Amid an antitrust lawsuit from Zillow against Midwest Real Estate Data (MRED) and Compass International Holdings, as well as a review of broker cooperation and competition guidelines by the Department of Justice (DOJ) and the Federal Trade Commission (FTC), Compass CEO Robert Reffkin has threatened to initiate legal action against any MLS that does not comply with his demands by October 6. It wouldn’t be surprising if many MLS executives currently have their legal teams on speed dial.
“We are reaching a pivotal moment: a technological shift, a transformation in industry power dynamics, and a critical legal crossroads,” said Mitch Skinner, a managing member of Larson Skinner PLLC, during his address at CMLS’s Open House conference. “The legal environment is more complex than ever.”
“Risk feels omnipresent. With lawsuits looming, the aftermath of Sitzer/Burnett has cast a shadow over subsequent litigation,” Skinner remarked.
Kelly Lennox, chief legal officer of Northwest MLS (NWMLS), which recently settled with Compass in an antitrust case, echoed this sentiment, stating that litigation has been pervasive in her experience over the past few years. However, she stressed the need for MLSs to strategize their way forward despite this climate of risk.
“Hiding and hoping to avoid litigation is not a viable strategy. We need regulations in place for cooperation,” Lennox emphasized.
Against this backdrop, Lennox urged leaders to identify appropriate risks and explore methods to mitigate them.
A Thoughtful Path Forward
Ed Zorn, vice president and general counsel of California Regional MLS (CRMLS), highlighted the necessity of effective risk management, noting that each MLS encounters risks when choosing which operational policies to enforce. He reminded attendees that today’s controversial policies often arose from a need to address previous risks.
“Reflect back to 2018 or 2019 when I was managing a compliance department and fielding daily calls from frustrated buyers’ agents. Their clients were providing leads about properties that agents were unaware of,” Zorn recounted. “When agents reached out to listing agents for cooperation, many were ignored or worse, some agents even offered them $1,000 to transfer their buyers.”
This environment led to the creation of the often-criticized Clear Cooperation Policy.
“Analyzing current risks requires us to revisit the rationale behind rule creation and ensure that a balance of cooperation is maintained,” he stated.
According to Brian Schneider, partner at ArentFox Schiff and general counsel for Bright MLS, MLS leaders need to carefully assess the potential consequences of their actions and rule changes.
“Consider what might happen if an active case prevails or fails. What if Compass sues you? What if, despite being undamaged, you might be next after three other MLSs with similar policies are sued? You need to prepare for these scenarios and explore alternative strategies,” Schneider advised.
Examining Participation Risks
The critical scrutiny on MLSs largely stems from their regulations about mandatory listing submission and participation. In 2024, the loss of compensation, a fundamental aspect, raises concerns that the cooperation essential to MLS operations could also be jeopardized, as brokers seek ways to withhold listings while retaining MLS database access.
However, given the very real threat of legal or regulatory repercussions, legal experts question whether it falls upon MLSs to monitor brokers who withhold listings and the implications for consumers.
“When I hear brokers assert ‘seller’s choice’ repeatedly, it feels misleading,” Zorn criticized. “When a broker presents a seller with a form and a marketing plan, is the seller truly making a choice? Or are they placing their trust in someone they see as more knowledgeable? Brokers have a duty to prioritize their clients’ interests above their own profit motives.”
This presents a question of fiduciary duty and free-riding; if a broker benefits from MLS data without contributing, Schneider contends that it is more appropriate for state regulators or courts to intervene. Nevertheless, he believes there are still avenues for MLSs to safeguard cooperation without mandating participation rules.
“If cooperation is paramount for you, you could require cooperation even for listings not currently in the system,” Schneider suggested. “For brokers offering $1,000 to incentivize clients, impose fines and create barriers to protect brokers’ relationships with their clients and ensure cooperation.”
Returning to 2008
Resistance to updating certain rules, according to attorneys, is driven by fears of violating the DOJ’s 2008 consent decree, but attorneys reminded conference attendees that this decree expired eight years ago.
“We are nearing two decades since its signing,” Zorn noted. “It’s time for a reevaluation given the technological advancements, industry consolidation, and evolving data delivery methods. Back then, no MLS systems offered comprehensive portal experiences. Now, with these capabilities, why should you surrender your intellectual property to a technology provider who may exploit your data?”
At present, MLS legal experts advocate for a reconsideration of the long-standing “generic participant rules” that may have been in place for years.
“We have a diverse range of participants today and need definitions that reflect this,” remarked Marinda Neumann, principal and managing attorney at Neumann & Associates. “The provision of brokerage services has transformed significantly over the last 18 years, warranting an update.”
Zorn mentioned that CRMLS has shifted its approach from participation to data access, granting everyone access while adjusting fees based on their data contributions and intended usage.
Navigating the Era of ‘Lawfare’
As MLSs navigate this pivotal moment, Skinner encouraged industry leaders to maintain a sense of curiosity.
“Think of the possibilities and consider all options. Approach change with skepticism,” Skinner advised, acknowledging the inherent challenges faced by MLSs.
Nonetheless, he asserted that substantial transformations around the core tenets of MLS can occur without undermining its “pro-competitive, consumer-friendly marketplace.”
“Be receptive to change while understanding your essential strengths,” Skinner urged. “Ultimately, each MLS must stand firm. ‘Lawfare’ has become the standard. Expect demand letters, legal threats, and lawsuits to persist. A clear understanding of your foundational principles, combined with flexibility, makes it easier to maintain strength in the face of the challenges ahead.”
