Data Manipulation in the MLS is a Must Fix Issue

Yesterday, an item on Facebook caught my eye. It was someone sharing a Medium post by Frances Flynn Thorsen, the “Blogmother” of real estate. Before you continue, I strongly suggest reading the whole thing. (You’ll need a Medium account, I believe.) There’s quite a lot of history here, including some sordid drama involving criminal extortion, professional rivalries, and even a whiff of political corruption, but Thorsen is pointing out that all the drama is distracting us from the real issue: data manipulation in the MLS.

Even though I’m trying to finish up my next Red Dot, with the annual CMLS Conference starting tomorrow, I thought it worth writing this for my friends who will be gathering to talk about all kinds of issues impacting the MLS industry. I’d really like to urge you all to discuss this issue, if nothing else.

For the TL;DR crowd: This is a really big deal that stabs at the heart of the value of the MLS. If the MLS can’t guarantee data integrity, rest assured that someone else will, or Big Brother will step in.

Bit of Background

I have heard about this and known about it and even communicated with Kevin Tomlinson (I do wonder if there is a real estate blogger who hasn’t heard from Kevin in the last few years) about it. But honestly, I can’t explain it better than Frances Thorsen does in this Youtube video:

Is she biased? Probably. I have no idea. I haven’t spoken to her about this or about Kevin Tomlinson. But Frances does know her shit when it comes to MLS, MLS data, and the industry.

And in the video, she was coy about “any similarities to real persons or events is purely the fault of the perpetrators. In her recent Medium post, she was not coy at all:

Jill Eber said in her deposition earlier this year that The Jills wanted to keep expired listings off the MLS Hot Sheet, “so that their sellers would not be contacted by other agents.”

Manipulating the data and removing a listing from the hot sheet reduces the likelihood that the seller will be contacted by another broker on the expiration of the listing. Plus, it could reduce buyer questions about why listings had languished on the market.

Jill Hertzberg said in open court earlier this year that they instructed their assistant, Juan Otoya, to keep expired listings off the Hot Sheet, and gave him their admin-level broker access code to accomplish that.

According to Otoya’s testimony at the extortion trial, he changed the information in key data fields in the property listings just before they expired, including area code, tax folio number, zip code and other pertinent information. These changes broke the data bridge between MLS property data and county tax records and rendered these properties non-searchable by MLS users.

When Otoya broke the data bridge between the MLS and county tax records, he altered the course of each property’s sales and marketing history, effectively erasing 65 years of market time for The Jills listings in the four-year period between 2011 and 2015.

It is safe to say that The Jills willfully engaged in data manipulation. Earlier, The Jills’ story was that the changes were unintentional, according to The Real Deal:

Later that month, Tomlinson cited 353 alleged MLS manipulations, including 30 changes to active listings in 2014. The Jills spokesperson, however, previously told The Real Deal the MLS changes were unintentional, and only concerned expired listings.

Well, that was a lie. Either that or a lot of people committed perjury, so I’ll go with telling lies to a real estate blog vs. telling lies to a judge.

Enforcement is the Issue

Thorsen is right that all the drama, the poor decisions by Tomlinson, the court proceedings, etc. obscured the real issue here: enforcement of the MLS rules that guarantee data quality.
Thorsen writes:

Since the complaint, MAR and Coldwell Banker have taken steps to prevent data manipulation in the future. But MAR has not taken action on Tomlinson’s three-and-a-half-year-old ethics complaint against The Jills.

MAR contends its hands are tied.

<“If there is a criminal or civil action initiated subsequent to the filing of a complaint with MAR, MAR will not go ahead and adjudicate the complaint until either the civil or criminal action has been resolved. The matters are placed in abeyance,” said MAR CEO Teresa King Kinney.

The explanation does not satisfy many local brokers.

That explanation should not satisfy anybody. And MLS CEOs and Boards should really think about this hard.

[UPDATE: A reader who is far more knowledgeable than yours truly in the Association ethics/arbitration rules points out that Part 3, Section 19: Grievance Committee’s Review of an Ethics Complaint specifically requires abeyance:

If criminal litigation is pending related to the same transaction or event, the Grievance Committee shall cease its considerations and instruct the Board Secretary to hold the file pending until such time as the criminal litigation is concluded. A report shall be made to the Board President. (Revised 5/11)

I regret the error, and hereby absolve the Miami Association of REALTORS of all sin, if they would absolve me of my sin in not researching further.
However, my points still stand as applies to NAR and this rule in Part 3, Section 19. Please see below.]

