Markets Wired

The Federal Trade Commission today issued an Opinion finding that Realcomp II – a Michigan-based realtors’ group – violated federal law by restricting the ability of member real estate agents to offer consumers lower-priced alternatives to traditional real estate services. Realcomp refused to transmit discount real estate listings to its own and other publicly available Web sites and excluded such listings from the default searches within its own database. The Commission found that these policies restricted access to these listings and harmed competition. The FTC’s Final Order requires Realcomp to provide its members non-discriminatory access to non-traditional and lower-price listings on its Multiple Listing Service (MLS) and to stop preventing such listings from being sent to its public real estate sites.

In its Opinion announced today, the Commission found that “the practices at issue improperly limit consumers’ access to information about the availability of these lower-priced alternatives,” and . . . concluded “that [Realcomp’s] acts and practices unreasonably restrain trade in violation of Section 1 of the Sherman Act . . . and Section 5.” The Commission’s administrative decision resolves litigation arising from a complaint charging that Realcomp’s policies violate Section 5 of the Federal Trade Commission Act.

Realcomp is an MLS serving southeast Michigan. Member brokers (who compete with each other) provide information on homes for sale. Other members representing buyers can then use the database to find potential homes for their clients.

Recent years have seen significant changes to the real estate markets. Some real estate brokers have discounted their fees by offering lower commission rates, accepting flat fees, or unbundling real estate services that used to be available only as a package. These limited-service models typically are less expensive than the traditional real estate model, allow consumers to customize a package that best fits their needs, and have put pricing pressure on more expensive full-service brokers.

The Commission Opinion also noted that public access to MLS listings has increased their effectiveness. The Internet has become vital to selling homes, and a majority of buying and selling homes begins on the Internet.

These changes, the Commission wrote, “illustrate how technological dynamism and organizational innovation can place enormous pressure on traditional business models and create possibilities for ‘the new commodity, the new technology, the new source of supply, the new type of organization’ [Joseph A. Schumpeter, Capitalism, Socialism, and Democracy 84 (1942)] that can transform markets. Because [these] are powerful stimulants for economic progress, an especially important application of antitrust law is to see that incumbent service providers do not use improper means to suppress innovation-driven competition that benefits consumers.”

The Commission found that full-service real estate brokers, who make up a majority of Realcomp’s membership, saw the combination of discount brokers with the public availability of MLS listings via Internet Web sites as a serious threat to their business model. In turn, Realcomp established policies that limited the effectiveness discount brokers’ listings. Although the MLS began providing the public with information on homes available for sale by establishing a public Web site and transmitting listing information to other Web sites, such as those of the National Association of Realtors (NAR) and of its members, Realcomp provided only the more expensive, full-service listings to the publicly available Web sites. As a result, a buyer searching Realcomp’s public Web site or the NAR’s Web site, for example, would not see listings offered by discount brokers.

Further, within its proprietary database, the default search policy excluded listings of discount brokers. So, unless a broker searching the MLS’s own private database changed the default search settings, the broker would not see discount listings.

The Commission found that Realcomp’s policies narrowed consumer choice and hindered the competitive process. In reaching its decision, the Commission reversed a 2007 decision by the Administrative Law Judge dismissing the charges against Realcomp.

The Commission’s Final Order forbids Realcomp from discriminating against discount brokers in, among other things, determining what listings it transmits to public Web sites or setting its default search criteria. The Order also requires Realcomp, within 30 days of the Order becoming final, to amend its rules and regulations to conform with the Order’s provisions, and, within 90 days, to inform its members of the amendments and provide each member with a copy of the Order. Finally, it requires Realcomp to place a statement on its Web site announcing the amendments and to modify the site to include the updated rules and regulations.

The Commission vote approving the Opinion and Order was 4-0. Under the agency’s rules, ex parte communications regarding this matter are barred until the FTC has disposed of any petition for reconsideration, or until the time for filing such petitions (14 days after service) has elapsed.

Copies of the Opinion and Order can be found on the FTC’s Web site and as a link to this press release. The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 383, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.

(FTC File No. 061-0088; Docket No. 9320)