May 2001: New Business, Old Rules – Real Estate Listings Service MLX.com Defies New York State Licensing Law by C. J. Hughes
Silicon Alley Reporter

In most large cities, a multiple-listings service (MLS) – a shared electronic database with all the currently available property listings – is the lifeblood of residential brokers. Even rival firms will voluntarily pool information about available homes to match up sellers and buyers more efficiently.

New York City, no surprise, is different. Despite a Herculean attempt over the past year to create an MLS, city brokers continue to horde commission-ripe listings in the country’s most consistently lucrative real-estate market. And while the system may benefit titans like Corcoran and Douglas Elliman, smaller players simply lack the resources to compete.

Enter Web-based listings services, which have attempted to combine the centrally located dynamic accessibility of an MLS with a more open platform. Though these modernized listings services may not have the same clout once predicted, they still rattle the cages of the old offline brokerages because Web listings threaten to remove the broker from the house-hunting process.

One of the more successful plays is MLX.com, a 7-year-old company that offers up to 7,000 aggregated listings to brokers and consumers, and enjoys partnerships with New York Magazine and the New York Observer. Even so, MLX.com has faced a dual struggle convincing people to search for apartments online while fending off numerous attempts by state authorities to shut the service down.

The New York Department of State claims MLX.com is operating illegally because it has refused to get an Apartment Information Vendor (AIV) license. Under a 1975 law, AIV licenses, are required to keep unscrupulous brokers from duping apartment-hunters by selling lists of supposedly available units that are already rented, or worse, don’t even exist.

MLX.com agrees with the spirit of the law but not its letter, especially the stipulation that brokers refund customers all but $15 of the fee if they don’t like anything they see. That means dissatisfied MLX.com customers could get back as much as $234 of MLX.com’s $249 fee if the online listings aren’t up to snuff. MLX.com’s directors say those kinds of steep refunds will kill their business. The company also takes issue with the requirement that e-listings services provide back-up paper copies of their listings.

CEO LaLa Wang is simultaneously fighting to keep her personal broker’s license, which the state wants to revoke as a result of the conflict. She filed suit this spring in the U.S. District Court for the Southern District of New York, claiming the 26-year-old law creating AIV licenses is unconstitutional and overly harsh to e-businesses. The state wants the case dismissed.

“I think it’s an issue of David and Goliath,” Wang says. “I think that the government has neglected its duties to the detriment of small businesses, and that’s evidenced in the lack of consistent enforcement.”

Specifically, MLX.com alleges that the AIV law is misguided because it doesn’t differentiate between brokers who provide actual lists and those who provide electronic platforms for the exchange of lists. Wang points out that if a newspaper like the Village Voice, a popular apartment-listings provider, isn’t required to have an AIV license, MLX.com shouldn’t either.
In addition to claiming her freedom of speech is on the line, Wang also accuses the state’s attorney general (who is defending the state in this case) of unconstitutionally imposing local regulations on interstate commerce, since out-of-towners frequently use it to look for apartments.

“Given the choice between…criminal prosecution and severe monetary penalties, and…abridgment of their clear First and Fourteenth Amendment free-speech rights,” the brief reads, “Internet companies including MLX.com…will be forced to shut down.”

Wang claims the case is a perfect example of what happens when the state becomes beholden to entrenched, deep-pocketed industries that fear the shakeup e-businesses can cause.

“AIV was supposed to be a consumer-protection law, but MLX is actually giving information to consumers that used to be available only to brokers,” she says. “We are the best thing to happen to the consumer because we brought efficiency to the market.”

The New York attorney general wouldn’t comment on the case, and referred the matter to the NY Department of State, which oversees AIV licensing and is currently a party to a related MLX.com case. A State spokeswoman says, “Our goal is to gain compliance and have them become licensed.” Meanwhile, MLX.com’s struggle is drawing supporters.

“Do I think the law is antiquated? Yes,” says Ralph Barocas, a principal at competitor Rent-Direct.com, which currently has an AIV license. “I think LaLa’s fighting a good battle, and I hope she wins it.”

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