The Legal Proceedings Excuse

There is no relationship between a private group’s internal rules of discipline and the judicial system. I don’t know what the history of this “abeyance” rule is, but the NAR Code of Ethics and Arbitration Manual makes no mention of such a rule. In fact, the Manual specifically says this:

Part 4, Section 25 — Preliminary Judicial Determination Prior to Imposition of Discipline

If the Board of Directors has reason to believe that the imposition of a proposed sanction will become the basis of litigation and a claim for damages, it may specify that the discipline shall become effective upon entry of the final judgment of a court of competent jurisdiction in a suit by the Board for declaratory relief declaring that the discipline proposed violates no rights of the member.

That is, the Manual (and NAR) specifically contemplates that the Board would impose discipline for ethics violations that could result in the REALTOR being disciplined to bring a lawsuit alleging bias, unfair treatment, whatever. So the Manual tells the Board that they can impose discipline, but make it effective upon a court saying that discipline doesn’t cause any legal problems for the Association.

The Code of Ethics (and presumably MLS Rules and Policies) are not laws. No legislature anywhere adopted the Code or the MLS Rules; if they had, they would be actual laws on the books somewhere. No regulator anywhere created the Code or MLS Rules and do not enforce them. They are private rules of private organizations, and the organization itself can, should and must enforce them.

To then say “we’re not going to enforce our own rules until a court somewhere has ruled on something unrelated” is… well, some bizarre Kafkaesque nonlogic. If you’re going to have rules, then you have to enforce them yourself.

[ADDENDUM due to the Part 3, Section 19 issue above.]

While MAR is not to be blamed for holding off, since NAR rules require it, that rule is to be questioned for the reasons above.

The logic here seems to be that a REALTOR could be convicted of criminal wrongdoing and thereby lose his/her real estate license. That would normally expel him/her from the ranks of REALTORS, so the Association doesn’t have to do anything more.

I disagree. The Association can and should punish its own members for violating its rules, and let the government punish the same person for violating its rules. Render unto Caesar and all that.

Furthermore, Part 3, Section 19 is inexplicably tied to the transaction or event — “criminal litigation is pending related to the same transaction or event” — instead of to the REALTOR. In the case of The Jills and their data manipulation, that put MAR in a bind.

At the very least, NAR should revise the language to tie it to either the Complainant or the Respondent, to the REALTOR in question, rather than to the transaction or event. Let the courts sort out the transaction or event under their rules, for violating the law. The Association and the MLS ought to enforce their own rules themselves.

[END ADDENDUM]

Something Unrelated

What’s more, the “criminal or civil action” here is completely unrelated to the alleged rule violation at hand.

The criminal action was Kevin Tomlinson, the whistleblower, being tried for felony extortion. He was found guilty, so… okay, Kevin’s an idiot who did something stupid and will now be paying for that for the rest of his life. What in the world does that have to do with the allegations of data manipulation by The Jills?

The Jills were not on trial for extortion. They weren’t going anywhere. The abeyance might make sense if the person being alleged to have violated the rules is also being charged with a crime or being sued by a victim. So maybe the Grievance Committee and the Board of Directors want to wait to see how the criminal or civil action gets resolved to take that into account in assessing the discipline. “Yes, it’s a rules violation, but nobody was hurt — $50 slap on the wrist seems good” vs “That rule violation led to this widow losing her home — terminate membership now!”

In this case, it was the accuser/whistleblower/witness who was being charged with a crime not the people who violated the rules and the Code of Ethics. That Kevin is a felon could impact his credibility at the Ethics hearing, but not to hold a hearing at all? Not to enforce the rules at all? That makes no sense at all.

