Russ Cofano responded:
Hi Russell,
Happy to add some background here. You ask, “But aren’t the “anti-competitive policies” basically who has the right to decide how and where listings will be displayed?”
Kinda.
The initial DOJ complaint against NAR revolved around NAR’s initial Virtual Office Website (VOW) policy that allowed brokers to selectively “opt-out” by not allowing certain brokers to display their listings online. This would have allowed a “traditional” broker the right to effectively hand pick the firms that they don’t want to compete with online by eliminating any chance for them to have inventory to show to prospective buyers. From the DOJ’s perspective, the problem was that the under these same MLS rules, that same broker could not prohibit a particular “bricks and mortar” company from showing listings to a buyer who walked in off the street. The distinction being online vs. offline. NAR then amended the VOW rule and replaced it with the new Internet Listing Display (ILD) policy which changed the selective “opt-out” to a blanket “opt-out”. In other words, the broker could not selectively pick which brokers could display their listings online. Either everyone or nobody. Since the ILD policy applies across the board, NAR felt that it eliminated the anti-competitive concerns of the initial VOW policy.At or about the same time, NAR changed its definition of “MLS Participant”. The new rule defines an MLS Participant as a broker who makes offers of compensation to and accepts such offers from other brokers. Prior to the change, an MLS Participant had only to be capable of making and accepting offers of compensation.
This last issue is, I believe, the REAL issue in this case. NAR wants to define who can have access to and display listing information online as brokers who are actively working with buyers and sellers and sharing commissions via the MLS. DOJ believes this is too restrictive and that any licensed broker should be able to have such access. DOJ believes that such restrictions will stifle innovative brokers from assisting consumers in non-traditional ways.
Let’s face it. Most MLSs are powerful entities when it comes to aggregation of listing data. In anti-trust lingo, MLSs have “market power”. A broker’s ability to play is absolutely hinged on their ability to access the MLS. Without it, they are dead in the water. It is always humorous to hear people say things like “if you don’t like the rules, just go start your own MLS.” Problem is, they can’t. So, the more that NAR chooses to tighten the grip on MLS data by defining rules of who can “participate”, the greater the anti-trust scrutiny.
You asked whether the DOJ was “right” to go after NAR on this issue. Well, my friend, that depends on which side of the tracks you sit. Was it “right” for the DOJ to go after Microsoft for using its market power to tie IE with its monopoly on the desktop. If you are MS, clearly no. Ask the Firefox guys (and people who use their browser) and you will hear a different answer.
I tend to be one that values innovation. I think it makes our world a better place.
Take Zillow for instance. Many brokers have no love lost for Zillow. However, in the Northwest, the MLS changed its rules about use of off market data to allow brokers to provide their own version of “valuation” in order to compete with Zillow. Now, assume a world without Zillow. Would the MLS and the brokers have spent the money to provide this service to consumers. Based on past history, probably not.
I think the real question is “why not”?
-Russ
Russ, thank you very much for responding. For clarity, I am going to cut & paste your text so it is obvious which point I am responding to – and I am happy to post yours that way or, if you prefer – I’m sure Greg would set up an access account for you on BloodhoundBlog so you could post it yourself.
At or about the same time, NAR changed its definition of “MLS Participant”. The new rule defines an MLS Participant as a broker who makes offers of compensation to and accepts such offers from other brokers. Prior to the change, an MLS Participant had only to be capable of making and accepting offers of compensation.
And that is the most logical definition possible under the circumstances. It is important to keep in mind what the MLS actually IS – a communication system set up by brokers for offering and accepting offers of compensation. Even the the term “traditional broker” is misleading: as it has been framed as being somewhat “old school” and charging higher commissions. But it is impossible to use commission amounts as a yardstick – and not because it is illegal to have a commission schedule “set”. It just would not be true. Obviously some concept like “4% and above is traditional” but “less than 2% is innovative” is not a meaningful distinction – as I personally fall into both of those categories. My commission is set on a sliding scale – a high of 6% and a low of 1%. My clients all have the right to sell the home themselves and pay no commission or and to cancel the listing at anytime. All of my listings are in the MLS as “exclusive agency” listings.
