November 2012 | D.R. Legal News
By Steve Bochenek, IAR Chief Legal Counsel
Recently there has been some discussion regarding two issues of concern to brokerage companies. Both of these issues could have an impact on the brokerage company and their dealings with the multiple listing service or services in which they participate. This article will discuss these two issues and the potential options for brokerage companies. The first of these issues deals with advertising by managing brokers.
The Illinois Real Estate License Act (“RELA”) includes a provision dealing with advertising by a managing broker, that is Section 10-30(g) of the RELA. Until recently, that provision read as follows: “Those individuals licensed as a managing broker and designated with the Department as a managing broker by the sponsoring broker shall identify themselves to the public in advertising as a managing broker. No other individuals holding a managing broker’s license may hold themselves out to the public or other licensees as a managing broker.”
That provision was recently amended by Public Act 97-1002. The amendment to Section 10-30(g) provides that the requirements concerning advertising by a licensee designated as a managing broker with the Illinois Department of Financial and Professional Regulation (“IDFPR”) do not apply in case of a “for sale” sign or other similar sign. This amendment was passed with the cooperation of the Illinois Association of REALTORS® and IDFPR to insure that brokerage companies would not be required to incur the costs necessary to change for sale signs and other similar signs to include the term “managing broker” if the name of that person appears on the sign. However, there is a similar question being discussed when listings are placed in a multiple listing service (MLS).
The RELA does not contain a definition of “advertising”. However, Section 10-30(a) contains language which tends to describe what may be considered to be advertising under the RELA. Section 10-30(a) provides “No advertising, whether in print via the Internet, or through any other media, shall be fraudulent, deceptive, inherently misleading, or proven to be misleading in practice. Advertising shall be considered misleading or untruthful if, when taken as a whole, there is a distinct and reasonable possibility that it will be misunderstood or will deceive the ordinary purchaser, seller, lessee, lessor, or owner. Advertising shall contain all information necessary to communicate the information contained therein to the public in an accurate, direct, and readily comprehensible manner.” What we can learn from this language is that advertising can be in print, through the Internet, or through any other media. In addition, the last sentence of this section indicates that advertising includes communicating information “to the public in an accurate, direct and readily comprehensible manner”. Thus, it seems that advertising under the RELA is the communication of information to the public through any media regarding real estate or real estate brokerage services.
The question that has arisen under Section 10-30(g) is what is required when listings are placed in an MLS and the listing agent is the managing broker of the company. This is further complicated by the question of whether the application software currently being used by the MLS provides the option of including the term managing broker in information supplied to the MLS and whether, if provided, it will be published by the MLS.
Referring back to our discussions earlier in this article regarding what constitutes advertising, the question may be whether placement of a listing in an MLS is advertising. If not advertising, then it would seem that 10-30(g) does not apply in terms of including the designation “managing broker” when providing the name of a listing agent who is the designated managing broker with IDFPR. There is no particular statement in the RELA which indicates that placing a listing in an MLS is or is not a form of advertising. However, it seems that an MLS is a means of providing information among cooperating licensees and not a means of communicating with the public. Thus, under the discussion of advertising in Section 10-30(a) an MLS should generally not be considered advertising. However, in today’s world and given today’s technology that is not the end of the discussion.
Typically brokers who place their listings in an MLS know that the information will appear elsewhere besides the MLS. For example, the MLS may feed or transfer that information to an IDX site or a VOW site. Also, the information may be syndicated to other third party sites such as Realtor.com, Zillow and Trulia. The rules under the RELA provide in Section 1450.715(b) that “. . . listing information available on a sponsoring broker’s or licensee’s website, extra.net or similar site but behind a firewall or similar device requiring a password, registration or other type of security clearance to access that information shall not be considered advertising.” Thus, information appearing on a VOW site for a brokerage company that meets these guidelines would not be advertising and would not need to comply with Section 10-30(g). However, that same information would probably also appear on the company’s IDX site or other third party sites which are intended to be and would be considered as advertising. In addition, there is no exclusion for these sites as there is for a VOW. Thus, under Section 10-30(g) when the name of a listing agent appears along with that listing information and that listing agent is also the managing broker designated as such with IDFPR then the term “managing broker” is required to appear as provided for in Section 10-30(g). Since probably the same feed or information from the MLS is being sent to all of these sites it means that the information given to the MLS would need to include the designation “managing broker” when the named listing agent is the managing broker.
This requirement does not exist if the name of the listing agent is not included in the data given to the MLS or the name of the managing broker is never shown as the listing agent. The requirement of Section 10-30(g) only applies if the name of the managing broker appears in the advertising. Thus, the first option to be in compliance would be not to include the name of the managing broker as a listing agent. What other options might a brokerage company have if it wants to include the names of all listing agents, including the managing broker, but the application software of the MLS does not provide for the inclusion of the term “managing broker”. Another option for the brokerage company would be to include in the comments portion of the listing a statement that the listing agent is the managing broker. Another option would be for the MLS to modify its application software to allow the brokerage company to indicate in its data when the listing agent is the managing broker.
