It is no secret that the MLS industry is facing legal and regulatory scrutiny.
On top of an antitrust lawsuit filed by Zillow against Council of MLSs (CMLS) member Midwest Real Estate Data (MRED) and Compass International Holdings, and the Department of Justice (DOJ) and the Federal Trade Commission (FTC) reexamining guidelines for broker cooperation and competition, Compass CEO Robert Reffkin has threatened to sue any MLS that does not give in to his demands by Oct. 6. Needless to say, it would not be a surprise if many MLS executives currently had their general counsel on speed dial.
“We are at an inflection point. A technological inflection point, a changing industry power dynamics inflection point, and importantly, a legal inflection point,” Mitch Skinner, a managing member of Larson Skinner PLLC, told attendees of CMLS’s Open House conference Thursday morning. “The legal landscape has never been more challenging than it is today.”
From federal and state lawmakers, to consumer groups and state attorneys general, Skinner said the industry is facing scrutiny from all angles. On top of this, the National Association of Realtors (NAR) has stepped back from MLS rule making and enforcement, putting the MLSs squarely in the crosshairs of any potential litigation.
“It feels like risk is ever present. There are the threats, there are the lawsuits. It is almost like Sitzer/Burnett created this chilling effect that has been passed on to all the other lawsuits,” Skinner said.
Kelly Lennox, the chief legal officer of Northwest MLS (NWMLS), which just settled an antitrust lawsuit with Compass, agrees, telling attendees that at least in her experience over the past few years, “litigation is all around us.” But the most important thing, Lennox said, is for MLSs to think about how to move forward despite the risks.
“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,” Lennox said.
Given this, Lennox said the important thing is to consider what are the right risks to take and if there are ways to mitigate them.
Moving forward thoughtfully
For Ed Zorn, the vice president and general counsel ofCalifornia Regional MLS (CRMLS), the name of the game is risk management, noting that every MLS faces risks when choosing whether or not to implement various operational policies. Zorn also noted that it is important to remember that policies that may be coming under fire today were originally implemented in an attempt to mitigate another risk.
“Go back 2018 or 2019. I was running a compliance department, and I got calls every day from buyers’ agents who were frustrated and mad because their clients were giving them information about homes that the agents had no idea existed,” Zorn said. “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 according to Zorn was the environment the much maligned Clear Cooperation Policy came out of.
“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,” he said.
This, according to Brian Schneider, a partner at ArentFox Schiff and the general counsel for Bright MLS, is why MLS leaders need to “game out” the various consequences of different actions or rule implementations.
“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,” Schenider said.
The risks of participating
Much of the scrutiny currently faced by the MLSs comes from their rules regarding mandatory listing submission and participation. In 2024, the MLS lost compensation, one of its core pillars, and industry leaders fear that cooperation, the MLS’s other core component, is also at risk, as brokers and agents look for ways to withhold listings while still maintaining access to the MLS database.
However, with fears of legal or regulatory scrutiny being incredibly real right now, the legal experts question if it is really the MLS’s job to police brokers withholding listings and the impact that could have on consumers.
“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,” Zorn said. “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.”
As this is a question of fiduciary duty and free riding, if a broker is taking data from the MLS without contributing anything, Schneider feels that it is more for state regulators or even the courts to moderate. But Schneider still sees ways for MLSs to protect cooperation without having rules surrounding mandatory submission.
“If cooperation is critical to you, you could mandate cooperation even if the listing is not within the system,” Schneider said. “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.”
It all goes back to 2008
Resistance to changing some of these rules, according to attorneys, comes from the fear of going against the DOJ’s 2008 consent decree, which the MLS attorneys reminded conference attendees expired eight years ago.
“We are almost at 20 years since it was signed,” Zorn said. “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?”
Today, MLS legal experts said MLS leaders should reconsider the “generic participant rules” they may have had in place for decades.
“We have different kinds of participants today, and I think we should have definitions that fit those,” Marinda Neumann, the principal and managing attorney at Neumann & Associates, said. “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 said they have changed this from a participation issue to a data access issue, allowing everyone to access the data, but charging them different rates depending on if they contribute data and how they intend to use the data they extract from the system.
The age of ‘Lawfare’
As MLSs look to work through this inflection point, Skinner said it is important for industry leaders to stay curious.
“Think about what should be and consider all options. Be skeptical,” Skinner said, acknowledging that change can be difficult for the MLS industry.
However, he noted that a lot can change around the MLS’s core pillars without degrading the “pro-competitive, consumer-friendly marketplace” it is.
“Be open to change once you know what your core strengths are,” Skinner said. “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.”
