Agent V. Realtors

Agent V. Realtors

By Sean Roth

Real Estate Editor

Lois Hekker is downright angry over recent decisions by the National Association of Realtors. A Sarasota real estate agent for a more than a decade, Hekker says the association has been hijacked in favor of a few larger companies at the expense of consumers and independent agents.

To force change, Hekker, 66, is the plaintiff in a federal lawsuit that accuses the Sarasota Association of Realtors Inc. and its board of directors of violating antitrust laws. The complaint, filed by attorney David Barry of San Francisco, alleges the association has improperly linked access to historical Multiple Listing Service (MLS) data and universal-access lockbox keys with membership in the group.

Bundling the cost of a membership with those two services has prevented at least 5% of the areais licensed real estate agents from competing in the marketplace with the existing 4,000-member organization, thereby inflating commissions by about $2,600 annually per licensee, according to the lawsuit.

The complaint, which may become a class action, is seeking triple damages equal to about $1 million for each of the past five years.

At issue is the associationis dominance in the local market and the difference between a legal competitive advantage and an illegal monopoly. The case is one of a recent wave of anti-competitive lawsuits aimed at associations throughout the country and at ancillary companies, including lockbox manufacturers.

California lawyer

Barry concedes heid been looking for MLS/lockbox cases that fit a certain profile, such as the Sarasota system, to battle in court. Itis his third such case, and he has already been hired for an as yet unspecified fourth.

Barry is one of the high-profile attorneys on the frontline of real estate related antitrust litigation. In 1979, he sued the San Francisco Board of Realtors over public access to the MLS. He largely attributes his loss in that matter to filing the complaint in state court rather than federal court.

His most well known case is a lawsuit against five San Diego County boards of Realtors and Sandicor, a regional MLS they own. The lawsuit brought on behalf of two real estate agents o Arleen Freeman and James Alexander o accuses the boards of raising prices for MLS services for the 8,000 real estate agents in San Diego. The for-profit Sandicor MLS service was not sold to individuals; instead it was sold to the Realtor boards, which then sold the services to agents at a higher price.

In March of 2003, the 9th Circuit Court of Appeals found for the plaintiffs and returned the case to the district court for a hearing on Barryis request for an injunction against the boards and Sandicor, and to determine the amount of damages. In his ruling, Circuit Judge Alex Kozinski rebuked the defendants, stating: iRarely do antitrust defendants serve their own heads on so shiny a silver platter.i

With an estimated overcharge of $2 million per year, the plaintiffsi initial suit was seeking triple damages for the past 10 years or $60 million.

Barry plans to fight a proposed settlement by the association to a breakaway defendant group for cash and coupons valued at more than $4 million. iWe believe that settlement is way too low,i Barry says. iWe believe it should be in at least the $30 to $40 million range.i

In an unrelated case, Barry fought the National Association of Realtors over its trademark of the title iRealtor.i The attorney contended the word is a generic term and cannot be trademarked. He took the case to the Trademark Trial and Appeals Board of the U.S. Patent and Trademark Office.

iWe did a survey that showed that 90% of people believe that it is a generic term,i Barry says. iThe court rejected our survey ... and without that (his primary evidence), the petition was dismissed.i

While Barry dislikes calling his actions against the Realtor boards a crusade, he says he does intend to end the coercive membership element of the associations.

iIim not emotional about it,i Barry says. iBut I am trying to end an illegal process.i

In the Sarasota case, Barry calls the MLS and lockbox tie-ins ia cute dodgei around the law.

iIn the Thompson case, the court said you canit tie MLS into membership,i Barry says. iThey must think, eWell, it didnit say anything about lockboxes. There is no mention of historical MLS data.i Come on, nobody is going to buy a crippled MLS.i

He explains that one of the biggest advantages for MLS users is the ability to look at surrounding properties and past listings in a particular area. With that historical information, real estate agents can determine how long a property was on the market, how much it listed for and the competitive differences between properties.

iSure you could go down to the courthouse and look for other sales on Main Street and you could find comparable sales,i Barry says. iBut those are just the closed sales. There is so much more information that is missing. I did a deposition on the president of (Simi Valley, Calif.-based) Rappatoni Corp. (the nationis largest MLS software system developer and the Manatee County Association of Realtorsi provider) where they said that no board of Realtors would buy MLS without that information.i

Hekker first contacted Barry via e-mail.

iI donit actively advertise,i Barry says, iShe must have seen my name over the Internet. We corresponded back and forth for months. I was really looking to do cases in areas that were ready o areas that are pretty cookie cutter. That makes it easy to investigate the facts.i

He has accepted the local case on contingency, which means he makes no money if he loses.

Barry is pursuing similar cases in northern Kentucky and Spokane, Wash.

