7DS Associates

Huh? Franchise IDX? What the...

I think this mostly analytical, mostly opinion post nows goes beyond the ambit of my NAR Midyear coverage. So, many many thanks to Zillow for sponsoring the Midyear series (I may have more of them in the future) but this post is sponsor-free.

Predictably, the news from Midyear about Franchise IDX has resulted in mass confusion and criticism from industry experts. Now that the Board of Directors actually voted in a policy, the various people responsible for implementing it — namely the MLS and the Association staff and consultants who provide guidance to them — are trying to figure out what that means for them.

At the same time, a number of observers and experts bemoan the decision, and point to it as an example of how backwards the real estate industry is, how out of touch the MLS’s are, and so on. I give you two of the better, more influential critiques.

First comes from Brian Boero of 1000watt Consulting who writes:

Others have reported on the series of events that led to this. The details matter, of course, but the reason I believe this swift policy reversal is wrongheaded has nothing to do with the details.

It’s about the lessons of the past that were ignored and dimmed prospects for industry innovation in the future.

Second, Matthew Ferrara — a brilliant guy and a consultant to some of the top companies in the industry — opines that the decisions at Midyear means the beginning of the end of the MLS:

Over the weekend, the National Association of REALTORS voted to become more like a union, and to start the process of killing off MLS. Did you miss that vote, too? We thought so.

I strongly recommend reading both of their posts in full.

It is fairly rare that I disagree with anything that either gentleman says or writes. But in this case, I must because I think both are missing some critical details in the dispute which are important for understanding both the vote itself and what it signifies for the industry.

Onward to the discussion. Warning: this is likely to be long. [ED: Yeah, like that's so unusual for you, Rob.]

The Mass Confusion That Is Franchise IDX

First of all, the whole franchise IDX issue has devolved into confusion. For a detailed report on what actually happened at Midyear, read my report on the issue.

Ever since the Board of Directors vote, which left franchise IDX policy standing, but eviscerated it by inserting an “opt-in” requirement, there have been a few questions. The people who carry the biggest burden are the MLS administrators who now have to figure out what the heck that means.

Opt-in seems straightforward, except it is not. Does the policy mean that a broker can opt-in on a franchise-by-franchise basis, granting access to Keller Williams but denying access to Century 21? Or is it a blanket opt-in where you say yes to all of the franchises? How would such opt-in mechanism work? What constitutes permission? Is it enough to check a box on some web form, or do you have to sign a piece of paper?  Can an agent opt-in, or is it at the broker level? Can the broker grant the option to her agents to opt-in or not? The NAR Executive Committee, when asked during the Board of Directors meeting about how the MLS’s would have to implement the opt-in, seemed to think that it was a simple matter of delivering the data of the opt-in brokers to the franchises. But what if the MLS never delivered a feed?

This last issue is actually relevant. Alex Perriello of Realogy defended the Franchise IDX rule in part by pointing out that NAR already allows “recognized search engines” to crawl broker and agent web pages to index the IDX listings thereon. I know that at least one of the franchises compiled the IDX data it was displaying by crawling its franchisee webpages with bots and scraping the sites. The MLS had zero to do with that compilation.

So now what? Is the Franchise supposed to police itself and somehow figure out which of the IDX listings it just indexed/scraped belongs to brokers who have opted in?

NAR Weighs In

It appears that NAR staff is up to their eyeballs in trying to figure out some guidelines for MLS operators, based on the legislative history of the Board of Directors vote. I received a couple of emails from sources within the MLS industry that came from NAR’s General Counsel’s office.

NAR’s interpretation is that the new “opt-in” rule should be interpreted in light of MLS Policy Statement 7.85, which requires participant consent “for any use of their listings that are not part of the defined purpose of MLS”. The practical effect is that the franchisors are treated like any third party publisher site, such as Zillow. Under this interpretation, the MLS must provide a franchise-by-franchise opt-in methodology, and cannot go with the blanket all-franchises opt-in.

The email goes on to make clear that NAR does not expect the MLSs to have to make extensive changes to their systems or undertake expensive modifications. The belief within NAR is that very few brokers will actually opt-in, and the email suggests that participant consent could perhaps be handled simply via email or a letter granting consent to a particular franchise.

Interestingly enough, the email makes clear that the franchisor must get permission not only from all of the brokers in order to display their listings, but must get permission from a local franchisee who is a participant of the MLS. So in theory, if there is only one Century 21 broker in a given MLS, that broker can block Century 21 corporate from putting any IDX listings on its website, even if every other broker has opted-in. That makes the burden for the franchisors higher than if they were just a third-party publisher.