This last issue is, I believe, the REAL issue in this case. NAR wants to define who can have access to and display listing information online as brokers who are actively working with buyers and sellers and sharing commissions via the MLS. DOJ believes this is too restrictive and that any licensed broker should be able to have such access. DOJ believes that such restrictions will stifle innovative brokers from assisting consumers in non-traditional ways.
But to fail to define a real estate broker (the only people ever originally intended to have access to the MLS) any other way than someone who is actively working with buyers and sellers makes no sense. Not unless we were going to define “non-traditional Justice Department employees” as people who didn’t work for the Justice Department or “non-traditional lawyers” as people who never attended law school and don’t practice law. The MLS is a communication system for brokers offering compensation to other brokers. There was no other reason for it to exist until the internet came along. Then it wound up getting used as a way for the public to see edited versions of the listings on line – just like in the old days when we would “loan” our MLS book to a client. Twenty years ago, my handing an MLS book to a client to look through didn’t mean that my local board just gave up their right to continue to use the MLS as a broker to broker compensation communication line.
If an “innovative broker” isn’t actively working with buyers or sellers what kind of meaningful assistance could they possibly provide to consumers? The only ones I can think of are lead aggregators who want to use my listings as “bait” to get a name and phone number and then sell me the lead. As that consumer would have eventually found some agent without them I don’t see the lead collectors as assisting consumers in any way – even in the buyer getting a “good” agent, as they will sell the leads to anyone willing to pay for them.
Let’s face it. Most MLSs are powerful entities when it comes to aggregation of listing data. In anti-trust lingo, MLSs have “market power”. A broker’s ability to play is absolutely hinged on their ability to access the MLS. Without it, they are dead in the water. It is always humorous to hear people say things like “if you don’t like the rules, just go start your own MLS.” Problem is, they can’t. So, the more that NAR chooses to tighten the grip on MLS data by defining rules of who can “participate”, the greater the anti-trust scrutiny.
The MLS isn’t (like Microsoft) hidden code. It is a distribution system – a distribution system for offers of compensation to other agents for bringing me an offer acceptable to my seller. Period. The fact that some other organization or company can not replicate it does not give the federal government the right to “nationalize” it for them. The MLS is really more analogous to Wal-Mart and their incredibly efficient distribution system. Few rational people would argue that Wal-Mart should truck freight in for their competitors for free. Or worse, truck it in and just give the merchandise to the inefficient business (their acquisition cost would be zero) so they could “help consumers and make a profit”. Yet that is what these “non-traditional brokers” are asking the DOJ to do.
I believe that if the individuals involved at the DOJ look at this issue as it really is, and if they truly have the welfare of the American public in mind, they will drop this litigation. Even if they “win” the ultimate outcome would not be what they are attempting to achieve anyway. Should the DOJ prevail a far more likely scenario would be NO listings available to the public via an IDX feed of the MLS. None. Some local MLS areas have already gone to using the MLS as it was originally intended – a broker to broker compensation communication line.
If there is anything I’ve missed please comment on that point.
Thanks,
Russell
Doug Quance says:
Perhaps I am biased.
No, scratch that – I AM biased.
I can’t help but agree with Russell. The idea that the MLS data should have to be distributed to lead aggregators is ludicrous.
I can understand the idea of forcing brokers to display ALL listings in a geographical area, as to not exclude the so-called “non-traditional” brokers.
But take Yahoo for example. A customer that clicks on a link in Yahoo is referred to Prudential. Yahoo earns 35% of the brokerage fee as a referral.
Did this act really benefit the consumer?
How is it that Yahoo, by virtue of having a broker on staff, suddenly can get referral fees from everywhere in the country.
I’m not picking on Yahoo, as this plays out in many online scenarios.
Again, how does this benefit the consumer?
If we are not careful, the Genie will be put back in the bottle.
January 15, 2007 — 8:29 am
Tim says:
In the event of a DOJ win, if the MLS IDX sytems are pulled it would have absolutely no affect on consumers that are sellers and buyers. Why? Consumers will demand public advertising on the web though various means or they will take the time to place their homes for sale on various sites themselves. Already happening.
