeastern Michigan. These rules, which include the “Web Site Policy,” the “Listing Broker Policy,” the “Physical Office Policy,” the “FSBO Policy,” and the “Co-Mingling Policy,” limit the acceptance, publication, and marketing of certain residential real estate listing contracts, thereby limiting home sellers’ ability to choose a listing type that best serves their specific needs. The requirements of each of these rules is detailed in the analysis to aid public comment for this matter, which can be found on the FTC’s Web site as a link to this press release.

The FTC alleges that MiRealSource’s conduct was collusive and exclusionary, because by enacting the rules its brokers were, in effect, agreeing among themselves to limit the way in which they compete, and withholding valuable MLS benefits from other real estate brokers. Finally, the complaint alleges that MiRealSource actively enforced the anticompetitive rules and policies by fining or threatening to fine members who did not comply. The end result was that by preventing Exclusive Agency Listings from being included in the MLS and transmitted to publicly available real estate web sites, MiRealSource’s conduct had an adverse effect on home sellers and buyers, while having no legitimate pro-competitive purpose.

Terms of the Consent Order: The consent order approved by the Commission is designed to remedy MiRealSource’s alleged anticompetitive conduct. It will ensure that MiRealSource does not misuse its market power, while preserving the pro-competitive incentives of members to contribute to the MLS. The order prohibits MiRealSource from adopting or enforcing any rules or polices that deny or limit the ability of MLS members to enter into Exclusive Agency Listings, or any other lawful listing agreements, with property sellers. More specifically, the order addresses each of MiRealSource’s additional rules – detailed above – and prohibits the alleged anticompetitive conduct they require.

In addition, the order requires MiRealSource to conform its rules to the provisions of the order within 45 days of when it becomes final and to notify its members of the order’s terms. Finally, the order requires MiRealSource to notify the FTC of any changes to its structure and to file periodic compliance reports with the Commission. The order will expire in 10 years.

The Commission vote to approve the consent order was 5-0. The order will be subject to public comment for 30 days, until March 7, 2007, after which the Commission will decide whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580. The materials related to this case, as well as a wide range of other real estate competition information, can be found on the FTC’s real estate competition Web page, which debuted recently.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

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