Breaking Down LEAP Part 3, Breaking Down the Rules

Sam DeBord has posted something he himself called “where we dig into the hard work.” It’s worth reading if you’re in the MLS subsector, or care deeply about it. If not, I doubt you’d care very much. The post is “Breaking Down the Rules: Brokers and MLS Data (LEAP Part 3).”

Since he asked people to Join the Conversation, and since I’ve already done so via a post or two and a video, let me do just that and do some thinking and question asking about what Sam posted.

I’m not going to go line by line, but I am going to post sections and react to them. I thought that would be the best way to handle something that is digging into the hard work. As you can imagine, this post is going to be dense and hard reading, because the topic is dense and obscure.

I Support LEAP Generally

Right off the bat, let me do this caveat: I think IDX and VOW and MLS data rules generally are old, decrepit, and in much need of updating. Yes, it would be wonderful to have more modern data standards and data licensing so that brokers and tech companies can be more innovative and offer more to consumers.

While it is true that I think a deeper conversation needs to be had about the role of the MLS, I’m not some all-or-nothing zealot. If we can make improvements along the way to that grand conversation, so much the better.

The general approach of LEAP — where the MLS would designate each data field with usage (Public, Client, Broker) — is something I think is workable. It’s certainly more elegant than the mess we have today. So I’m generally supportive of these reforms… but I have further questions and thoughts.

The Big Why

Let’s start with the stated reason for LEAP:

The Problem (a reminder): Brokers are forced through a labyrinth of policy and rules to get approval, access, and usage rights for MLS data. Broker innovation stagnates and technology can’t scale efficiently across markets in this environment.

The problem, as Sam sees it (and perhaps by extension, the RESO and CMLS people behind LEAP see it), is that there are National Policy/Rules and Local Policy/Rules. The goal of LEAP then is:

The Goal: Push as many rules of data access and usage upward to a national level to create a simpler process for brokers and a more consistent compliance framework for MLSs.

I think it’s important to keep this Goal in mind: to push rules and policy to the national level.

The Notorious Clause

I thought he was talking about something I said… but turns out, this clause has nothing to do with yours truly. Here’s what Sam writes:

The Notorious Clause: There is a proposed clause in the current LEAP draft that has garnered much attention: “MLSs may not impose any limitations, restrictions or conditions on the use or display of the MLS listing content other than as specified in this policy.”

The clause aligns philosophically with the aforementioned goal: consistency and certainty in national rules. It also, therefore, needs many details defined in those rules to be effective (whether the clause itself survives or not).

Again, the idea is simple: remove as much of the Local Policy/Rules as possible… then prohibit the local MLS from putting restrictions or conditions. Think of it as an explicit Supremacy Clause.

Lest this appear far too tyrannical, Sam points out that the National Policy/Rules would be cobbled together from local rules and licenses:

Initiative #1: Analyze rules from the bottom up. Take well-known concepts from local rules and licenses and assess their viability as national rules. Consolidate as much as possible at the national level and provide a model local license for the remaining terms an MLS might need.

Problem #1: Who Negotiates?

We don’t know specifically how this synthesis would take place, but presumably it would be some kind of a committee/workgroup process wherein local MLSs debate and discuss policies then come to some sort of consensus. That sounds ideal, except that such a scenario is probably not logistically feasible. There are over 600 MLSs after all, which means most of the local MLSs will rely on some larger group like CMLS or NAR committees to do that for them. (I can say with reasonable certainty that small local MLSs do not accept that large regional MLSs like the MREDs and CRMLSs of the world speak for them and can negotiate on their behalf.)

Do the local MLSs trust these organizations? In what way could those committees and organizations said to speak on behalf of these locals? Sure, a local REALTOR MLS must abide by the National policies and rules, but there’s a big difference between abiding by policies and rules that they feel they had a part in crafting, and policies and rules handed on down from on high with zero input.

So there is a challenge as to who negotiates on behalf of the local MLSs. Who is at that table, representing whom, is going to be as big an issue as the policies and rules themselves.

Problem #2: Unfunded Mandates

The second issue I see in pushing most of the policies and rules up to the national level is the familiar one of unfunded mandates. But in MLS world that is complicated by the issue of cui bono, or who benefits.

Consider: the stated goal of national rules for the benefit of brokers and a more consistent framework for compliance is one that benefits only large brokerages and franchises.

eXp has to work in hundreds of MLSs. So does RE/MAX or Home Services of America or Realogy or Compass.