Don’t Just Adjudicate, Prosecute

One of the issues here may have been that the typical MLS or Association ethics violation hearings require an complainant and the respondent. Someone has to “bring the charges” and bring evidence to support them. If the complainant does not or cannot show up to the hearing, then the hearing can’t be held:

In the event the complaint scheduled for hearing is from a REALTOR® or REALTOR-ASSOCIATE® who has not requested a continuance in writing or who has not been granted a continuance, and who refuses or is unable to attend the hearing, the complainant shall be advised that refusal to participate in the hearing, absent a satisfactory reason, may result in a charge that the complainant has violated Article 14’s obligation to place all pertinent facts before an appropriate tribunal of the Board. (Revised 5/12)

If the REALTOR® or REALTOR-ASSOCIATE® complainant continues to refuse a duly noticed request to appear, or if the complainant is excused from appearing for reasons deemed valid by the Hearing Panel, the hearing shall not take place, but rather the complaint shall be referred back to the Grievance Committee. If the Grievance Committee determines that there is sufficient information for a Hearing Panel to consider (i.e., that there is clear, strong, and convincing proof), the complaint shall be amended to name the Grievance Committee as complainant and the hearing shall be continued to a new date. The respondent shall be provided with a copy of the amended complaint in such cases. (Revised 11/98)

Maybe that’s the source of this “abeyance rule” in Miami. But this is a real problem in enforcement.
There are rules and Code of Ethics provisions that have to do with professional to professional conduct: commission disputes, badmouthing someone, stealing a client, etc. Those are more in the nature of “civil actions” and the issue is that one person feels wronged by another.

And then there are rules and Code of Ethics provisions that are about the integrity of the system as a whole: absconding with the client’s earnest money, lying to clients, lying to the public, dual agency without disclosure, etc. etc. Pretty much the entirety of Articles 1-14 (covering Duties to Clients and Duties to the Public) are these kinds of rules. No particular broker or agent is harmed by that kind of a violation, but the Association itself, the image of REALTORS, the integrity of the whole kit and caboodle, are harmed by that sort of a violation. These are not “civil actions” but “criminal actions” and the offended party is not some REALTOR, but the Board/MLS itself.

In that case, the Association/MLS itself must prosecute the offender. The NAR Manual provides for this exact scenario:

Upon its own motion the Grievance Committee may, and upon instruction of the Directors must, review the actions of any member when there is reason to believe that the member’s conduct may be subject to disciplinary action, and, if the evidence of unethical conduct warrants a hearing, shall prepare a complaint, refer it to the Professional Standards Administrator, and designate one of its members to present the case at the subsequent hearing on its behalf as complainant. [Emphasis added]

In this case, we have allegations (that were ultimately proven in a court of law) that The Jills intentionally and explicitly manipulated MLS data. Kevin Tomlinson filed an ethics complaint, providing some evidence to back it up. He then went and committed a felony. So what?

The Grievance Committee of MAR should have prepared its own complaint and filed it on its own behalf as the complainant. Tomlinson wasn’t directly harmed by the data manipulation — the entire MLS was, along with buyers, sellers, and the public.

The Consequences of Failure to Enforce

To be honest, I think it’s one thing for the REALTOR Association to fail to enforce its own rules. I mean, it’s a private trade organization of likeminded individuals who want to lobby the government, socialize and network, and have luncheons. Yes, the Association itself should enforce the Code of Ethics, but if it doesn’t… not that big a deal. Yes, it ruins the REALTOR brand if you don’t enforce the Code of Ethics, but since everybody is a REALTOR, we all recognize that the brand doesn’t mean anything.

The MLS is different.

In the age of Zillow, Realtor.com, and Redfin, the value of the MLS is directly tied to its integrity. If the MLS data is suspect, then the MLS is of no use. Don’t believe me? Listen to Jill Hertzberg:

Jill Hertzberg said in sworn testimony she is not worried about sanctions from MAR, or possible suspension of her MLS access.

Hertzberg said MLS suspension would not impact her business. “I don’t deal with MLS. I have assistants who do that. So they would keep their license and they could provide it [MLS data] to me.”

“Theoretically, if any agent, including The Jills, could not use the MLS we would have to do business differently,” she added. “I could go on to anyone’s website and pull up any information I need. Any top producer has a website. Or you could go to Redfin. There are many different sites you could go to that pull up everything you need. So we would just have to rely on different things. You don’t have to be a member of MAR to be a real estate agent.”

“You can be a real estate agent and not pay for MLS. And be a real estate agent. Sell and buy and represent people and do everything. And have a nice business. So I guess I would have to just figure it out,” Hertzberg said. [Emphasis added]

Sure, other brokers disagreed with Hertzberg about not needing the MLS, but here’s what Elena Bluntzer, broker of The Bluntzer Group Real Estate, said: “It affects us terribly because you cannot rely on the information you are pulling out of the MLS.”