What the letter does not address is the specific situation of the MLS who hitherto has done nothing and provided nothing. One assumes that further guidance will be forthcoming for those MLSs who merely allowed the franchisors to scrape the IDX listings off of their franchisee websites.

Do those MLSs now have some affirmative duty to provide not only an opt-in mechanism, but a data feed to the franchisors? Otherwise, how would the MLS — or the Association — police whether the franchisor is displaying only the opt-in listings? How would the franchisor know which listings are proper and which are not if they’re just scraping franchisee websites?

The Central Issue

The NAR emails are revealing in one respect. It appears that the understanding of the NAR staff, which includes the General Counsel’s office, is that the Board of Directors vote was motivated in huge part by the desire of brokers to “take back control” of listings. I think this is right, at least in part, but only in part.

I think the real motivation wasn’t simply to “take back control” of listings, but to prevent further loss of control over listings. And this is where the critiques from Brian and Matt come into play.

Brian: These Rules Are Prisons for Brokers

Brian’s post bemoans the franchise IDX ruling as an example of how the REALTOR family squabbles with each other, while third parties like Zillow steal all the value away through innovation:

As smack-downs like these took place in brokerage offices across America, and while the industry’s own horse in the online race, Realtor.com, was kept on a short leash, new entrants, seeing clearly just how badly real estate had managed to hobble itself, entered the scene promising to improve the online real estate experience.

They fulfilled that promise.

How? By going broker by broker, MLS by MLS, to siphon listings from real estate’s gas tank entirely outside the rules the industry had created for itself.

And they delivered value. Tons of traffic. Exposure. Soon, darn near every broker was on board – because, well, everyone else was.

Today, when I talk to clients and friends in the industry – people who lead big brokerages, small brokerages, franchises and independent shops – they speak ruefully of this massive forfeiture of value.

But here’s the thing:

It couldn’t have happened without them.

This fact was forgotten last week.

I’ll repeat it:

When fighting within the industry – the Realtor Family – limits members of the family from innovating, innovation takes places outside the family.

As it happens, I don’t disagree with the spirit of what Brian wrote. As Marc Davison, his partner in 1000watt clarified later in a comment, what they want to see is a new bargain struck between the brokers to enable each other to do more with listing data. I can get behind a Grand New Bargain 100%; I’d love to see that conversation take place.

But I do disagree with Brian when he takes aim at this particular ruling as an example of  an innovation-stifling rule, and when he appears to blame NAR and the MLSs. Because he misses a central point that many critics also miss: NAR and the MLS are both handmaidens of the broker. What’s more, the rules surrounding IDX do not prohibit innovation as exemplified by the likes of Zillow.

We’ll get into why Brian’s disappointment is badly misplaced below.

Matt: NAR Has Become the Corleone Family

Matt Ferrara takes a different slant. He believes that between the vote on RPPSI and the Franchise IDX rule, it is clear that brokers should no longer belong to NAR or to the MLS if they can afford to do so:

Now, as counterintuitive as that seems, stick with us. MLS has been a battering ram members have been hit with for over two decades. Both the technology and the collaborative compensation policy have consistently thwarted innovation. MLS rules have been used to attack non-traditional sales models. MLS rules have been used to restrict how brokers use their own data. MLS rules – as policy and technology – are essentially a collective suicide pact. Nobody can do what everybody cannot, at least if it involves their most important business asset.

MLS should really be called M.A.D.

Back in the days, when the internet was a fad and technology was expensive, it made a modicum of sense to collectively buy a computer and some modems (remember those?) and store them at the local Board office, connected to multiple phone lines. Today, an iPad has more memory than those systems did, and wireless connectivity. That’s the simple way of saying that there’s absolutely no technological need to centrally warehouse data in the 21st century. Perhaps REALTORS still think the cloud is a weather pattern? Never mind.

As for sharing it between multiple brokers, alternatives have already proven the possibility: Postlets, Point2 and – shock! – peer-to-peer syndication feeds make it possible for companies to transfers data to each other without without much cost (in some cases, none). If an unfunded-nobody can syndicate their data to Huffington Post using a free WordPress-coded blog and free WiFi at Starbucks, don’t you think today’s brokers can figure out how to send data to each other?

If they wish to.

