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Justice Department Sues National Association of Realtors for Limiting Competition Among Real Estate Brokers

NAR Policy Obstructs Internet-Based Real Estate Brokers from Offering Better Services
And Lower Costs to Consumers

WASHINGTON, D.C. - The Department of Justiceís Antitrust Division today filed a lawsuit against the National Association of Realtors (NAR), challenging a policy that obstructs real estate brokers who use innovative Internet-based tools to offer better services and lower costs to consumers. The Department said that NARís policy prevents consumers from receiving the full benefits of competition and threatens to lock in outmoded business models and discourage discounting.

The Departmentís civil antitrust lawsuit was filed today in U.S. District Court in Chicago.

ďThe purchase of a home is one of the most significant financial decisions a family can make, and NARís policy stifles competition to advantage some of its members at the expense of home buyers and sellers across the country,Ē said J. Bruce McDonald, Deputy Assistant Attorney General in the Departmentís Antitrust Division. ďConsumers benefit when real estate brokers are free to compete vigorously by offering innovative services.Ē

Although NAR today announced its adoption of a revised policy, the revised policy continues to discriminate against innovative brokers, and does not resolve the Departmentís concerns.

In most markets, real estate brokers share information about properties for sale, known as listings, through the local Multiple Listing Service (MLS) - a joint venture among competing brokers. Participation in the local MLS makes it possible for a broker to provide customers with listings for virtually all properties for sale in the community, which is critical to compete in the local market, the Department said.

Traditionally, brokers provided listings for properties to their customers in a variety of ways, such as by hand at their offices, or by mail, fax, or e-mail. Some brokers have recently begun offering brokerage services to their customers over the Internet, using so-called virtual office websites, or VOWs. VOWs are password-protected Internet sites that allow the brokerís customers to search the MLS database on their own, using their home computers to obtain the same information that would be available in a brokerís brick-and-mortar office. Delivering listings over the Internet gives web-savvy consumers more control over their search for a home, allowing them to educate themselves about their options at their own pace and on their own time. This allows brokers to reduce the time that their agents spend searching the MLS database or showing homes the customer dislikes, the Department said. Because the Internet can be used to deliver brokerage services more efficiently - resulting in better service and lower costs to consumers - brokers who utilize the Internet represent a competitive challenge to traditional brokers, the Department added.

In its complaint, the Department alleges that NARís policy restrains competition by requiring NAR-affiliated MLSs to adopt rules that will allow brokers to withhold their clientsí listings from other brokersí websites by means of an ďopt out.Ē In essence, NARís policy enables traditional brokers to block their competitorsí customers from having full on-line access to all of the MLSís listings. When exercised, the opt-out provision prevents web-based brokers from providing all MLS listings that respond to a customerís search, effectively inhibiting the new technology, the Department said.

NARís policy significantly alters the rules that govern MLSs by permitting traditional brokers to discriminate against other brokers based on their business model, denying them the full benefits of MLS participation. The Departmentís lawsuit seeks to ensure that traditional brokers, through NARís policy, cannot deprive consumers of the benefits that would flow from these new ways of competing. According to the Departmentís complaint, brokers who participated in the NAR work group that formulated the VOW policy recognized that the opt-out right would be ďabused beyond belief.Ē The chairman of the working group admitted that the opt out right was likely to be exercised by brokers despite the fact that ďit may not be in the sellersí best interest to opt out,Ē the Department said in its filing.NARís policy denies brokers using new technologies and business models the same benefits of MLS membership available to their competitor brokers, suppresses innovation, discourages competition on price and quality, and prevents new, efficient competitors from entering into the marketplace - all to the detriment of consumers.

ďThe Departmentís Antitrust Division is committed to preserving competition in this vital sector of our nationís economy,Ē added McDonald.

The court will determine a pretrial schedule once NAR files its response to the governmentís lawsuit. NAR is headquartered in Chicago.