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On the last day of CMLS 2013, the most interesting 30 minutes in the history of real estate conferences happened. Seriously, I’ve been going to these industry confabs for years now, and have seen some really interesting panels, have heard great speakers, have been part of great debates. I was there at Midyear 2011 when Franchise IDX was going down. I was present when RPR was brought forth in 2009. I’ve been privileged to be at important meetings where important people made important decisions.
And I have never ever seen a room filled with a few hundred seasoned industry veterans — CEO’s, Association Executives, senior executives of major tech companies, — get like that.
Like what? Well, like the inside of a mausoleum on a moonless night. If a flea had farted, we all would have heard it. The tension in the room was second only to the quiet dread permeating the audience.
The immediate cause of this sepulchral atmosphere was the panel discussion entitled, “Eliminating MLS & Broker Conflict” featuring Gregg Larson of Clareity, Brian Donnellan of MRIS, and the star of the show, Craig Cheatham, CEO of The Realty Alliance.
Bottom line, Craig Cheatham made it clear that The Realty Alliance intends to Do Something about the MLS, which he said was the biggest pain, the primary focus of concern and the biggest source of frustration for his members. Those members, in case you aren’t aware, are some of the largest brokerages in the United States, including such names as HomeServices of America, Long & Foster, Howard Hanna, Crye-Leike, Ebby Halliday, Prudential Fox & Roach, Baird & Warner, Coldwell Banker United, etc. etc., and the list goes on.
This is one session I wish I had videotaped, since Cheatham’s comments were jaw-dropping, even though he delivered them with consummate grace and diplomacy. Words and phrases like “nuclear option”, “push the red button”, “don’t plan too many more of these CMLS events into the future”, and of course, “You have ten days” are… shall we say… attention-grabbing? Perhaps the CMLS website will have the video available soon. But you can check out the companion post to this one from Notorious B.O.B. (Bemis) for what went down, as well as some fantastic historical perspective. I’m sure we’ll have other reports of what went down from various sources soon as well.
What I’d like to do with this post — which is going to be lengthy — is to speculate as to what might come next. After the ten days are up (and by the time you’re reading this, it’s closer to seven days left), what is the Realty Alliance likely to do? So two warnings.
First, this is rank speculation on my part. I have no inside knowledge, I haven’t officially spoken to anyone from the Realty Alliance, nor do I have any proprietary information. Second, this is going to be long.
Predictions sure to be wrong, or your money back! Let’s get into it.
Brief Historical Review, Or What Do They Want?
Before we can get into what the Realty Alliance is likely to try, it’s useful to try and guess at what it is they want.
Some of the people at CMLS — who are experienced, knowledgeable, and wise — thought this whole brouhaha was about the MLS public website. Recall that at Midyear, NAR approved a policy which allowed the MLS to classify the public website as a Basic Service, which allows the MLS to use member dues to finance the creation, maintenance, and promotion of the public website. (See my post on that for more.)
As I’ve written before, I don’t think the conflict is about that one issue, or any one issue. I think it’s about settling the question of Who Shall Rule. Keep in mind that the fracture came into view a couple of years ago, when Realty Alliance and Leading RE came out strongly against Franchise IDX. I do know that there were serious meetings being held and plans being laid down during that fight, but the brokers mostly won that round, so I thought they had stood down. Well, maybe they never disarmed, but used the intervening years to tool up more completely.
So when Cheatham said at CMLS that his brokers did not feel that they would work “within the system”, and further elaborated that his people feel they have less influence even though they are the largest and most important brokerages in various markets, what I hear is that this whole thing will ultimately be about power. And what the Realty Alliance wants is the power to cut away all of the MLS ancillary services they find offensive, and to keep the MLS restricted to the “core function” of providing clean data to participants. (See this Letter from Realty Alliance to the MLS Policy Committee.)
The Red Herring Options
So let’s assume it’s war. What are the options? What could the Realty Alliance possibly do? Let me present a few options that I think are unlikely, for a variety of reasons.
1. File a lawsuit
One thing the Realty Alliance could do is to file a lawsuit alleging a violation of anti-trust laws that prohibit “tying”. The primary thrust would be over the funding of public facing websites, but other ancillary services can be thrown in there. The idea is that the MLS is abusing its market power (they’re de facto monopolies) to force brokers to purchase public facing websites or transaction management systems or what-have-you in order to purchase the core MLS services.