What good is an inaccurate, untrustworthy MLS?

If You Won’t Enforce the Rules, Others Will

If the MLS will not enforce its own rules that pertain to data integrity, then rest assured that others will rise up to take its place. In a way, they have no choice, because they are relying on the data from the MLS, believing it to be “the gold standard” of accuracy.

Zillow is already tarred and feathered as the “inaccurate” website. Just to defend themselves, they’re going to have to start up a Compliance Department and start making rules about data accuracy and data integrity, and then enforce them. Realtor.com and Redfin are in the same boat. Think they don’t have the resources to setup a data compliance team in a few months, at most?

Startup companies and alt-MLS (like MyStateListings) might take note as well about the data integrity issues due to lack of enforcement. “You can’t trust the information in XYZ MLS; come join us and get information you can rely on!” seems like a decent marketing pitch, especially in the age of MLS of Choice.

But the reason why portals and startups might have to think about doing something is….

Big Brother Will Absolutely Step In

What we have to realize is that people other than REALTORS and their clients, and companies other than brokerages, and industries other than real estate, rely on and use MLS data. At the top of my list are Wall Street investment banks, credit rating agencies, and giant investment firms.

Companies like CoreLogic, Black Knight, and Altos Research make bank selling housing data to these financial firms. A lot of that data either comes from, or is derived from, MLS data.

The U.S. mortgage market is some $1,744 trillion (with a TR) in size. Banks make 3.5% return on equity on that, which is $61 trillion (with a TR) every year. Insurance companies, pension funds, sovereign wealth funds, university endowments, and other investors put hundreds of billions of dollars into mortgages and mortgage-backed securities.

As you might recall, when the Bubble collapsed, the entire global financial order was at risk. There was serious talk from serious people that the banking system would collapse and financial ruin that makes the Great Depression seem like a picnic was at hand.

At the heart of this economic engine and money machine are sophisticated pricing systems that help bankers and investors price the risk in home mortgages, and credit rating agencies that use very sophisticated systems to rate RMBS and RMBS tranches. When the Bubble burst, that sophisticated system failed. The algorithms could no longer algorithm. Why?

This is a slide from my 2013 Black Swans presentation. I talked then about the U.S. Senate report on the financial crisis. Buried in that report is the language I’ve quoted.

The absence of relevant data led to a potential meltdown of the global banking system. None of us have forgotten, I hope, what it was like from 2007 to about 2013. Major Wall Street institutions (Lehman Brothers, Bear Stearns) went down in flames. Fortunes were lost. Millions of families lost their homes.
How about inaccurate, manipulated data then? If it turns out that these sophisticated systems are doing their credit ratings, their predictions, their pricing, etc. using inaccurate, untrustworthy data… how’s that going to play out at the next Senate hearing? Or for that matter, at the currently ongoing FTC-DOJ investigation into the real estate industry?

As it happens, the United States and its taxpayers spent $700 billion to bailout the banks in September of 2008. But the real cost, according to Forbes, is $16.8 trillion (and counting). There is no chance in my mind that the Feds do not step in if this MLS data manipulation thing, and the lack of enforcement by the MLS and the REALTOR Assocaitions, are not nipped in the bud, like yesterday.

We all should be thankful for now that the data manipulation story is just inside-baseball, MLS-specific, weird oddity that no one cares about outside of our little sphere. The mainstream media hasn’t picked up that ball and run with it, because the salacious drama sells, and boring data enforcement stuff does not.
I think that means we have time and opportunity to address this issue right now, before it (a) gets bigger, or (b) gets out into the public/political consciousness.

Not Just Miami, Y’all

Lest you think this was a single instance of a single agent team in Miami doing something shady, and one local Association failing to enforce its rules, go look on social media at all of the brokers and agents from around the country talking about similarly suspicious happenings in their MLSs.
And lack of enforcement by the MLS and the Association for violations is a widespread, well-known phenomenon. Let’s not kid ourselves here.

So, as my friends and colleagues gather in Orlando this week to talk about all things MLS at the CMLS conference, first, have fun, second, I’ll miss you guys, but third, make sure you not only talk about this issue of data manipulation and rules enforcement, but actually come up with concrete plans/steps to do something about it. This is a really big issue. Don’t let it get bigger.

When it comes to data integrity, if it’s not right, it’s not okay.

-rsh