Ben Caballero Responds

As you may have read, I asked Ben Caballero of NAREP a number of questions. He has responded, and authorized me to post his responses, as long as I did not edit it or add anything else to what he sent in.

In accordance to his wishes, I post his response in full. Any modifications are cosmetic only, to help legibility, and because Microsoft Word text has to be formatted for WordPress platform. If a response is needed, I will do so in a separate post.

Commercial Blogging, Disclosure, and the “Notorious R.O.B.”

By Ben Caballero

“I started Notorious R.O.B. to be my personal blog. And it still is, for the most part. . . .  But over time, it’s become something a bit more than that as well. . . . [T]here are times when I really get into a topic. It’s not a half-hour blogpost, but something that requires real work, some real heavy lifting. . . . [I]f this stuff is valuable, then somebody’s gotta show me the money. . . . [I]ts real value is what someone is willing to pay for it.” –Rob Hahn, 7DSAssociates

Commercial blogging is an activity subject to Federal regulation. A “material connection” between a blogger and a business (advertiser, marketer) must be disclosed. What is a “material connection”? It’s a connection between a blogger and a business “that could affect how people evaluate the endorsement. In other words, a connection that someone wouldn’t reasonably expect,” according to the FTC.  Specifically, the FTC expounds on when the guidelines would apply:

“[A]n endorsement would be covered by the [FTC guidelines] if an advertiser — or someone working for an advertiser — pays a blogger or gives a blogger something of value to mention a product. . . . Bloggers receiving free products or other perks with the understanding that they’ll promote the advertiser’s products in their blogs would be covered. . . .” (Emphasis added.)

Even if no formal agreement or commercial relationship exists between the blogger and business, e.g., “[if] you have a relationship with a marketer who’s sending you [free products or other perks] in the hope you’ll write a positive review” or otherwise promote its interests, the FTC says the blogger should disclose the relationship.

The Federal Trade Commission’s guidelines (16 CFR Part 255) define “endorsement” as:

“. . . any advertising message . . . that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser.” (Emphasis added.)

After readings Mr. Rob Hahn’s entertaining writings for many years, last week, after reading his blog post on ABoR ACTRIS, I decided to ask him to categorically deny that he is receiving “compensation or other consideration from the portals Zillow or Trulia. I certainly don’t mean to challenge him to a death match, and my genuine hope in writing this guest piece is that he’ll clear the air.

Only after I repeatedly challenged him to deny it (while offering suggested language that I thought he might use as a starting point), he finally responded with this qualified denial:

“I am not receiving, nor have I ever received, compensation directly or indirectly from Zillow, Trulia or their affiliates, subsidiaries, or partners to write that piece or any other piece or to promote their interests.” (Emphasis added.)

Regrettably, his denial contained an important difference from the language I offered him.  While he did deny “compensation,” his statement did not categorically deny that he is receiving, or has ever received, “compensation or other consideration” from Zillow or Trulia. Does Mr. Hahn have a reason for not wanting to include the words “or other consideration” in his statement? Instead of clearly defining the term to his satisfaction and including it in his denial, he only offered a statement about how ambiguous he finds of the term “other consideration” — a basic term of contract law. As a result, he left the matter unclear to his readers, leaving some to wonder if he has ever received, or is receiving, any other form of consideration. He wrote:

“I have no idea what ‘other consideration’ means, but it’s no secret that I’m friends with a number of people from all of the portal companies, as well as brokerages, MLSs, Associations, and other entities. I get invited to events, people call me with inside scoops (which I do not publish unless they give me permission), and so on. Is that ‘consideration’? I don’t know. I never thought so, but you can make up your own mind.”

I’m prepared to give Mr. Hahn the benefit of the doubt if he can provide an unambiguous disclosure, but since his statement doesn’t define the term “compensation,” we don’t know exactly how he’s defining it — and what that might include or exclude. Now I’m not saying that Mr. Hahn is the kind of guy who would quibble over what the definition of “is” is, as one U.S. president once famously did, but his conscious decision to omit the three words (“or other consideration”) did raise my eyebrows quite pointedly. Does Mr. Hahn include his company 7DS Associates (or any other entity in which he has an interest) in his definition of “I” in his denial statement above?