And that’s the real unintended consequence of the IDX syndication rule. Some brokers must now seriously consider withdrawing from the MLS club entirely. And why not? Most of New York City has survived just fine into the 21st century without MLS. Millions of real estate brokers around the world get along fine without overly organized compensation policies and data policing. They know how to cut each other a referral check, and generally play nice. Consumers, on the other hand, are far better at inducing brokers to keep their data fresh than a few dollar fine by a MLS cop, lest the broker face consumers’ wrath on Twitter and Yelp.

Let’s leave aside the fact that Matt confuses two distinct issues — the so-called RSS Syndication rule, which was referred back to the working group, and the Franchise IDX rule — and calls them IDX Syndication (which, as illustrated above is incorrect since many franchisors were merely scraping the websites of their franchisees). His point is that the brokers are harming themselves by “outsourcing business decisions to local and national committees,” and that they need to leverage new technology to bypass the MLS and its rules/policies altogether.

Once again, Matt is bringing his thunder down on the wrong party. NAR is not the problem here. Nor is the MLS. The broker is. It may be the more popular position to demonize the remote committees of NAR, the faceless Board of Directors, and the aloof MLS executives than to point the finger at Joey the broker-owner… but fact is that neither NAR nor the MLS create any policies that are not created first by its members and broker participants, respectively.

Analogy to the Corleone family, while entertaining, is inapt. The proper analogy is to Congress, that passes idiotic laws that are unclear on purpose, and then blames the Courts for “legislating from the bench”.

There Are No Rules Prohibiting Broker Innovation

The great misconception that both Brian and Matt (and by extension, all of the critics) suffer from is the idea that MLS rules and policies prohibit innovation by the broker. This is false.

There is no rule, no policy, of any MLS anywhere that prohibits the broker from doing whatever he desires with his own listings. There may be state laws that prohibit certain things, and there may be Code of Ethics rules (many of which are idiotic) governing certain aspects (like comments), but there is no MLS rule or policy.

If a broker wanted to take all of his listings and email them out to bloggers around the country, he can do so. If he wants to upload all of them to a wiki and allow public editing, no MLS policy will prohibit it (although his clients might be pissed). If he wants to commingle them with FSBO’s, with Ebay auctions, with Craigslist ads for sexual services, there is no MLS rule that can stop him. If he wants to let other brokers put his listings on their websites without any links back, without any mention of his company or his agents, he can do just that: just grant the license to the other brokers. He can put all of his listings into the public domain under a Creative Commons license. He can do all of these things because he, the broker, is the copyright owner.

There are rules prohibiting a broker from doing whatever he wishes with someone else’s listings. That is the IDX. And that happens to be the correct thing to do, if you believe that listing information is the intellectual property of the listing broker.

If I, a random blogger, were to go scrape some Keller Williams brokerage website and put all those listings on my blog, putting my name in as the go-to contact… isn’t it obvious that I’ve committed theft of intellectual property? That I’m violating that broker’s copyright? If so, why would that be any different just because I happen to belong to a MLS? Brokers do not surrender their intellectual property rights upon joining a MLS; they do grant a limited license, surrounded with rules, to other participants in IDX, but those licenses are limited. The IDX rules are precisely those limits.

By missing this critical point, both Brian and Matt rail against the unfair and unwise rules, while completely absolving the broker of any responsibility.

Want to set up a brilliant new mobile app that scrapes listing data and combines it with FSBO pricing info? Go right ahead — with your own listings, and with the listings of those brokers from whom you got permission.

Pointing to third party companies like Zillow completely misses the fact that every single one of those third party companies had to go door to door, broker to broker, franchise to franchise, and get permission to use the listings. Talking about syndication misses the fact that the publisher sites have to get permission, by way of an affirmative opt-in, from each and every broker.

Matt Goyer of Redfin commented on Brian’s post about how they have to put up with all manner of crazy IDX/VOW rules that Zillow/Trulia never has to. Yes, true, but then again, Zillow/Trulia does not have direct access to IDX/VOW data either, do they? Not without getting affirmative permission from each broker. Redfin can avoid all of those silly IDX/VOW rules if it would go secure permission from the copyright holder: the other broker.

And so can any other brokerage or franchise or newspaper or blogger.

What’s more, the brokers could always have done this. Matt Ferrara talks about new technologies, such as Postlets, peer-to-peer syndication, the Cloud, etc. as if these are the things that would enable brokers to escape the clutches of the MLS. Fact is, brokers could have escaped the clutches of the MLS long before the iPad was a glimmer in Steve Jobs’s eyes. They could have used email. They could have used parcel post. They could have used the Pony Express. Technology was never the barrier: copyright was, and still is.

