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DOJ Settlement Has Little Impact on Real Estate Listings

By: 28 May 2008

Several years ago, it looked like real estate brokerages might be marginalized by “Virtual Office Websites” (VOWs) that grabbed multiple listings service listings from the Web, using a licensed agent. They then acted as cut-rate sales agents to home buyers.

At the time, it was envisioned that major online entities such as Yahoo! might use VOWs as a loophole for getting into the tent. Worse, there was a fear that banks would use VOWs to facilitate a sneak attack on the industry (if restrictions on their participation eased).

The response by the National Association of Realtors in August 2005 was to draw up new rules that would deny the VOWs access to the listings, making it difficult for them to stay in business. Penalties were imposed on members that assisted VOWs.

It seemed clear that the NAR’s cartel-like actions wouldn’t hold up in court. But that didn’t matter. Mostly, it would buy time for the industry to develop better Internet positioning — like deliberately fouling Kobe Bryant to make him miss a basket and hope he doesn’t make his foul shots from the line.

That’s almost exactly how it has worked out. Almost three years after the Department of Justice sued the NAR to overturn its policies in October 2005, the two sides have settled. For the NAR, it has been time well “bought,” if you want to have that perspective. In the interim, the market has greatly evolved vis-a-vis the ready access to information allowed by the Internet, and changes brought on by bad market conditions.

Under terms of the settlement, the NAR is unable to prevent VOWs from gaining access to listings from its members, or to punish members who cooperate with VOWs. At the same time, the NAR gets to narrowly define what a VOW is (i.e., someone who is actively engaged in selling real estate).

The DOJ issued a statement that the settlement will help innovative real estate practices and help reduce commissions paid by consumers. “Today’s settlement prevents traditional brokers from deliberately impeding competition,” said Deputy Assistant Attorney General Deborah A. Garza. “When there is unfettered competition from brokers with innovative and efficient approaches to the residential real estate market, consumers are likely to receive better services and pay lower commission rates.”

The reality is that the settlement means very little to most players — although it will be reassuring to investors of cut-rate brokerages that saw their lifelines being cut off. It has been an especially tough marketplace for them.

During the intervening years, brokerages have pre-empted many of the advantages of VOWs. They have widely opened their listings to third-party players such as Zillow and Trulia or discount sites such as RedFin. They have more broadly participated in Internet Data Exchange — some had boycotted it — and they have become less reliant on one-size-fits-all sites such as Realtor.com — although it remains the largest real estate-oriented site, by far. At the same time, cut-rate brokerages such as ZipRealty have generally been able to gain access to the listings they need.

To be sure, the real estate industry has major changes ahead of it as the market continues to shake out and the role of agents and brokerages continues to shift. But as the market has shifted, very few people currently use VOWs. Certainly, this settlement is not going to bring in a new era of VOWs competing against the big (and little) guns of real estate.



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