It’s Time for a Grand Conversation on the MLS

https://www.youtube.com/watch?v=ATsmMBptA08

I just got back from NAR New Orleans where I got to see old friends (not enough of y’all, because that event is so f’in huge) and meet some new friends. But I said that I would be watching for some things at the event. Turns out, there wasn’t much to watch. Not a lot of drama at all.

The CoX thing sailed through, but the result is that some workgroup will write up something. So we’ll wait to see what they come up with. The MLS stuff, with its very broad, general language, turned out to be important.

In fact, I think this vote approving the changes to the MLS is far more significant than most people seem to appreciate. The changes go right to the heart of what the MLS is and should be. And those changes may be really positive ones whose time has come.

For those reasons, I am now formally calling for a “Grand Conversation” about the MLS. If the industry is going to make these fundamental changes, then it ought to do so consciously, knowing what it wants to achieve, rather than making incremental changes here and there without realizing where it’s ended up.

Let’s get into it.

The Vote and the Policy Changes

Andrea Brambila at Inman News, who does some of the best reporting in the industry, wrote about the MLS policy changes in a thorough article. Check it out in full.

The key change comes right at the top:

With the vote, multiple listing services must now allow brokers to display a minimum of three years of sold listing data on their non-password-protected websites — but only if the sold data is already publicly available. The three-year minimum was added by the NAR Multiple Listing Issues and Policies Committee on Saturday. There was no maximum imposed.

Sold data on IDX is a big change. I realize most folks may not see it as such because of how technology and the industry have changed over the past few years, but it’s a big change.

The other changes, while not as significant as this one, are in the same spirit. Allowing brokers and agents to co-mingle IDX in a single property search is a change that makes all kinds of sense at a time when brokerages can have offices across dozens of MLSs. Mandating that MLSs and brokerage website refresh the data every 12 hours instead of every 3 days simply recognizes the reality that the Internet, rather than the Pony Express, is the dominant technology platform of the day. (Why NAR didn’t simply mandate real-time updates is beyond me… but hey, small steps forward!)

The goal of all of these changes were to help brokers and agents be more competitive on the web and on increasingly important mobile platforms:

Why This Is A Big Deal

I believe these changes signal that the core purpose and function of the MLS has changed. Those changes have been incremental, step at a time, and have sort of snuck up on us. But sold-over-IDX is the final step that clearly suggests that our understanding of the MLS, what it is, and what its purpose is, has changed.

Let us jump in the time machine hot tub and travel back to the ancient days of 2006. You can waste three-and-a-half-hours of your life watching bone-dry testimony before the House Subcommittee on Housing and Community Opportunity of the Committee on Financial Services hearing on Real Estate Sales and the Internet. Or I guess you can take my word for it that these are facts I am presenting to y’all.

In the 2006 hearing, which roughly coincided with the DOJ antitrust action against NAR, the issue was whether the real estate industry was discriminating against new Internet-enabled brokerages that were saving consumers money. With the benefit of hindsight, we can see that the judgment of history is somewhat… ah… mixed. Maybe barriers and the collapse of the housing market were the reason, but it does appear that consumers like the “traditional model” just fine.

But a major subtext of the hearing was whether the MLS should be regulated as a public utility. Consumer Federation of America led the charge on that, and its Executive Director, Stephen Brobeck, testified before that committee and suggested this:

Second, because the MLSs and Realtor.com so dominate listing services, they function as a near-monopoly and should be regulated as a public utility. This regulation should ensure, most basically, more complete and accessible home sale information both to all service providers and to consumers.

Brobeck based this suggestion on the argument that MLS restrict consumer access to information to force consumers to work with a broker:

Accordingly, it is in the interest of both buyers and sellers for there to be complete information on Internet listings and for this information to be easily accessible. Dominant brokers and their trade association, however, have succeeded in restricting consumer access to information through their control of multiple listing services (MLSs) and the national listing service, Realtor.com, which they feed. Home buyers and sellers are attracted to Realtor.com and listings of major firms because they represent, far and away, the most comprehensive set of listings. As a result, most home sellers feel they must contract with a broker in order to have their house listed on the local MLS and on Realtor.com. But there is often insufficient information on these listings – for example, absence of more than one photo or an address – to allow consumers to shop on their own. So, most home buyers feel they must utilize the services of a broker to gain access to complete information about listings.

Glenn Kelman of Redfin also pointed to the MLS as the barrier to innovation. The following is not in his written testimony, but from the transcript (at 2:11:12):

Listing services stifle innovation not just in business models, but in how Web sites share data. I do not think we have focused on this enough today. You can find out more on the Internet about an eBay beanie baby than you can about a $1 million home. Multiple listing services have told us we cannot allow public commentary on a listing. We cannot let people search by time on mar-ket. We cannot display for sale by owner listings alongside commission properties, and that we have to register our users. Rules like this are a thousand tiny shackles on Internet businesses.