In the Florida case, Barry says he didnit name the Florida Association of Realtors or the national association as defendants because of the way antitrust law is setup.

iIf you have a criminal syndicate that meets in a particular restaurant,i he says. iSure the restaurant is an incidental beneficiary, but it has no direct impute.i

He points to California is an example of an open market.

iThe entire state is open,i he says, iand the walls didnit come tumbling down. The Realtorsi association still has 75% of the market. The real victims are the Realtors who donit want to join the association. It is legitimate for an association to offer benefits to its members. But there are different rules when you become ... a monopoly.i

The plaintiff

As for Hekker, real estate is her third career. In the i60s, she was the first female marketing director of Ted Bates & Co., New York, one of the largest advertising firms in the nation at the time and the creator of the tag line: iMelts in your mouth, not in your handsi (M&M Candies).

Then in 1976, she moved to New Jersey. iI expected it to last two years,i she says. iThat two years became 10.i

She eventually landed a job licensing the logo for the New York State Association of Fire Chiefs in several northeast states. In 1987, she was visiting friends in Sarasota when the real estate bug bit.

iFor three days I was cooped up with Realtors,i she says. iAlso I liked the view from my house so I bought it.i She started representing buyers almost right away and has done so almost exclusively since then.

One of her prime concerns is the emergence of virtual office Web sites (VOWs), or internal company Web sites, that replace the more widely available MLS.

iWith that they can cut me out of the listings,i Hekker says. iI went down to Calusa Lakes last weekend. There were only four listings in the MLS, but I saw at least 11 signs down there. I bet they had it in their own system. These guys are not playing a straight game.i

That complaint isnit addressed by the lawsuit filed in Tampa federal court earlier this month, but Hekker expects the suit will be amended soon.

So why go through the trouble and suffer the possible backlash of filing a lawsuit? Hekker says she had no choice: thereis no legitimate way to do her job if she doesnit become a member.

iItis the biggest cartel going,i Hekker says. iThe keys (to the lockbox) are never in the office. Itis just easier to pay the damn dues.i

Local association

Many people, including the local association, view the issue quite differently.

Sarasota Association of Realtors Judy Schomaker says the group has not yet received official notice of the lawsuit, ibut we feel very positive about the outcome.i

The association has about six real estate agents, also known as Thompson brokers, that pay for access to the MLS but do not join the association.

iWe have been approved by FAR and NAR guidelines,i Schomaker says. iIn fact we were just recertified by NAR.i

Carl Wise, president of Preferred Commercial Inc. and an association member, says the lawsuit is unreasonable.

iMLS is a system that was created by dues-paying members,i Wise says. i It wouldnit be fair to give someone all that benefit who isnit a member. That would just be ridiculous. The lockbox situation is a matter of safety and security. Homeowners donit necessarily want anyone to have the ability to enter their homes at any time.i

Few other Sarasota real estate agents/Realtors were willing to be quoted by GCBR, but many said they agree the MLS is being punished because of its success. They contend it offers members a fair competitive advantage.

National perspective

Steve Cook, vice president of public affairs for NAR, doesnit expect Hekker to prevail.

iWe havenit lost a case,i Cook says. iIn every single case there has been found to be no problem with the system. It is well established that the Realtor board that owns and operates the MLS can require membership to access the system. The MLS system is about 100 years old and started with Realtors trading information on three-by-four cards. The U.S. real estate market has become the envy of the world because of our free-exchange of information.i

What about Barryis San Diego case? Cook says that case is different because Sandicor is a for-profit entity.

iMost (MLS) are owned and operated by non-profits,i Cook says. iMLS is not a public utility. It is paid for and maintained for home sellers and buyers. Someone else is welcome to make the investment to create a database to share among real estate professionals. But itis going to be hard and time consuming work. It is hard to start from scratch.i

Plus, Cook says, the cost of joining the association is low. The average membership fee for the Sarasota Association is about $1,000 per year. In addition, agents must sign a code of ethics.

iEssentially, we have become a victim of our size and the success of our system,i he says. iBut this was never created for John Doe Public.i

If a non-Realtor broker wants to show a property, Cook says, that agent can call the listing broker and arrange to have the property opened for them.

In addition, the national group has taken steps to prevent monopolistic price increases in the case of lockboxes, Cook says.

iTwo years ago there was only one player in the lockbox industry (Supra),i Cook says. iThe board was up in arms with issues of it raising prices and changing lockboxes all over the place. So (NAR) went into the lockbox business (buying a majority stake in SentriLock) and today there are three to four other companies selling in the marketplace.i

For Cook, the issue really comes down to the steadily changing environment for real estate.

iMost Realtors have become content providers,i Cook says. iPutting lists together. MLS has become a very good source of data, which is ultimately very good for consumers. As it stands now we have an incentive to keep improving the content.i