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The “60 minutes” story; the DOJ and FTC; Redfin and Co-Mingling”.  Wow.  What does it all mean?  It seems to me that the issues are being conflated and the waters are being muddied to the point where nobody can understand what is going on.

From my point of view; traditional real estate agents are unfairly getting the short end of the publicity stick. Overtly or not, Redfin and models like them, are suggesting that traditional real estate agents are not providing a compelling value proposition to consumers. They are also suggesting, overtly or not, that the “traditional real estate industry” is trying to unfairly shut them down by discriminating against them. It also seems that everyone (from the DOJ, FTC through to the media and  60 minutes) is dying to jump all over “organized real estate” and blame it for any failures of alternative models.

I have a couple of problems with this.  Firstly, it simply is not true that there is some form of organized systematic discrimination against discount and alternative models.  These models have been around, with varying degrees of success, for decades. Secondly, most professionals in this industry are proud of the value proposition they provide consumers and have no problem competing in the field against any of these alternative models.  As with most things in life, you get what you pay for.

So what are the real issues? Basically it comes down to this.  The DOJ is saying that it is effectively impossible to practice real estate without being a member of the local MLS.  They are also saying that NAR is using policy to allow “traditional” real estate brokers to effectively discriminate against “alternative” business models by not allowing them complete access to the MLS data to use in any manner they please.  To be sure, NAR has brought a lot of the problems on themselves.  ”Anti-referral”, selective opt out provisions and limited service rules seemingly make NAR and MLS’s appear to discriminate against alternative models or at least allow and encourage traditional brokers to do so.

In some ways I believe that NAR has been discriminatory against certain business models. I believe this has come about because the MLS data is being used for a purpose it was never intended.  Let me explain by first describing what I think the MLS was intended to do.

Originally, or so most stories go, MLS’s were formed to facilitate cooperation and guarantee compensation between members which are typically real estate brokers and agents.  The MLS consisted of a database of listings of homes for sale.  Buyer’s Brokers could use this data to find the best home for their clients and sellers Brokers would make sure their sellers homes were exposed to more interested buyers than they had themselves. This arrangement benefited both consumers and real estate professionals.  The key to how this works is that the data was used by competing parties AFTER the Brokers had acquired their customers. It is worth noting that competing brokers could not advertise a listing that was not theirs, say in the paper, to attract new buyers and sellers. After all, the listing Broker generally has an exclusive right to sell granted, explicitly and contractually, by the listing agreement signed with the home seller.

Let me know also point out another fact that most in the real estate industry already know.

  • Real property has two components: The first is pketing descriptions and photos, which are qualitative and copyrightable.
  • ublic information such as address and facts that don’t change,  these are largely quantitative. The second component is the mar
  • The listing agent/broker “creates” the listings by taking photos and using their marketing expertise and local knowledge to write compelling marketing copy.
  • These “listings”become an asset that the listing broker owns.
  • Agents and Brokers advertise listings to sell the home, but they advertise listings primarily to attract new buyers and sellers and to promote their brand.  They do this because they know consumers are interested in homes for sale far more often than they are interested in finding an agent or broker.
  • Listing and marketing houses is expensive work and is only paid for on a contingency basis.

Along comes the Internet.  Brokers, realizing that consumers want the convenience and efficiency of the internet, agree to share their listings assets with each other online for the convenience of the consumer. They did not agree to allow other MLS members to use their expensive assets to attract new customers.  This is essentially what many of these “alternative” business models are doing.

I believe that Brokers should have the right to use their listing assets as they see fit, including choosing their advertising partners.  Note: this doesn’t meant that all members of the MLS should not have access to the property data – they should.  It simply means that the Broker should have the right to completely control how their copyrightable asset, the listing, is used.

Why is this important you ask?

In a cooperative, everyone has to pull their weight.  In my opinion; what some alternative models are doing can be characterized by a famous quote from Dave Liniger. They are, simply put, “bringing a fork to a potluck”.  This issue is simply being masked by a number of related, but orthogonal, issues.  MLS rules of IDX opt out, discrimination by MLS’s and brokers against alternative business models, MLS co-mingling rules; all these things are important, and may even deserve DOJ/FTC scrutiny, but they are beside the point!

What is really at stake here is the spirit of what the MLS is intended for and how it is being misused by some for unfair advantage; this is to say that listing brokers are being taken advantage of. The MLS was intended to help cooperating brokers.  The key to cooperating is that everyone has to pull their own weight.  If you don’t do your share you are not cooperating – you are freeloading.  What’s happening is that this is being masked and hidden in name of consumer choice.

In order to illustrate this point let me use an extreme but true story;

At a recent Brokers conference a specific Broker was telling me that they were no longer going to list.  This broker was in a slowing Florida market and was finding that listing homes was too expensive.  It was costing too much to market to prospective listing clients, and that was just the start.  Once they had listings, they needed to market it on behalf of the seller.  In a hot sellers market you don’t have to spend advertising dollars, but in a slowing market you need to spend dollars.  Sellers expect it. So this broker had given up listing, not a trivial decision given that until recently they had carried as many as 500 listings.  They were finding that, at least in this market where buyers are hard to come by, that it makes sense to expend their effort on attracting buyers.

So how does this brokerage attract buyers? There are not many, if any, successful brokerages that can attract buyers without advertising listings for sale. There are other things they could advertise, to be sure.  They could advertise their “negotiating skills” or their “persistence and willingness to dig through every available listing”, or their “superior market knowledge”.  At the end of the day I submit to you that most buyers  are created out of interest in a listing.

So I ask again,  how does this Florida broker expect to attract buyers without listings?  Simply put he doesn’t.  He is using listings (assets) that are created by other real estate professionals to attract and retain buyers.

Does it necessarily make sense that this brokerage should be able leverage the assets (listings), that other brokers have attained by expending marketing effort, time and dollars, to lure buyers so they can remain profitable?  I would say that this is a decision that should be left entirely up to the owner of the asset.  The listing broker (asset owner) ought to decide whether or not it is in their best interest to allow other brokers to use their assets to attract and retain buyers.  In a perfect world, both brokers would list homes and pool their marketing assets (listings) for use to attract and retain buyers.  This doesn’t always happen. Too many brokers are willing to bring their fork to the potluck of MLS data and other broker’s marketing assets.

Please note carefully; I am not suggesting that all buyers’ brokers are freeloaders. Every market is different (real estate is local) and in many markets buyers agents more than pull their weight. I am simply suggesting that listings are assets and the asset owners have a right to leverage their assets and control how, where and when they are used. This is why we devised the P2 NLS, a system that gives asset owners (brokers and agents) complete control and choice as to where they advertise their listings and whom their marketing partners will be.  Agents and brokers that created these assets ought to be able to determine who their marketing partners are on a case by case basis.

The DOJ thinks that brokers and agents are restricting the consumer’s access to listing data to the detriment of the seller and consumer. This is simply not true. Brokers and agents want to advertise and market their listings as broadly as possible, as long as that’s what the seller wants. What they don’t necessarily want is for others to market their listings on their behalf and sell leads, generated with their own asset, back to them. Progressive MLS’s like Bob Hale’s Houston Association of Realtors know this and have begun to syndicate data to places like Google.  Not every MLS has the resources to carry out the development required for syndication. This is where we intend the P2 NLS to become a marketing partner, especially for any MLS that lacks the resources to allow selective syndication, analytics and predictive marketing.