The input of data into the MLS is only part of the equation in this discussion. The other important factor is what data is fed by the MLS to an IDX or is syndicated to third parties and whether that data would include the indication of a listing agent being a managing broker. The flip side of this is that even though the MLS may send data to a third party indicating that the listing agent is a managing broker that information may not fit the template or format of the third party site that is re-publishing that information as advertising to the consumer.
Assuming the brokerage company has input the data into the MLS indicating that a listing agent is the managing broker the answers become less clear when the information goes to a third party. If the information is not included on the third party site by the third party, is the brokerage company or licensee subject to discipline by IDFPR based upon the language of Section 10-30(g). There is no clear answer to this question as IDFPR has not yet had the opportunity to provide guidance in this area. One would hope that by correctly giving the information to the MLS that a listing agent is a managing broker, whether in the comment section or otherwise, a defense could be made to IDFPR that the brokerage company has done all that it can in regards to complying with 10-30(g). The rationale would be that the brokerage company has no control over what the third party does with the information and that although the information would constitute advertising that the brokerage company has made every effort to comply with the provisions of Section 10-30(g). This may be the best argument available short of the third party changing their template or format to allow for information to be included indicating that the listing agent is a managing broker. Perhaps there are other technological fixes that would be available to resolve this issue as well. Particularly, on an IDX website the brokerage company may well be able to indicate at some point, either on the home page or on a page on which a managing broker is listed, the name of the listing agent who is also the managing broker. There is no doubt that this matter will continue to be a subject of discussion both from a point of what can be done from a technology perspective to what might be done on a regulatory or statutory level.
The second issue of importance to brokerage companies and that also pertains to data that is input into an MLS is the ownership of brokerage agreements. The RELA makes clear that brokerage agreements are owned by the sponsoring broker. Section 1-10 of the RELA provides that the brokerage agreement is between “. . . a sponsoring broker and a consumer for licensed activity. . . .” The ownership of the brokerage agreement is important both from the business perspective of the brokerage company should individual sponsored licensees leave the company but also from the perspective of being able to place listings in an MLS and offer cooperation to other brokerage companies and licensees.
There are other questions and issues relating to the brokerage agreement and data provided to the MLS which are not as clear. Some of the data provided to an MLS by a brokerage company is simply factual information about the property being listed. However, there is typically other information provided along with the listing when it goes to the MLS such as comments, photos or video tours. The question with each of these is who has the common law copyright and the right to file for a copyright for each of those elements provided to the MLS along with the listing.
In many situations a sponsored licensee may create the comments that are used in connection with listings placed in an MLS. The creation of those original comments by the sponsored licensee entitles the sponsored licensee to copyright those comments. This would be true unless the sponsored licensee is the employee of the brokerage company, which are typically not the case, or there is some other contractual arrangement which provides the brokerage company with the right to copyright the comments or original text which is used in conjunction with the listing.
A similar question can arise in conjunction with the photos or tours that are provided to an MLS in conjunction with a listing. The question is who is taking those photos or creating the tour. If a sponsored licensee does either of those then the sponsored licensee has the right to the copyright the photo and/or tour. If the brokerage company hires a photographer or third party to take the photos or create a video tour then that photographer or third party has the right to copyright the photos and/or tour unless there is a contractual arrangement that provides that the brokerage company has the right to the copyright.
What are the potential ramifications of these issues? First, the brokerage companies are placing the listings in an MLS and by doing so may often be giving the right to the MLS to syndicate or republish the information to third parties. The question may be whether the brokerage company has the legal right to transfer to the MLS the right to syndicate certain items such as the comments on the listing, the photos or video tour or whether those belong to a third party. The second and related issue is whether the MLS has the authority to republish or copyright the text, comments, photos or video tour. The answers will probably depend upon who created these original works and was the right to those original rights transferred properly to the brokerage company or to the MLS. Brokerage companies ought to review their agreements with sponsored licensees and, when necessary, look at modifying those agreements to provide that any original works created by the sponsored licensee in connection with the listing will be transferred to the brokerage company, including the right to copyright that work. Some brokerage companies may wish to hire an employee to create the text or comments, take the photos or create the video tours to accompany a listing. By the hiring of an employee the rights to the original works and the right to copyright those works belongs to the employer, the brokerage company. Likewise, the MLS will probably want to review these issues and determine whether all of these rights have been transferred to the MLS or, in some instances whether the MLS wants to hire an employee to create photos or video tours so that the right to the copyright belongs to the MLS.
The only certainty as to each of these issues is that further developments will be forthcoming whether they be technological or legal. The DR Legal News will work to keep you apprised of these future developments.