In response, industry representatives like Pat Vregood-Combs, President of NAR in 2006, and Geoffrey Lewis, Chief Legal Officer of REMAX, defended the industry in general and the MLS in particular.

Pat Vregood-Combs, President of NAR in 2006, testified as follows:

Real estate reform advocates maintain that the MLS is a necessary utility, and as such, should be available to the public for use. As indicated above, the MLS is a cooperative that not only operates for the use and benefit of its members in serving their clients and customers, but it is created and operated, and its inventory provided by, the very members it serves.

And:

As mentioned above, real estate brokers’ listings are the foundation of their business – their livelihood. Is it right to force businesspeople to give up control of their livelihood just so that others, such as lead generating companies, can profit unfairly from it? If the MLS system were restructured to take away the rights of the listing brokers to market a property as they and their clients see fit, there could be a significant and harmful disruption to the way real estate is marketed to the widest possible pool of buyers

Geoffrey Lewis, Chief Legal Officer and SVP of REMAX, was even more blunt:

The MLS was designed as a B2B vehicle, not a business-to-consumer vehicle. It was designed as a mutual sharing of information by industry peers to facilitate the sale of and search for properties. The idea was that cooperating brokers and agents would work to earn their own customers using their own assets and then share listings via the MLS. The concept is simple: you earn a customer, you get to use the MLS with the customer. The concept is not: you get free access to the MLS and then you use it to advertise the properties of your competitors in order to attract customers.

The MLS is a cooperative among brokers. A broker is licensed under state law. A broker, by law, takes on agency and fiduciary duties towards a client to represent the client’s best interests through every aspect of the home sale transaction. A business that merely seeks to sell a client a yard sign and enter a property into the MLS is not acting as a broker. A business that merely seeks to attract prospective home buyers and sellers to its Internet site in order to sell the prospect’s name to a real broker in exchange for a referral fee is not itself acting as a broker. Businesses that are not truly providing brokerage services do not have a right to participate in the MLS which is established by and for brokers.

Their arguments prevailed — along with one assumes was heavy lobbying behind the scenes by NAR — and Congress did not take action to force the MLS to become public utilities.

The Core Function of the MLS, Circa 2006

At the center of the testimony was the clear principle that the MLS is a broker-to-broker network whose core function is to help participants service their clients. It’s a B2B service, not a B2C service.

A key related concept is that the MLS is not to be used for lead generation but for client service. Geoffrey Lewis’s testimony makes that point emphatically. But so do the current existing MLS rules, particularly as it comes to sold data.

For example, the Model Rules of the MLS from NAR contains this language in 12.2 (I’ll make some comments after each one):

Participants or their affiliated licensees may reproduce from the MLS compilation and distribute to prospective purchasers a reasonable* number of single copies of property listing data contained in the MLS compilation which relate to any properties in which the prospective purchasers are or may, in the judgment of the participant or their affiliated licensees, be interested.

That term “reasonable” seeks to limit the number of listings shown to consumers. The clarification that follows talks about “bona fide interest” by the prospective purchaser, and relates factors such as total number, desire and ability of the purchaser to actually buy the property, whether the data was “on a selective basis” (i.e., did the broker/agent choose the information?), and types of properties.

Reproductions made in accordance with this rule shall be prepared in such a fashion that the property listing data of properties other than that in which the prospective purchaser has expressed interest, or in which the participant or the affiliated licensees are seeking to promote interest, does not appear on such reproduction.

Nothing contained herein shall be construed to preclude any participant from utilizing, displaying, distributing, or reproducing property listing sheets or other compilations of data pertaining exclusively to properties currently listed for sale with the participant.

The broker can use his own listings however he wants, but the first paragraph here is clearly a limit on the ability of MLS participants to share listing data, rather than a grant of power.

Any MLS information, whether provided in written or printed form, provided electronically, or provided in any other form or format, is provided for the exclusive use of the participant and those licensees affiliated with the participant who are authorized to have access to such information. Such information may not be transmitted, retransmitted, or provided in any manner to any unauthorized individual, office, or firm.

None of the foregoing shall be construed to prevent any individual legitimately in possession of current listing information, sold information, comparables, or statistical information from utilizing such information to support an estimate of value on a particular property for a particular client. However, only such information that an association or association-owned multiple listing service has deemed to be nonconfidential and necessary to support the estimate of value may be reproduced and attached to the report as supporting documentation. Any other use of such information is unauthorized and prohibited by these rules and regulations. [Emphasis added]

The key statement is “particular property for a particular client”.