Wikipedia defines “shill” as “a person who publicly helps a person or organization without disclosing that they have a close relationship with the person or organization.” (Emphasis supplied.)

Now that we’ve covered that, let’s go back for a moment to January 26, 2011, when Mr. Hahn extolled the virtues of MLS when he said “a far better alternative” to Trulia exists “for brokers and agents: the MLS.” In the same post, he executed a thorough beat-down of Trulia’s co-founder Sami Inkinen:

“Finally, even if we accept all of Sami’s arguments, there is an X-factor that he is completely overlooking. Sami assumes that if those claims are correct, the inevitable result is that brokers will work directly with the big established websites like Trulia, cutting out the syndicators. But as I see it, if all of his arguments are true, there is a far better alternative for brokers and agents: the MLS. . . .

I believe, upon analysis, that his arguments are weak, and do not support his conclusion. However, what is more troubling is that simply by making these arguments, Sami raises far more questions about Trulia, its strategy, and its business practices than he does about the future of syndication. . . .” (Emphasis added.)

After his praise of MLSs almost three years ago, at some unknown time, his perspective on MLSs and portals seemed to change. His writings favoring MLSs began to wane, and his support for at least one portal (Trulia) became clear. It was on full display in his May 24, 2012 blog post, which contained this disclosure:

Full Disclosure: Trulia is not a client. However, I have provided unpaid advice to Trulia on certain strategic matters in the past, and may again in the future.”  (Emphasis in original.)

Since that time, I have not seen another such disclosure in any of Mr. Hahn’s numerous writings on his blog and on other sites in which he has discussed Trulia and other portals. Perhaps I’ve just overlooked them, which is entirely possible, and if so, perhaps someone can show me where to look. His failure to make such a “Full Disclosure” on subsequent posts raises a question as to his silence. Is Mr. Hahn prepared to state that the terms of his disclosure that he made on May 24, 2012 have remained true since that date to present day?

The theme of his writings has remained relentlessly in favor of Trulia in particular — and of portals in general. The fact that he did not disclose his Trulia relationship in his ABoR ACTRIS blog post seems to me sloppy at best and non-compliant with Federal law at worst.

Indeed, Mr. Hahn has some rather interesting views on disclosure requirements. He made his views clear on January 19, 2010 when he wrote about the then-newly updated FTC blogger disclosure guidelines. In this post he described a scenario in which he might receive various forms of promotional consideration that in his opinion wouldn’t require disclosure to his “Notorious R.O.B.” readers:

“At some point, there are limits to disclosure.  If, as is the case in reality, Eric just happens to be a friend of mine, and I do genuinely think his system has merit in many cases, so I mention [his company], praise it even, and Eric happens to mention me or my company to his contacts, audience members, and the like, and there is no ‘commercial relationship’ between us, I think requiring disclosure is a little bit silly.” (Emphasis added.)

Wow — as in so silly that he wouldn’t disclose it — silly? It is worth noting that the FTC disagrees with Mr. Hahn’s friendship exemption by making no such exception. In fact, anything that could amount to a quid pro quo or a favor for a favor, whether formally agreed upon in a commercial relationship or not, must be disclosed. Nonetheless, Mr. Hahn’s statement leaves little doubt about his opinion of the FTC blogger disclosure guidelines. Apparently, he views disclosure as completely unnecessary or at least “silly” in cases in which a blogger “happens to” promote the business of someone who “happens to be a friend” provided that no “‘commercial relationship’” exists. Did I forget to mention all the “friends” Mr. Hahn has already told us he has?

