Rethinking How MLS Rules Get Made, In Light of NOW Model

Over on Inman, Sam Debord, CEO of RESO, longtime friend of ours (even if we argue a bunch in public), and all around great guy penned an Op/Ed titled “Unshackling MLS data: It’s time to accelerate NOW.” I figured Sam was a supporter of the National Organization of Women, but… oh wait, different NOW. Sam meant the Networked Office and Web model for MLS data rules.

He argues that this “one policy and one license for one holistic data set” is a concept widely supported by brokerages and MLSs alike. I agree.

He points out that where NAR is right now is a bit a headscratcher:

Headlining current pain points for brokers is an MLS policy proposed by CMLS and ratified by the National Association of Realtors (NAR). It requires that brokers are allowed to access their own listing data when participating in an MLS.

How was this not already the default? It’s been a frequent question. The always-quotable Art Carter, CEO of the California Regional Multiple Listing Service (CRMLS) jokingly said, “If a brokerage wants to club a baby seal with its own data, who am I to tell them they can’t?”

Instead of giving brokerages back their own listing data, Sam promotes the NOW model.

I happen to agree 1,000% with Sam and the brokerages who are quoted in the Inman article. It’s long past time to modernize MLS data access rules.

However, I am left with yet another headscratcher: Why is the NOW model not already in place all over the country?

The answer to that, I think, points to a serious need for reform on how MLS rules are promulgated in the first place.

For the TL;DR crowd: We need a far more bottom-up approach to MLS rules, one that mimics old school federalism, rather than the top-down approach that exists today. As a stopgap/politically-feasible measure, we need to create Centers of Innovation by giving waivers to NAR rules to a select group of MLSs that can handle the challenge.

The NOW Model

We can’t talk about this without at least touching on Sam’s proposal: the NOW Model.

Essentially, the NOW Model would replace the hodge-podge of various data feeds and the complex rules that govern them. So instead of IDX, VOW, Broker Back Office, and Valuation data sets (and Valuation critically includes Sold data), NOW would replace them all with a single data set combined with rules to govern usage, rather than access.

Sam writes:

These data sets overlap each other, and the rules for employing each set create an unnecessary maze for brokers. They have grown out of 20-year-old policies individually updated over time but not reimagined as a whole.

In designing a new model, the first focal point would be on the business needs of the broker. Streamlined rules and compliance would be created to fit those needs.

…

The NOW data would provide the utility of IDX, VOW, BBO and valuation data in a single model. A single policy would clarify which data uses are prohibited and then allow participants to find creative ways to leverage the power of the cooperative’s data. The license would include rules for the display or distribution of data by the participant and provide flexibility for data uses internally and with clients.

This is eminently sensible. Brokerages leaders quoted in his article are absolutely spot on that brokerages need far more flexibility, particularly in data analytics, to provide value to consumers and to agents and to compete. Let them!

So again, I am heartily in support of NOW Model in concept. I’m sure the devil is in the details, but hey, I’m not on those committees and workgroups so I’ll hold my peace until I see the details.

Instead, I’d like to turn our attention to a bigger picture issue.

Why Was NOW Not Already In Place All Over?

The question is, given that people like Art Carter at CRMLS, Rebecca Jensen at MRED, and Brad Bjelke at Utah Real Estate (who is also chair of CMLS) are in support of NOW, and numerous brokerages were and are in support of NOW, why don’t we already see NOW implemented all over the place?

The answer, of course, is that the way that MLS rules are created is top-down.

NAR controls the rules for all REALTOR-owned MLSs (and quite a few of the broker-owned MLSs follow what NAR has done, because… why redo work?). Since there are but a few broker-owned MLSs in the country, let’s just go ahead and say “all MLSs” for this post.

The most entertaining and most important (in some ways) committee meetings at every NAR convention has always been the Multiple Listing Issues & Policies Committee. It’s often standing-room only, because this committee controls the rules and policies that all MLSs have to follow.

This might have made sense at some point in the past, but it really does not serve the MLS, the brokerages and agents who use the MLS, NAR’s membership, NAR itself, and the overall industry well anymore.