But the typical 4-person brokerage that only works in one county simply doesn’t have this problem. Before you say such small brokerages don’t matter, let me present you with some data. In one MLS I have worked with recently, out of 1,100 Brokerages, 946 of them (or 86%) had 5 or fewer members. Those brokerages belong to one MLS and have for decades. They have no interest in multi-MLS issues; those issues don’t affect them. This pattern exists everywhere. Such small brokerages are the vast majority of the membership in just about every MLS I can think of.

Changing MLS rules and policies is not cost-free. Yes, LEAP is just a data standard, but as Sam points out, one of the initiatives behind LEAP is to create a “technical model to support the rules.” Presumably, someone somewhere has to change software in order to implement that model. Will that be done for free across the board?

If I am a local MLS, and 86% of my members who pay fees will not benefit from these changes, why would I want to spend money on implementing system-wide changes that only benefit 14%? If there are additional compliance costs because of LEAP, why am I asking all of my members — most of whom do not benefit — to fund that?

If MLS rules and policies are to be pushed to the national level for the benefit of large multi-MLS brokerages, then it seems entirely reasonable for the local MLS (and the 86% of brokerages who fund that local) to demand that NAR should pay for implementation, compliance, and operation of those national MLS rules and policies. After all, those large multi-MLS brokerages have members all across the country paying into NAR with their dues, so if they are to benefit, then national should pick up the tab of implementing such rules, not the local and the small single-MLS brokerages who make up that local.

Problem #3: Unclear Linkage of Rights and Power

The third issue, and I admit this has a lot to do with my own thinking stemming from the whole “role of the MLS’ question, is that the linkage between control over the license and the underlying ownership of the data is unclear.

Sam makes it clear that the local MLS will retain “Ownership of Content/Intellectual Property” so NAR’s national rules will not affect that. Okay, but the local MLS only has intellectual property over the “compilation” — each listing broker asserts ownership of the listing itself. (Which is probably incorrect, according to no less of an authority than Mitch Skinner of Larson Skinner… but that’s a whole other discussion.) Fact is, the local MLS only owns (quoting Mitch Skinner here) “the selection, coordination, and arrangement of content; not the content itself.”

Now, read this from Sam’s post:

Issues Which are Not Slated for Resolution in LEAP

There are a number of pro-broker/pro-consumer industry issues that have been discussed in connection with LEAP which are not being included in order to design a pragmatic, broadly acceptable solution to be approved and implemented in the short term:

• Broadening the venues and advertising requirements where non-listing brokers advertise listing brokers’ listings
• Broadening the non-price data from sold listings which a broker can advertise in non-disclosure states
• Increasing flexibility of brokers’ capabilities to create derivative works for greater competition and greater value capture of the MLS data set

As he says, these issues are not being discussed because of pragmatic concerns. But since the MLS only owns the “selection, coordination and arrangement of content” I’m not sure how it asserts that it has anything whatsoever to do with things like derivative works. That seems to me to belong firmly to the actual copyright owner, who is the brokerage in this case.

If the local MLS, which at least has compilation copyrights, doesn’t really have a leg to stand on as it comes to the above, I struggle to understand how NAR, CMLS, or any other entity that has no copyrights whatsoever have any kind of a right to assert control over these issues.

Change the Approach: Carrots, Not Sticks

All of the above gives rise to what I think is my general critique of the overall approach that RESO, NAR, and CMLS are taking to these reforms. Reforms, I’d like to stress, that I support.

The approach is wrong. NAR wishes to impose these rules and policies from above, mandating them to the MLS via its control over the local Associations who own the MLS, with threats of sanctions, withdrawal of liability insurance, potentially up to and including loss of the charter from NAR. It’s all stick, no carrots.

As a result, we get unfunded mandates, with NAR making decisions, making pronouncements, and then standing back and telling local MLSs and their brokers to figure it out and find the money to pay for their decisions made on high. That creates unhappy people, unhappy local leaders, and unhappy MLSs.

Seems to me that a far better approach is something that our Federal government does often: carrots, not sticks. Think of highway funding and speed limits.

What if, instead of making all these things mandatory and obey-or-else, NAR were to approach this as recommendations that come with funding attached?