Based on his line of reasoning, could the portals (or one of his numerous “friends” employed there) do various favors or offer promotional consideration for Mr. Hahn that wouldn’t require his disclosure to his readers? When I say “various favors” I’m not talking about forms of “compensation” such as the payment of a fee, the issuance of stock or options, etc., but rather offering him other kinds of benefits or business promotional consideration. . . you know, the kind of perks that just might qualify as “other consideration?”  (There’s that term again. . . you remember, the one that Mr. Hahn had “no idea” what it meant?)

Let’s assume for a moment that a blogger decides or “happens to” promote the business of someone who “happens to be a friend” and that no “commercial relationship” exists. The blogger fails to disclose that personal relationship. That decision to obscure the relationship by not conspicuously disclosing it on the blog piece would seem to qualify that blogger as a “shill.” At least it does in my book. Others can decide for themselves.

If all of the above weren’t enough to justify my call for Mr. Hahn to make a consistent, full disclosure on each of his writings, in accordance with FTC guidelines, perhaps the following solicitation on his business web site, 7DS Associates, adds to the justification. 7DS Associates, whose slogan is “advanced strategy and reality-based thinking on real estate,” states:

“Well, I started Notorious R.O.B. to be my personal blog. And it still is, for the most part. . . .  But over time, it’s become something a bit more than that as well. I don’t think the 30K or so unique visitors and 500 subscribers to the email updates want to hear about why I think the Glock 19 is my favorite pistol. No, most of you come here and read because I’ve got things to say about the real estate industry, about marketing, about technology, about policy, management, demographics, and all of that.

Turns out, there are times when I really get into a topic. It’s not a half-hour blogpost, but something that requires real work, some real heavy lifting. (Ever read proposed government regulations? Annual reports of public companies?) I’m proud of that work, and the result that it produces, because I think that’s stuff that would and should guide business strategy and tactics for companies and individuals in our lovely tormented industry.

I figure, if this stuff is valuable, then somebody’s gotta show me the money. It’s the ultimate expression of value, as real estate agents know so well: you can think your house is worth whatever you want, but its real value is what someone is willing to pay for it.” (Emphasis added.)

Answering Your Direct Questions

Now I’d like to address the direct questions that Mr. Rob Hahn presented me:

1)     Why are 685 and 791 of your listings on Zillow and Trulia, respectively?

A total of 685 and 791 of my listings appear on Zillow and Trulia, respectively, because I have homebuilder clients who have requested syndication of their listings.  As far as the substantial difference between the two numbers is concerned, this example is yet another that shows the portals’ poor data integrity and management.

2)     Why do some of those listings on Zillow and Trulia list your brokerage, HomesUSA, as the source?

The premise of your question is simply incorrect. None of the listings on Zillow and Trulia list my brokerage, HomesUSA.com, as the “source.” My brokerage does not at this time have a direct feed to Zillow or Trulia. It may have one in the future, if for some reason my clients demand it.

3)     Could you explain why both you and Clay Woodward are listed as the Listing Agent on that one listing on Trulia?

Trulia, Zillow, and other portals receive listings from multiple sources and commonly mishandle the data, confusing and misleading consumers and, apparently, you as well.  The Trulia screenshot you’ve posted is an example of the kind of inaccuracy at Trulia and elsewhere about which NAREP has been advocating for reform of portal practices. (See “The Real Estate Professional’s Bill of Rights,” published by NAREP.)

4)     Please tell us who wrote your Trulia profile. If it was approved by you, please let us know the reasoning. If it wasn’t approved by you, please let us know the name of the marketing assistant you have fired for taking this unauthorized action.

I wrote it.

5)     What should a reasonable third-party observer conclude about your goals given the disparity between your apparent business practices and your advocacy against syndication as the President of NAREP?

A reasonable third-party should recognize that I deliver to my homebuilder clients the services that they request. Even though I may disagree with some of their decisions, I respect them and fully inform them about the issues.

