Layla Zulfa
The real estate industry is currently navigating a turbulent legal and regulatory landscape, marked by significant antitrust litigation, heightened government oversight, and aggressive legal threats from prominent industry players. This confluence of challenges is forcing Multiple Listing Services (MLSs) and their stakeholders to re-evaluate long-standing operational policies and business models. The reverberations of these actions are poised to reshape the dynamics of broker cooperation, competition, and ultimately, consumer experience in the housing market.
At the epicenter of this upheaval is a multifaceted legal battle. Zillow, a major real estate technology company, has initiated an antitrust lawsuit against Midwest Real Estate Data (MRED), a member of the Council of MLSs (CMLS), and Compass International Holdings. This legal action is occurring concurrently with a broad reexamination of broker cooperation and competition guidelines by the Department of Justice (DOJ) and the Federal Trade Commission (FTC). Adding another layer of intensity, Compass CEO Robert Reffkin has publicly declared his intent to sue any MLS that does not comply with his demands by October 6th, a deadline that has undoubtedly placed MLS executives and their legal counsel on high alert.
This period of intense legal pressure was highlighted at a recent CMLS Open House conference, where industry legal experts emphasized the unprecedented challenges facing the sector. Mitch Skinner, a managing member of Larson Skinner PLLC, described the current environment as a "technological inflection point, a changing industry power dynamics inflection point, and importantly, a legal inflection point." He underscored the gravity of the situation by stating, "The legal landscape has never been more challenging than it is today."
The pervasive sense of legal risk is palpable within the industry. Skinner noted that the "chilling effect" originating from the Sitzer/Burnett lawsuit appears to have extended its influence, emboldening further legal challenges. This sentiment is echoed by Kelly Lennox, Chief Legal Officer of Northwest MLS (NWMLS), which recently settled an antitrust lawsuit with Compass. Lennox remarked that, in her experience over the past few years, "litigation is all around us." Despite the daunting legal environment, she stressed the critical need for MLSs to proactively strategize their path forward, asserting, "It is not an option to just lay low and hope to not get sued. Hope is not a strategy and the cooperative needs rules to govern."
Navigating the Legal Minefield: Risk Management and Strategic Adaptation
The prevailing consensus among legal professionals is that a proactive approach to risk management is paramount for MLSs. Ed Zorn, Vice President and General Counsel of California Regional MLS (CRMLS), emphasized that every MLS grapples with inherent risks when implementing operational policies. He also pointed out a crucial historical context: many policies currently under scrutiny were initially designed to mitigate other, equally significant risks.
"Go back to 2018 or 2019," Zorn recounted. "I was running a compliance department, and I got calls every day from buyer’s agents who were frustrated and mad because their clients were giving them information about homes that the agents had no idea existed. Then, when the buyer agent did the proper thing of reaching out to the listing agent for cooperation, they got ghosted or worse, I had reports of listing agents offering them $1,000 to hand their buyer over."
This environment, Zorn explained, was the genesis of the widely discussed and often controversial Clear Cooperation Policy. He stressed the importance of understanding the original intent behind such rules when analyzing current risks: "As we analyze the current risk, it is important to go back to why that rule was created in the first place and then make sure that there is a balance based on cooperation."
Brian Schneider, a partner at ArentFox Schiff and general counsel for Bright MLS, advocates for a strategic approach to policy development and implementation. He urges MLS leaders to meticulously "game out" the potential consequences of various decisions. "What happens if one of the active cases wins or loses? What happens if you are sued by Compass? What happens if you aren’t sued, but three other MLSs with the same policies are and you may be next? Plan for it and figure out what are the alternative paths you could go down," Schneider advised.
The Evolving Landscape of MLS Rules and Broker Cooperation
A significant portion of the current scrutiny directed at MLSs stems from their rules governing mandatory listing submission and participation. The real estate industry has already seen a seismic shift with the loss of the MLS’s traditional role in setting buyer’s agent commissions, a core tenet of its historical business model. Now, the principle of cooperation, another foundational element of the MLS, is reportedly under threat. Brokers and agents are reportedly exploring avenues to withhold listings from the MLS while still seeking access to its comprehensive database.