And… guess what? The brokers did in fact set up a peer-to-peer syndication network some decades ago, where they promised to share listing data with each other, within certain limits that they all agreed to abide by. That P2P network is called the Multiple Listing Service. And those limits they imposed on themselves and on each other are called the IDX Policy. The rules were not imposed on brokers from some Powers That Be from above; they were self-imposed, to enable competitors to grant licenses to each other. Think Facebook and Google would share copyrighted information any differently?

Understanding the Franchise IDX Issue

Focusing on the copyright issue is one half of understanding the core issue of Franchise IDX fight. The other half of the issue has to do with the legal status of the MLS, this P2P sharing network of real estate brokers.

Both Joe Horning of Realty Alliance and Bob Moline of HomeServices of America made the point during the MLS Policy Committee debate that allowing franchisors this access to IDX data would change the legal nature of the MLS from a private sharing network amongst subscribers into something more like a public utility. They both pointed to the 2006 Congressional testimony by then-President of NAR Pat Combs, in which she argued that the MLS is not a public utility, but a business-to-business network:

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 acooperative 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. That distinguishes it from public utilities like water, gas or electricity, which are not created and operated by their customers, members of the public.

This testimony from Geoffrey Lewis of REMAX back in 2006 is directly on-point to the current issue:

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. [Emphasis added.]

The issue in 2006 was whether the real estate industry was using the MLS as an anti-competitive tool. Being classified as a “public utility” would have dramatic implications under anti-trust law. The MLS escaped that classification primarily by insisting that the MLS is a members-only cooperative between brokers licensed under state law, for the purpose of facilitating the sale of property.

The Realty Alliance Axis has a point, therefore, when they worry that allowing franchisors — all of which are corporations whose business is the selling of franchises, not the selling of real estate — into the IDX would violate this strict wall between members and non-members. If the principal beneficiary of the MLS and its IDX mechanism is the consumer, then the MLS is a public utility and ought to be regulated as such. One upshot: there is no way that brokers could distinguish between a company like Zillow, for example, and a national franchise or even a fellow participating broker, if the MLS is a public utility.

The unintended consequence there? Brokers might just pull out of the MLS-as-public-utility altogether.

On the other hand, the pro-Franchise folks have a very legitimate point as well. The strongest argument, IMNSHO, is that it is rank hypocrisy for NAR to allow “recognized search engines” — not one of which has a franchisee who is a participant in the MLS — to scrape and index the IDX listings for the purpose of advertising to consumers and then to deny the same right to a franchisors who actually have franchisees who are members of the MLS.

I think that’s correct. The contradiction between the search engine IDX rule and the franchise IDX rule must be resolved. It is an entirely arbitrary distinction between two non-participant companies.

This is why the NAR position, that the opt-in provision transforms Franchise IDX into just another third-party syndication channel, is inadequate to resolve the conflict. Either the MLS is a public utility, whose principal beneficiary is the consumer, or the MLS is a business-to-business network for real estate operators. It cannot be both.

Time for Critics to Step Up

Given the complexity here, given all of the issues at work here, I think it’s well past time for complaints. It’s time for solutions. It’s all well and good to talk about how crazy the IDX rules and policies are, and make broad sweeping statements about the need to foster innovation. Might as well just give a speech about hope and change.

What is needed between now and November (and probably past it) are suggestions and solutions. It doesn’t matter, at this point, how ridiculous suggestions might be. But we need proposals for change, not just agitation for change.

The need is particularly acute given that the issues are so complex and involves law, technology, business models, and unintended consequences that the average NAR Director — who must cast the vote in November — cannot be expected to understand it without significant education and briefing.

In thinking about solutions, here are the key questions that must be answered:

1. Is the listing information intellectual property or not?
2. If it is intellectual property, what are the proper limits to the grant of license (which is what the IDX is) that would encourage innovation while not discouraging participation?
3. Is the MLS a public utility, whose principal beneficiary is the consumer, or a business-to-business network? The statement by Geoffrey Lewis is the key question: “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.” Has this concept changed?
4. How do you square the search engine IDX rule with the franchise IDX rule?
5. In whatever new grand bargain that is proposed, how do you ensure data quality: completeness, accuracy, and timeliness?

I look forward to reading the proposals and ideas. They will help me think through my various wacky ideas for solutions.

-rsh