Because the way things go today is something like this:

• Local MLS Committee comes up with a rule, or a change to an existing rule.
• Local MLS Board considers that change, likes it, and wants to implement it.
• Local MLS solicits feedback from local brokerages and members, and they like the rule.
• That rule is sent up to NAR, to CMLS (which sends it to NAR), to RESO (which sends it to NAR), or whatever for more discussion, more meetings. Typically, it goes to the Emerging Technology & Issues subcommittee.
• Once the rule survives that, it is forwarded to the NAR MLS Issues & Policies Committee.
• The Committee debates the rule, studies it, etc. and then we wait for one of two meetings (Midyear and Annual), where the Committee debates it some more, asks for audience comments, etc. There is a vote. If successful, the rule moves on.
• Should the Committee approve the change, then it goes to the NAR Board of Directors.
• Upon NAR Board approval, the rule is finalized.
• The Local MLS may now implement said rule.

Months, sometimes years, have passed in between the Local MLS deciding that it needed to change a rule and actually being able to implement it. In some cases, the rule change is now completely irrelevant because the world has passed on while the various committees and workgroups and organizations debated it.

Example? I can remember fierce debates a few years ago about distributing listing data over voice, so brokers and agents can have Amazon Alexa tell buyers about listings for sale. Do you remember seeing all the consumers telling Alexa, “Hey, what houses are for sale around me?” I don’t. Because by the time the rule was implemented, the world had passed on. It turns out that consumers don’t really want to ask Alexa for listing information; they want to see pictures and videos, not have their in-house spy Alexa tell them about houses.

But that example is a good one as to why the current system does not serve anybody, including NAR itself.

Lack of Empirical Evidence

The top-down approach inevitably means that there is a lack of empirical evidence for the impact of a rule or a rule change.

Take the Alexa situation above. The debate centered around “what might happen” both good and bad, rather than “what had happened.” Had a dozen MLSs already allowed listing data over voice, we might have had a bunch of data that shows whether allowing or not had any impact, good or bad. If there were abuses, we would have had empirical evidence. If there was market adoption, we would have had empirical evidence.

The same goes for NOW Model. I happen to think it’s a wonderful concept, to replace all of the various data feeds and access rules and complexity with a single feed coupled to streamlined rules. But that’s in a vacuum, with no empirical data one way or the other. Sam DeBord has to pen an Op/Ed with zero empirical data to share.

If there are abuses, as Sam suggests, then there ought to be actual empirical evidence. He writes:

Will bad actors seek to exploit streamlined data access? Of course, but that’s nothing new. Will there be unintended consequences? No decision has ever been made without them.

Yet we can’t let a few bad apples spoil progress for the rest. Empowering professionals to serve consumers with efficient technology has to trump the fear of the unknown.

Had CRMLS, MRED, and Utah already implemented the NOW Model, Sam would be able to write something far more powerful instead:

Bad actors did seek to exploit streamlined data access. That’s nothing new. But the experience of CRMLS, MRED, and Utah show that the MLSs have easily caught these bad actors, disciplined them, and all is well. And only 1% of the Participants were bad actors to begin with, so this is a non-issue.

A few bad apples did not spoil progress for the rest. These three MLSs have successfully empowered professionals to serve consumers with efficient technology. There is nothing to fear from the unknown, because we actually know it.

As for unintended consequences, the experience of CRMLS, MRED and Utah shows that they are quite limited. I have the data in spreadsheet format for the Committee’s consideration.

Craig Cheatham, CEO of Realty Alliance, says in support of NOW Model:

MLSs have the potential to streamline their own workload while empowering brokers with the removal of unnecessary red tape that requires time and effort to regulate. Leaving business decisions to brokers is a win-win.

This is pure opinion, unsupported by any facts or data or evidence. It should be more. What Craig Cheatham should be able to say is:

MLSs that have implemented NOW Models have streamlined their own workload, with an average of 22% annual savings in expenses, and brokers in those MLSs have also saved 18% in annual savings, while increasing productivity by 8% on average. Leaving business decisions to brokers is a win-win. I have the tables to share if the Committee would like to see the data.

What the 21st century calls for is a bottoms-up approach to MLS rulemaking that preserves a role for state and national Associations, but makes the entire structure far more flexible, far more useful, and far more adaptable.

I have two suggestions on how. First is the optimal approach, but may be difficult; the second is a patch job, but it will be better than what we have today.