The idea as Doug offers above, that consumers did not benefit due to referral fees charged by Yahoo misses the mark. The issue is WHICH consumer was affected adversely. Consumers (seller) generated interest in their home by the thousands of people who are going to Google, Zillow and Yahoo for real estate search. The problem is that it adversely affected the Realtor having to pay a fee to an aggregator. Consumers are unharmed by IDX systems and how they are utilized by aggregators.
Brokers are in a tough pickle.
January 15, 2007 — 10:28 am
Russ Cofano says:
Russell,
I appreciate the opportunity to chat with you on this subject.
First, my comments should not be taken to mean that I support the DOJ’s position and hope that they win. Nor do I necessarily support the NAR position with its rulemaking. As I have said before, I do support innovation and think that brokers need to spend more time finding new ways to deliver value to consumers.
Second, let’s define a couple of terms.
“Broker” means any person or firm that has been licensed as a real estate broker under applicable state law.
“Traditional Broker” means a Broker who either directly or through agents, actually assists buyers and seller with buying or selling a home.
Third, this is a VERY long post and I apologize in advance as I usually don’t like posts of this length. Proceed with caution and a good cup of coffee…. 🙂
Regarding the definition of MLS Participant, you said:
“And that is the most logical definition possible under the circumstances. It is important to keep in mind what the MLS actually IS – a communication system set up by brokers for offering and accepting offers of compensation…..to fail to define a real estate broker (the only people ever originally intended to have access to the MLS) any other way than someone who is actively working with buyers and sellers makes no sense.”
Here is the problem from the DOJ’s perspective. Before this rule change, a licensed Broker could join the MLS and open up a store front with no intent of helping a seller sell or a buyer buy. They could call it “Referral Realty” and have full access to the MLS database for purposes of cultivating potential buyers to refer on to “traditional” brokers in exchange for a referral fee. This is allowed by most state license laws. In fact, this type of situation occurs today in some areas where retiring licensee hang their licenses with a Broker in hopes of leveraging their referral base despite having no intent to actually assist a buyer or seller. The problem with this business model is that the referral business is limited to the personal sphere of the referring Broker. Because of this limitation, the impact on market share of Traditional Brokers is quite limited. Nobody worries. So, to your point, it DID make sense to define MLS Participant broadly as any licensed Broker…..BEFORE the Internet.
Enter the Internet. Referral Realty now has a much larger potential sphere. It is the world. Traditional Brokers (i.e. NAR) get scared that this could really impact how they do business. So, instead of innovating new ways to attract eyeballs of consumers before they get to Referral Realty, they create a new MLS rule. That rule, the VOW Policy, says that each Traditional Broker can withhold their listings from display on Referral Realty’s website. Based on the new rule, Referral Realty will be back to where it was before the Internet. Nobody worries.
The DOJ then cries foul. Traditional Brokers then amend the rule to make it look more appropriate (blanket opt-out) but at the same time, change the rule that would even allow Referral Realty the ability to join the MLS.
The variable in this equation is not Referral Realty’s business model. Instead, it is the potential impact Referral Realty could have on Traditional Brokers due almost exclusively to the Internet. The industry needs to answer the question: “if it made “sense” before, why not now?”
You also said “If an “innovative broker” isn’t actively working with buyers or sellers what kind of meaningful assistance could they possibly provide to consumers?”
According to the DOJ, the answer to that question is up to consumers, not the industry. If there is no meaningful assistance, no value proposition, no consumer benefit, Referral Realty has no business model and there is nothing for Traditional Brokers to worry about. If, however, consumers do see some value in Referral Realty, the DOJ believes that they should be provided access to MLS data just like any other licensed Broker.
You also said, “The MLS isn’t (like Microsoft) hidden code. It is a distribution system – a distribution system for offers of compensation to other agents for bringing me an offer acceptable to my seller. Period. The fact that some other organization or company can not replicate it does not give the federal government the right to “nationalize” it for them. The MLS is really more analogous to Wal-Mart and their incredibly efficient distribution system. Few rational people would argue that Wal-Mart should truck freight in for their competitors for free. Or worse, truck it in and just give the merchandise to the inefficient business (their acquisition cost would be zero) so they could “help consumers and make a profit”. Yet that is what these “non-traditional brokers” are asking the DOJ to do.”