In addition, a reasonable third-party should recognize that my portal accounts allow me to gain detailed first-hand insight into portal practices and to observe them in action — a perspective that I otherwise could not have. This perspective is a necessary one, given NAREP’s mission to reform portal and syndication practices. With the large number of listings that I carry in multiple markets, I am able to gain an informed view into how they interact with agents.

6)     Please tell us how you and your company, based in the Dallas area, can serve clients in Houston, Austin, and San Antonio.

HomesUSA.com offers an innovative, patent-pending web-based platform to my builder clients that enables me to manage much of the listing process online. The Internet has broadly expanded the scale, including the geographic range, in which I can serve my clients.

7)     Please differentiate the service in which you forward all leads directly to the homebuilder to be serviced by that homebuilder’s representative in exchange for a flat-fee from Zillow and Trulia, who charge a monthly fee to forward leads to a paying subscriber.

The fundamental difference is that, with HomesUSA.com, the consumer receives excellent answers to his or her questions about the property on which he or she is inquiring. In the case of HomesUSA.com’s forwarding all leads directly to the homebuilder, the consumer is connected to the builder’s representative who is personally familiar with all aspects of the home and neighborhood and who has been onsite usually for months, if not years.

In the case of Zillow or Trulia’s forwarding all leads directly to a paying subscriber, the consumer is connected with an agent who typically has no first-hand knowledge of the home or its neighborhood.  In addition, Zillow or Trulia may connect the consumer with someone who may have a license but otherwise no qualification beyond the ability to buy a “Premier” or “Pro” agent designation.

Having said that, lead-forwarding is only one of 35 specialized services that HomesUSA.com offers my homebuilder clients as part of my standard service offering.

8)     Please tell us how many of your 2,267 sides in 2012 was actually serviced by you or one of your agents. In this case, serviced would mean providing anything resembling a real estate brokerage service: showing a home, scheduling showings, getting feedback on showings, communicating with the client, negotiating the sale, etc.

I represent corporate homebuilders, just as Real Estate Owned (REO) brokers represent corporate lenders. These sophisticated corporate sellers of real estate require specialized services that are different from those services provided by an agent who represents individuals (i.e., those services that you list in your question). A good broker tailors his or her services to the needs of the client, and that is exactly what I endeavor to do.

I offer many valuable and specialized services to my client homebuilders that are different from — and go well beyond — those offered by agents who represent individuals.

9)     Do you personally consider it a “transaction side” if the agent involved did nothing more than forward the lead to another agent?

No, I do not. The scenario you describe in your question is a referral, not a “transaction side.”

10)  If you have not personally worked the transaction beyond forwarding the lead, do you consider it potentially misleading to the consumer to market yourself as the #1 Real Estate Agent in the country?

I disagree with the premise of your question.  You presume that I merely forward the lead, but that is only a very small detail among the 35 specialized services that I provide my homebuilder clients.

Having said that, keep in mind that I did not rank myself as the top or “#1” real estate agent in the country for 2012. The ranking was made by an independent and neutral third-party, who bases its ranking on objective criteria and a disclosed methodology, which place me at the top of the categories of both “Transaction Sides” and “Volume.”

In my marketing materials, when I represent myself as the “#1” or “#1 ranked” real estate agent in the country, I always endeavor to link to the independently published national rankings of real estate professionals. In addition, I always endeavor to identify the two categories that are the basis for my ranking. That way, the reader knows the basis for this representation and can evaluate the credibility and methodology of the ranking and its sponsoring entities. In fact, the first sentence of my official biography on my personal website (and reproduced elsewhere throughout the web) conspicuously provides such references and notation of the rankings’ sponsoring entities.

To that extent, no, I absolutely do not consider this representation misleading to anyone. If I have overlooked any place on the web where I have not provided such references, noted the rankings’ sponsoring entities, or identified the two categories that are the basis for my ranking, please let me know, and I will gladly update it.

11)  You have consistently called NAREP a “non-profit” and wrote that it is organized as a 501(c)(6) Business League. Please explain why neither the State of Texas nor the IRS has any record of NAREP in any Exempt Organizations database. Perhaps I’ve not looked in the right places; please feel free to post where one might find NAREP’s information included amongst Exempt Organizations.

