by Susan Romero
Inman News
“I was never ruined but twice: once when I lost a lawsuit, and once when I won one.”
—Voltaire 1694-1778
“Anti-competitive,” “criminal” and “oppressive” are a few of the words used to describe the National Association of Realtors recently-adopted virtual office Web site policy. The rules are slated for implementation in January and brokers are buzzing about who will be the first to launch a VOW policy-related lawsuit.
The new policy is a virtual landmine for lawsuits — it could be David Barry, the perpetual Realtor litigator, or perhaps a VOW operator, who’ll charge the policy with being anti-competitive or maybe a traditional brokerage, who’ll demand the policy be better enforced or even a home seller, who’ll argue that brokers are failing to meet their fiduciary duties by not marketing their homes.
The one section of the policy that is seemingly vulnerable to litigation is a controversial clause that permits brokers to selectively opt their for-sale home listing data out of competitors’ VOWs, also known as Web-based realty brokerages.
San Francisco-based attorney Barry described the VOW policy’s opt-out clause as a “huge open invitation” to an anti-competitive lawsuit. He compared the policy to a “little black bag” that brokers could place over the heads of competing VOW brokerages in an effort to single out the VOW and damage its business model by prohibiting the VOW from displaying the broker’s MLS data.
“How can you become a magnet for lawsuits? One way is to restrain trade,” said Barry.
Barry has launched approximately a dozen lawsuits against NAR and various local Realtor associations and Multiple Listing Services, and he’s lost all the battles except one. Last year Barry prevailed in court and San Diego, Calif., area MLS Sandicor was found guilty of price fixing.
ERealty CEO Russ Capper operates a VOW brokerage and he believes the policy is “criminal,” “oppressive” and “specifically pointed in an anti-competitive way to VOWs.”
Capper has not announced any plans to initiate a lawsuit, but he has declared the company was “certainly determined to go forward” with its business model.
Capper also has a history of challenging Realtor boards, specifically over MLS data dissemination issues.
In 2000, he took on the Austin Board of Realtors and won. The Realtor group charged eRealty with copyright infringement for posting the board’s MLS listing data on eRealty’s VOWs. The realty board eventually dropped the charges and adopted a NAR policy that allowed MLS-members to display MLS data online.
Robert Butters, former deputy general counsel for NAR and a partner with the Chicago-based law firm Arnstein & Lehr, has a number of brokerage clients, including eRealty, who are eying the VOW policy.
He estimated that 99.9 percent of brokers use the MLS to help sell homes. The MLS is not “as a practical matter, an optional tool,” he said. The cooperative data-sharing platform initially intended to circumvent brokers from exploiting control of their listings by “shirt-pocketing” listings, said Butters.
The VOW policy dismantled the cooperative nature of the MLS and created a “two-tiered” system that is ripe for exploitation, he said. One set of rules governs inter-broker cooperation in a non-VOW environment while the other set of rules govern inter-broker cooperation within the VOW environment.
“The new (VOW) policy invites exploitation for the first time (by) enabling brokers through the opt-out provision to pick and choose based on business methodologies who they’ll cooperate with and who they won’t,” he said.
“(The policy) has an anti-competitive effect that very well could be the basis of an anti-trust lawsuit,” Butters said.
It’s also conceivable that NAR’s board of directors will revisit and alter the contentious policy, said Butters.
Some in the industry wonder whether home sellers could be the first to launch a lawsuit against a broker who selectively withholds their for-sale home listings from competitors’ Web sites.
This argument contends that the listing agent is not doing his or her fiduciary duty by failing to expose listings everywhere on the Web.
Re/Max International executive Steve Ozonian dismissed the notion. He described a broker in Southern California who he said sells $1 million a year in a realty transactions and who uses very little advertising.
“I don’t hear (about home sellers) going to him and saying, ‘Why the hell didn’t you put my property in these six magazines? You’re missing those six and I’m going to sue you because you didn’t sell my house fast enough,’” he said.
Ozonian said the issue over the VOW policy selective opt-out provision doesn’t dictate how one does business. Home sellers can list with whomever they choose and agents can choose for which broker they’ll work, he said.
A lawsuit could also come from the other end of the real estate spectrum, from NAR or a traditional industry company like Cendant Corp. or Re/Max International, which might use lawsuits to enforce the rules.
In May, shortly before NAR adopted the policy, Re/Max founder and chairman Dave Liniger said NAR should step up and take the position that provides brokers with an opt-out provision because the association was “may be in a position where (it’s) going to be sued one way or the other.”
Whether brokers would enforce the policy’s selective opt-out provision and launch a lawsuit against a non-compliant VOW remains to be seen. Such brokers could instead rely on the stiff penalties NAR implemented for listing data scofflaws.
According to the VOW policy, MLSs could punish rule violators with a fine of as much as $5,000 and suspension or termination of MLS privileges. Whether the fine would be per incident or in total is not specified.