The Microsoft case was not about hidden code. It was ALL about distribution. MS owned a monopoly on the PC desktop and was requiring PC manufacturers to bundle IE with their computers that they shipped. By doing so, IE became the de facto Internet browser which made it difficult if not impossible for others (e.g. Netscape) to compete. The DOJ was not saying that IE was bad or Netscape was good. Instead, they were saying let the consumer make the choice. By allowing MS to bundle IE with Windows PCs, there was no practical choice. By not allowing Referral Realty to join the MLS and have access to MLS data, the DOJ is saying that, like MS, consumers have no choice to determine if they like the Referral Realty business proposition. Microsoft did not like this argument and it makes sense that Traditional Brokers don’t like this same argument applied to their sandbox.
Your analogy to Wal*Mart is flawed. Wal*Mart, for all its superiority in its logistics, does not own a monopoly on building a great distribution system. Without making this more complicated, there is really nothing (except money and hiring good logistics experts) that prohibits one from competing with Wal*Mart. On the other hand, if Wal*Mart was not a single entity but rather a collection of competitors (like the MLS) that got together to build a powerful distribution system and then refused to let other retailers be a part of that system in order to preserve traditional business practices, the DOJ would be quite interested in investigating this entity. You might want to read my analysis on the Visa case to provide some perspective on this point.
Lastly, you said, “I believe that if the individuals involved at the DOJ look at this issue as it really is, and if they truly have the welfare of the American public in mind, they will drop this litigation. Even if they “win” the ultimate outcome would not be what they are attempting to achieve anyway. Should the DOJ prevail a far more likely scenario would be NO listings available to the public via an IDX feed of the MLS. None.”
I agree that there is risk on both sides of this case for consumers. The DOJ cannot compel big brokers to be a member of the MLS and there is always the potential for a mass exodus from the MLS if the Traditional Brokers don’t like the rules. I agree that would be very bad for consumers. My guess is that the DOJ does not think it will happen as the cost and disruption to the industry would be massive and for most brokers, not economically viable. I also don’t think that under any set of circumstances, brokers will withhold listing information from the public. It is to valuable for attracting eyeballs.
Russell, I don’t know how this will all turn out. I do think, however, that we will be talking about it for some time to come.
Cheers
-(the other) Russ
January 15, 2007 — 12:28 pm
Mike Thoman says:
Russ, your comments are excellent coverage of this issue. Your analysis has done well to separate the facts from the opining.
Russell, this may sound harsh, but your analysis and analogies are flawed and appear more like propaganda than honest review.
And even if your prediction comes true (which I doubt):
“Should the DOJ prevail a far more likely scenario would be NO listings available to the public via an IDX feed of the MLS. None.”
…the listings WILL come to the eyeballs on the internet regardless. Someone with money and foresight will make it happen (or maybe just someone with money). Do you really think that the over 80% of buyers looking on the internet for homes will go ignored as potential business? I don’t think you do.
Mike
January 16, 2007 — 10:35 am
mike says:
this is a pretty interesting thread… however I think russ has a better grasp of the class the DOJ is trying to protect. The DOJ has to encourage competition and allowing a co-operative network to make its own rules about how it dishes out its assets, when it supposedly charges all participants equally and doesn’t separate its benefits by class, is not something the DOJ is going to sit back and watch happen.
Eventually the burden being put on the MLSs will be too great and they will shut down the IDX platform. Its ridiculous to maintain it as a public service when they are receiving pressures from both internal and external forces. It would simply be better to allow brokers to get access to a feed of their own listings and then the onus in on the broker to get them to google, trulia, etc… I think a listing syndication portal will replace the fragmented MLSs add value to the data chain and eliminate the specter of costly litigation.
MLS can still charge their fees and the MLS participants will still have to cough up the fees because they need the co-broke and off-market data.
Listing data is worthless, it’s a commodity now, you can get it almost anywhere, as you should, what homeowner doesn’t want his home on as many websites as possible?
As much as I think Zillow is misguided, they have added value to the otherwise valueless data, and made themselves a destination.
January 19, 2007 — 3:17 am