The Optimal Solution: Federalism, MLS Style

First, NAR and the MLSs and the brokerages — along with CMLS and RESO and other interested parties —  should convene a Convention, somewhat like a Constitutional Convention, to go over the existing MLS policies and rules. The bias should be towards removing those rules that truly do not have a national common consensus.

For example, I feel reasonably confident that there is national consensus on MLS Antitrust Compliance Policy. No local MLS wants to get sued for antitrust violations. Keep rules like that; ditch the rest.

Second, where NAR rules and policies are silent (and there should be enormous swathes of current rules and policies where NAR is silent), put the responsibility on creating the rules on the state REALTOR Associations, but with the same model as NAR’s hands-off approach. The reason for putting the state REALTOR Associations in charge here is that real estate laws are state-wide, not city or county-wide. There are likely MLS rules and policies that have to adhere to state law — best example are non-disclosure states like Texas — so letting the state REALTOR Associations add a thin layer of statewide rules makes sense. Those rules must be directly connected to state laws. Everything else is left to the Local MLS/Association.

A statewide Convention of MLSs likely makes sense in order to determine which rules and policies ought to be promulgated statewide. Despite the state Associations not having actual power over the local, because these rules and policies are directly connected to state laws, there ought to be broad consensus on them.

Third, each Local MLS needs to go over its existing MLS Rules and Policies, which will now be populated with vast expanses of blankness, and promulgate those rules and policies most appropriate for its Participants and members.

Is Clear Cooperation Policy appropriate for your local market? Then promulgate that. Does it not really fit with business practices of your local market? Then don’t.

Is NOW Model something you want to adopt? Go for it. Is it something unnecessary for you? Then don’t.

The experiences and the empirical evidence flows up from each local MLS, first to inform the state rules, then to inform national rules.

This way, each Local MLS is able to conduct business, set rules, set policies, and do what is in the best interests of its brokers and agents. It can collect the data, compile experience, and share concerns and non-concerns with others within the state first, then throughout the country second.

This is the optimal approach, and one best suited for long-term stability, viability, and soundness. It is, however, difficult to do because it requires an overhaul of the entire way we do things today. But I put it out there in case future generations might want to take the best path.

Sub-Optimal, But Gets the Job Kinda Done: Centers of Innovation MLS

The less-optimal path, but one that might be politically feasible today, is for NAR to designate a select number of MLSs as “Centers of Innovation” and give them waivers on huge chunks of the NAR policy and rules.

We can put in whatever conditions an MLS has to meet before it is given that waiver, but a few thoughts come to mind.

• The MLS must have solid legal counsel, vetted by NAR Legal, so that NAR doesn’t have to look over every rule change.
• The MLS must have the kind of governance structure that reassures the MLS, the brokers, and NAR that its decisions will be rational and business-focused, rather than protectionist and anti-competitive (see below)
• The MLS must have a track record of collaborating with NAR and with other MLSs, whether through organizations like CMLS, RESO, MLS GRID, or whatever. Maybe require at least six other MLSs to vouch that the MLS in question is one that knows how to and likes to share knowledge and collaborate.
• The MLS must have sufficient financial strength to deal with any unforeseen consequences, without having to drag NAR into a mess.
• The MLS must demonstrate sufficient technical competence, resources, and a record of rules enforcement to show that it is capable of implementing and enforcing any rules and policy innovations.

There are a number of large, professionally-operated MLSs that could meet these criteria. CRMLS, MRED, Utah all fall into this group. Most of the Top 50 MLSs would also qualify. There isn’t a rational person in the industry that thinks HAR under Bob Hale or BrightMLS under Brian Donnellan couldn’t make, implement, and enforce its own rules without needing to run to Big Daddy NAR for everything.

These larger MLSs are also the ones that have historically posed zero problems for brokerages large and small. They do not operate generally out of protectionist concerns; they operate for the benefit of the entire membership, of the local markets, and of their Participant brokerages. They know how to gather feedback, create consensus, and try new things in a smart way. And if they create some local rule, they know how to work with larger brokerages to ensure that it doesn’t result in total chaos and complexity.

So let them be the laboratories for the rest of the MLS industry. Let them try new rules, new policies, without the arduous and time-consuming process it requires today. Let them work with their local brokerages, which usually include the national players, to try new ideas out, gather data, get empirical evidence, and share those with everyone else so we all can make better decisions as it comes to MLS rules and policies.