Nearly all of the rules in effect in the 800+ MLSs in the country follow this exact model. The vision of the MLS here is the one Geoffrey Lewis spoke of: earn a customer, you get to use the MLS to help that customer, rather than using the MLS to get a customer. Sold data of the MLS is made available to help brokers and agents run CMA reports, help existing clients price homes, etc. Cooperation and compensation itself is premised on the idea that if you bring me your client and he buys the house I am hired to sell, I’ll share my commission with you.

I think it is clear from these principles that the core function of the MLS circa 2006 was to help brokers help their clients. Helping brokers do lead generation was never a purpose of the MLS.

Evolution

That was the idea in 2006. But the industry was changing even as the hearing was going on, as Trulia and Zillow had both been founded in 2005. The Internet wasn’t a new toy by then, but a critically important lead-generation tool for brokers and agents. IDX had been developed in 1999 and had become a core feature of the MLS by then.

A 30,000-ft analysis of the industry supports the claim that the MLS has been evolving step-by-step to include lead generation as a core purpose.

The first departure was clearly IDX. The whole point of IDX is to help brokers and agents capture Internet leads, and the proposition of the IDX cooperation was “You let me use your listings to generate buyer leads, and I’ll let you use my listings to generate buyer leads.”

The second departure, I think, was the MLS public facing website. HAR pioneered it, but quite a few MLSs began to launch public facing websites (at some controversy) because they saw it as a member benefit to send “free” leads to its subscribers. (I put “free” in quotes since the subscriber is still paying a subscription fee….) Some brokers hated that, others loved it, but the basic motivating idea there is that the MLS ought to be helping its subscribers with acquiring new customers.

The third departure was the Broker AVM rule from Mid-year Meetings — sorry, Realtor Party Convention and Expo. That policy change strikes close to the heart of the idea that “sold data” is to be used to support an estimate of value on a particular property for a particular client. After all, the point of an AVM is to allow customers to get an estimate of value without talking to a REALTOR, and potentially contact someone down the line. It is more of a lead-generation tool (ask Zillow with its Zestimates tool) rather than a market-research tool (CMA’s and BPO’s, which require the active participation of a REALTOR).

And now this policy change. Allowing sold data — a minimum of three years, no maximum — to be displayed over IDX is huge. Mandating that the MLS provide sold data to brokerages is even more emphatic. Model Rule 12.2 (and corresponding rules of each MLS) has to be changed now, since sold data over IDX is in no way supporting an estimate of value on a particular property for a particular client. A lot of the limitations on usage of MLS data — particularly sold data — have to be changed in light of this new policy.

It seems to me that the core function, the core purpose, of the MLS is no longer limited to cooperation and compensation between brokerages. (This is especially obvious when the brokerages themselves were clamoring for this change.) The core purpose of the MLS in 2014 likely includes lead generation.

The MLS of today, properly understood, has added helping its broker participants find new customers to its core mission.

That may be the right thing to do, that may be a change whose time has come, and that may be the reality of where we are with the MLS.

But if so, we should make that decision explicit. Hence, the Grand Conversation.

Why the Grand Conversation?

Due to the evolutionary nature of the changes, MLS policy is still somewhat confused. (See above re: Model Rule 12.2 and its conflict with sold data over IDX.) Some new challenge may arise in the future, and the MLS and the industry will go back to trying to figure it out without a clear set of principles to guide them.

MLS executives and board members have to deal with dozens of issues that arise from changes in technology, changes in demographics, changes in business practices. As of today, I think they’re still operating under the old 2006 philosophy of the MLS. If that philosophy is outdated, then let’s update it so that decision makers have guiding principles they can use to make the right call.

MLS public facing websites may not only be non-controversial, they may be required if the core function of the MLS includes helping its participants generate new inquiries. Sold data over IDX may mean that the VOW is an antiquated concept and technology. MLS platforms, which offer antiquated “email gateways” may be required to update those to fulfill the core mission.

There are numerous other questions that can perhaps be resolved without great controversy if we all understand that the core purpose of the MLS has evolved.

Inman Connect is coming up in January. T3 Summit in April. Either of those would be an ideal place to have that conversation. I hope we have it, and I look forward to it.

And of course, we can start the conversation right here on these pages and on other sites. Let’s do this thing. It’s high time.

-rsh

PS: Given my rep for “stirring the pot”, some folks might think I oppose the recent changes in MLS policy. Nothing could be further from the truth. I think those changes are long overdue, especially the commingling rule change. I don’t even think this conversation would be an argument; I think the Grand Conversation is a unique opportunity for people to have a serious discussion about what the MLS is and should be in the 21st century. It would be useful as hell, and fun to boot for real estate nerds.