What if CMLS/RESO/NAR were to promulgate LEAP — including things like broadening venues, non-price data, and flexibility to create derivative works — as a set of best practices and recommendations and proclaimed that any MLS that is willing to implement them will receive funding to do so?

A local MLS is likely willing to do something that does in fact benefit 14% of its members as long as there is no cost to the other 86%. Why not make that a reality?

Instead of the “Notorious Clause” that says “MLSs may not impose any limitations, restrictions or conditions on the use or display of the MLS listing content other than as specified in this policy,” how about a “Daddy Warbucks Clause” that says “MLS that do not impose limitations, restrictions or conditions will receive 100% of the National Data Standards Improvement funding?” If you do impose limitations, then you get less funding or none at all.

That leaves control and power in the hands of the local, as long as the local is willing to do without financial support from the national. It feels different from a mandate that tells local leaders “Thou shalt not!” Because that just makes people say, “Who the hell are you to give me orders?” In contrast, “If you’ll cooperate, we’ll give you money” feels dramatically different, no? The local leaders are free to say yay or nay, do cost-benefit analysis, and decide whether they do want to implement the Model Rules or not.

Given that the companies that will benefit from LEAP are the largest of the large brokerages, franchises, and tech companies in real estate, it really wouldn’t be difficult for them to pony up several million dollars each for the National Data Standards Improvement Fund. Hell, Zillow alone could underwrite that entire Fund. NAR wouldn’t even have to pay for the fund. CMLS wouldn’t have to pay for it, nor would RESO. Let the big companies who will benefit pay for it. No member dues anywhere need to go up. A small local brokerage who thinks all this data standard stuff is nonsense can then be told, “Why do you care? It’s not costing you a dime, and it doesn’t affect you.”

Finally, a carrots-based approach leaves local MLSs themselves and their many brokerages to experiment with over-and-above ideas. Things like derivative works, which really ought to come from the actual owners of the intellectual property, can be done locally to see how it does and does not work. Since that kind of reform would be over and above the Model Rules, the MLS gives up no funding in trying it out.

Willing Partners, Not Rebellious Subjects

Let me wrap this up by suggesting that LEAP itself is a good step forward; the approach that CMLS/RESO/NAR are taking is the problem. The top-down approach that is so common in REALTOR world is what will hurt this reform effort. That top-down approach makes sense for a Code of Ethics, or compliance with Fair Housing Act and other laws of the land, but it really doesn’t make a ton of sense for something like data standards.

Those wanting better national data standards should want the local MLS to be a willing partner (even if you have to bribe them to become willing) instead of rebellious subjects who might comply, but with grumbles and conspiracies for overthrowing the tyrant.

Sam ends his post with this:

Upon achieving a reasonable level of consensus on rules concepts between the brokerage and MLS community, finalization of the rules to support the LEAP policy proposal draft can commence. CMLS’ LEAP volunteer workgroups will be critical players in this process. Rules could be followed by a model license to support local MLSs in licensing the MLS Content.

The industry’s trade organizations can weigh in on this policy/rules/license model through NAR’s policy proposal and ratification process:

• NAR MLS Technology and Emerging Issues Advisory Board (TEIAB)
• NAR Multiple Listing Issues and Policies committee (MLIPC)
• NAR Executive Committee (EC)
• NAR Board of Directors (BOD)

I kind of agree, and I kind of disagree. I agree that a reasonable level of consensus is necessary, and that rules can be finalized once that is done.

I disagree that CMLS LEAP volunteer workgroups, NAR committees and Boards, and so on are the right organizations to do that. And I firmly disagree that the top-down unfunded mandates are the way to do this.

I advocate for a far more voluntary, more carrot-based approach, in which those who will benefit from these rules should fund the implementation of those rules. Start with the money; create the National Data Standards Fund first. Then those who are funding the reforms are the right people and organizations to finalize the rules. If NAR wants to be part of that, then NAR should underwrite some of the funding. If CMLS wants to play a role, it can do so via invitation from the funding organizations, or it can write a check. Local MLS may participate, or may not, because it will be up to them at the end of the day whether they want to voluntarily embrace these reforms or not. The whole “who negotiates for the MLS” problem goes away.

It’s pay to play in the best possible way.

And ultimately, the market will decide whether these reforms are good or bad by voting with their membership. A local that refuses to implement these reforms may be at a competitive disadvantage versus one that has; eventually, brokers and agents will migrate over to the better MLS.

Make them like you. Don’t force it on them.

-rsh