I have consistently called NAREP a “non-profit” because it is one.  NAREP is duly incorporated in Texas as a non-profit corporation.  NAREP’s Certificate of Filing is conclusive proof of this fact.

With respect to NAREP’s 501(c)(6) status, when a non-profit entity is incorporated with the purpose of operating as a 501(c)(6), the entity itself must first make a self-determination that it qualifies under the statute and that it is “organized” as a 501(c)(6). It then has 15 to 27 months to file a federal Form 1024 and request a Determination Letter from the IRS to confirm the self-determination that the non-profit entity has made about its 501(c)(6) purpose.  To that extent, it is absolutely correct and proper for me to state that NAREP is “organized” as a 501(c)(6). (I have personally confirmed this fact with the IRS and with my legal counsel.)

Not once have I or NAREP (or anyone else connected to NAREP) ever represented that NAREP already has tax-exempt status.  The process with the IRS to receive a Determination Letter on tax-exempt status can take 1-2 years, and NAREP is just over 1 year old. NAREP has submitted the necessary paperwork to the IRS, and I expect to receive a Determination Letter from the IRS on NAREP’s 501(c)(6) tax-exempt status in due course. After the IRS has completed processing NAREP’s application, assuming it makes a determination in NAREP’s favor, you will find NAREP in the Texas and Federal databases of tax-exempt organizations, but not before that time.

12)  NAREP today does not appear to charge member dues. Please tell us if this remains true today.

Correct. NAREP does not charge member dues.

13)  Has NAREP received any donations from any of its members, any third party, any non-member entity since its founding in October of 2012? If so, has NAREP filed a Form 990 or a Form 990-N? If not, why not? Would you make your Form 990-N available to the public?

No, NAREP has never received any donations from any of its members, any third party, or any non-member entity.

14)  Where does NAREP’s funding come from today?

Since its incorporation in August of 2012, and since its public launching in October 2012, and to present day, NAREP’s funding has come exclusively from me.

15)  Is the document from the State of Texas listing three directors for NAREP accurate? Could you explain why all of the Directors of NAREP share the same address?

NAREP’s records with the State of Texas are accurate. All of the directors of NAREP share the same mailing address in our filings, because that is NAREP’s official mailing address. The other two directors are fulfilling interim terms for organizational purposes only as a courtesy to me. I intend to announce a permanent board soon.

16)  Do you feel that as a listing agent, a fiduciary of the client homebuilder, you owe it to the client to warn them against the negative effect of syndication on their properties?

Absolutely. My clients who wish for me to syndicate their listings have signed the NAREP Listing Agreement Addendum, which informs them of the potential negative effects of syndication on their listings.

17)  Have you warned your clients about syndication?

Yes.  See my answer to #16.

18)  Have you asked your clients to support NAREP and its mission? Are they members of NAREP?

No. At this point, I have prioritized the recruitment of real estate agents, brokers, and managing brokers.

19)  Do your clients know about your involvement with NAREP at all? If not, why not?

With respect to my clients who wish for me to syndicate their listings, I have made it a priority to inform them of the potential negative aspects of syndication on their properties through the NAREP Listing Agreement Addendum. Beyond this disclosure, I typically do not make it a priority to discuss with them my personal involvement with NAREP.

Having said that, my involvement with NAREP is on my official biography on my personal web site, and I include the link to my personal web site in the signature of my emails to clients. In addition, I am connected to many of my clients on LinkedIn, where my NAREP involvement is apparent. Finally, I am connected to many of clients on Twitter, where I sometimes tweet about NAREP and related industry issues.

20)  Do you categorically deny that you are receiving, or have ever received, compensation or other consideration, either directly or indirectly, from any company other than Zillow or Trulia, their subsidiaries, or partners: (1) to comment on my posts, under your name or pseudonym; or (2) to promote their interests.

Yes.

 

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