However, in the face of intense legal and regulatory scrutiny, legal experts are questioning whether it is the MLS’s primary responsibility to police brokers who withhold listings and the potential ramifications for consumers. Zorn articulated this concern, stating, "When I hear a broker scream seller’s choice thousands of times, I feel like that doesn’t really mean the seller is choosing anything. When the broker hands the seller a form and marketing plan of what to do, did the seller choose anything or are they trusting the person with superior knowledge, information, skill and expertise? I’m supposed to trust you to have my seller interests at heart and that should take the primary position over using my home to turn a profit for your firm."
This debate touches upon fundamental issues of fiduciary duty and the concept of "free riding"—profiting from data or services without contributing to their creation or maintenance. Schneider suggests that the moderation of such practices might fall more appropriately under the purview of state regulators or judicial bodies. Nevertheless, he also identifies potential avenues for MLSs to safeguard cooperation without necessarily mandating listing submission. "If cooperation is critical to you, you could mandate cooperation even if the listing is not within the system," Schneider proposed. He further elaborated, "For the people that are offering buyers’ agents $1,000 for their client, fine them, put all sorts of sticks in the way for interfering in brokers’ relationships with their buyer clients and hurting their ability to cooperate."
Rethinking the Foundation: The Legacy of the 2008 DOJ Consent Decree
Attorneys at the CMLS conference pointed to the DOJ’s 2008 consent decree as a historical factor influencing resistance to certain rule changes. They reminded attendees that this decree expired eight years ago, suggesting that the rationale behind some existing MLS rules may no longer be relevant.
"We are almost at 20 years since it was signed," Zorn observed. "So, I think it’s time to re-evaluate given the differences in technology and the business environment, the mass consolidation and the different ways of delivering data. Back then, none of you had a front-end MLS platform system that included a full portal experience to all of your participants. Now you do, but why do you have to give everyone all of your intellectual property for a technology participant to do who knows what with your data?"
Legal experts are urging MLS leaders to reconsider "generic participant rules" that may have been in place for decades. Marinda Neumann, principal and managing attorney at Neumann & Associates, stated, "We have different kinds of participants today, and I think we should have definitions that fit those. The way brokerage services are provided has changed dramatically in the last 18 years, so I think it is time for an update."
At CRMLS, Zorn explained that they have shifted their approach from a simple participation model to one focused on data access. This allows all parties to access the data, but the pricing varies based on whether they contribute data and how they intend to utilize the extracted information. This tiered approach acknowledges the evolving nature of data utilization and participant contributions.
Embracing the Era of "Lawfare": Resilience and Adaptation
As MLSs navigate this complex inflection point, legal experts like Skinner emphasize the importance of maintaining a "curious" mindset. "Think about what should be and consider all options. Be skeptical," Skinner advised, acknowledging that change can be a challenging process for the traditionally conservative MLS industry.
However, he also pointed out that significant evolution can occur around the MLS’s core pillars without necessarily degrading the "pro-competitive, consumer-friendly marketplace" it aims to be. "Be open to change once you know what your core strengths are," Skinner stated. "And then finally, be strong. Each MLS individually needs to be strong. Lawfare is now the norm. Demand letters, threats of lawsuits, and lawsuits are going to continue to happen and are happening. When you understand your core principles and you’re flexible around those, it makes it a lot easier to be strong when facing the threats that MLS is facing."
The current legal climate, marked by high-profile lawsuits and aggressive legal posturing, signifies a critical juncture for the real estate industry. The decisions made by MLSs in response to these challenges will not only determine their own futures but also have a profound impact on how real estate is bought, sold, and experienced by consumers for years to come. The era of "lawfare" demands a strategic, resilient, and adaptable approach from all stakeholders.