Sure, we may end up missing some of the innovations from smaller MLSs, and there is no real federalism here with a role for all three levels of the Association, but this would still be a damn sight better than what we have today.

This path only requires that these large MLSs get together with NAR and with some of the large companies and decide which provisions are  to be waivered. Much easier to do.

The Fears, Concerns and the Need to Get Real

I’ve spoken to a few leaders in the MLS space before writing this and… well… they like the general principle of more federalism in order to foster greater innovation, but they do point out some issues.

First, the goal and the vision of the larger MLSs and larger brokerages who are often the most tech-forward companies is not greater fracturing. The goal is more unification, more simplification, and more standardization. Brokerages already have to deal with small rule changes in the 370 MLSs they have to belong to. The prospect of potentially having 370 big rule changes is not a welcome one.

Second, the reason why so many MLSs don’t want to do any rulemaking before getting NAR’s blessing is liability. To be more precise, they want to keep NAR’s umbrella liability coverage insurance, which they get as REALTOR organizations in compliance with all of NAR’s rules and policies. Suppose a Local MLS promulgates some rule that makes sense for 99% of its brokerages. The 1% brings a lawsuit alleging some kind of wrong. With NAR’s blessing, the cost of defending that lawsuit is picked up by the insurance coverage; without it, the Local MLS is on the hook. They don’t want to have anything to do with being on the hook. The safer path is to wait, petition NAR, and get it approved by NAR before taking any action.

Third, many Local MLSs are tiny affairs, with a skeleton staff serving a couple hundred members. They have neither the will nor the resources to engage in rulemaking. They would rather just copy & paste whatever NAR promulgates, and call it a day.

Fourth… time for a hard reality check. It is a poorly kept secret in the industry, particularly as it comes to the Local MLS, that many of the smaller ones are operated by small local brokerages as a way to keep out the competition from the larger, better funded brokers and franchises with better advanced technology. They will faithfully promulgate NAR rules, but implementing them? Well… that takes time and money and staff work and the small local has none of those to spare… so it might take a few months to actually get something to the Big Brokerage from New York or Denver what it needs. And then that data feed might break, or some rules not strongly enforced, or what-have-you.

I have personally seen this dynamic outside of small Local MLSs. I’ve been in boardrooms where actual Directors have named specific competitors (whose name might or might not rhyme with Schnompass or Breadbin) as a reason to pass or not to pass some rule or another. You can almost see the panic in the legal counsel’s eyes as he/she tries to steer these Directors off the antitrust ledge.

When facing such weaponized MLS governance, big brokerages and national companies have learned that they can’t fight the locals, especially when the MLS and the Association are one and the same. They have a much better shot at pushing things down through NAR, where their size gives them a bigger voice. So when small protectionist brokerages weaponize the Local MLS, the big brokerages weaponize NAR.

That’s the reality of the situation we find ourselves in.

The Simple Truth, Not the Easy Mode

There are several simple solutions to the impasse. None of them are easy. That which is simple is often the most difficult.

The simple truth is that the industry needs to eliminate somewhere in the neighborhood of 300-400 Local MLSs. There, I said it. You all think it, of course, but it is my special privilege and role to say things out loud.

But how? That’s the question that has been bedeviling the industry for years and years.

The conventional wisdom approach is to engage in a long and elaborate courtship dance until everybody feels warm and fuzzy and secure and agree to merge, consolidate, or data share in some way. That approach will work, eventually. In another 10 years, we may be down to 450 MLSs. Another 10 after that, perhaps 400 MLSs. Of course, by 2040, we might be having lengthy discussions about whether an inter-planetary data sharing agreement is legally binding as agents are selling houses on Mars, and if a self-aware AI in the Cloud can become a Participant.

I doubt we’ll have that much time to keep on keeping on at our current pace. But that’s a problem for MLSs and their brokerages to solve.

This plain truth, however, does not justify the broken top-down system we have today that exists almost entirely because the bigger national and regional players can’t overcome the protectionist mindsets of the smaller local MLSs and their anti-competitive brokerages.

Taking the federalist approach would be best, but the world constantly falls short of ideals. Let’s not let the perfect be the enemy of the good enough and make progress.

Create Centers of Innovation. Let those MLSs who can handle it try new things, so the rest of us can learn from their experiences.

-rsh