I spoke with a lawyer who ought to know on this issue (names are withheld to protect the guilty and the innocent), and he thought while it’s possible, tying lawsuits have generally been unsuccessful in recent years. Realty Alliance might try that, but it’s far from clear that they’d win in court.
Furthermore, while a lawsuit might be something the Realty Alliance does in addition to the primary attack, I don’t think it’s the primary strategy for the simple reason that a lawsuit will take years to work its way through the legal system. I don’t think the Realty Alliance is in the mood for a long campaign.
2. Pull Out of the MLS
This is the most popular theory amongst the MLS people in attendance. Perhaps the Realty Alliance brokers would pull all of their listings and their agents out of the MLS and start their own listing service of some sort. After all, Realty Alliance brokers control about 10% of the total REALTOR population, and in some markets, they’re far more than that.
I think this move is highly unlikely, because doing so at the present time would be tantamount to suicide for the Realty Alliance firms. They are large and powerful, but they’re still only 10% of the agent population, and simply pulling out of the MLS would mean that their agents would lose access to not only the most accurate source of listings, but would lose to cooperation and compensation. They’d all immediately be recruited away by the other firms in the marketplace.
The Realty Alliance might be angry, but they’re also smart and savvy. One doesn’t become a multi-state, multi-office super-brokerage by being stupid.
3. Pull Out of the Association
The brokers could, instead, pull out of the Association while staying in the MLS. That’s a possibility. In some markets, Realty Alliance brokers might be a third of the entire Association membership. No Association can lose a third of its members (and their dues dollars) without flinching, and to the extent the Association owns and controls the MLS, this would be an effective lever of power.
Thing is, in many markets, membership in the MLS is and legally can be tied to membership in the Association. (The so-called non-Thompson jurisdictions.) So pulling out of the Association in those markets is the same as #2, with the same suicidal results. Yes, you can file a lawsuit to separate the Association and MLS, which The Realty Alliance could probably win (complicated legal reasons here), but that would take years. And I don’t think they want to take years over this.
4. Pull Out of Syndication and the MLS Public Website
As I’ve noted in my previous coverage of the MLS public website issue, the debate made it absolutely clear that even if the MLS can classify the public website as a basic service — and therefore use member dues to pay for it — the brokerage has the absolute right to refuse its listings from showing up on such websites:
Basically, it turns out that brokers have the right to opt-out of display on public facing MLS websites. (o.0) Apparently, that right has always existed, but… I don’t think more than a half-dozen people in the world knew that. Even Victor Lund of WAVGroup, who knows as much as anybody about this space, had to ask a couple of clarifying questions to make sure that brokers can do this.
The clear unequivocal answer is Yes.
So… if folks like the Realty Alliance are unhappy with the result, they have an obvious path: opt out of the MLS public facing websites. If enough of the large brokerages do this, the value of the MLS public website starts to approach zero. It’s awful hard to criticize Trulia and Zillow for being inaccurate when the MLS’s own website might have only 60% of the listings on the market because brokerages have opted out.
NOTE: the listings are still there in the MLS; just not on the MLS public website.
I think this is quite likely, especially given that prominent members of The Realty Alliance are strong opponents of syndication, and have done things like remove feeds from Realtor.com.
Thing is, I just can’t imagine that putting much pressure on the MLS. Pulling listings from the public website puts zero pressure on the MLS, since unlike the portals, the MLS doesn’t sell leads and advertising off of those listings. The leads from those listings go only to the listing agent/listing broker, so… if the Realty Alliance doesn’t want those leads, who is the MLS to stand in the way of that?
Pulling out of syndication doesn’t hurt the MLS in any way; it gores the oxen of Zillow, Trulia, Move, and others perhaps… but those are cattle that some MLSs wouldn’t mind seeing slaughtered in any event. So how that puts pressure on the MLS is hard to see.
The Likely Path
With the broad assumptions, that the Realty Alliance doesn’t just want one or two policies changed, but the whole balance of power within the industry shifted, and that to achieve those goals, the Realty Alliance must find ways to put a real hurt on the MLS… what is likely to work?
I see a two stage process, the first to signal the seriousness of their intentions, and the second to put the hammer down on the MLS.
First Stage: Pull Out of IDX
I’ve mentioned on these pages that large brokerages could pull out of participation in IDX without killing their ability to market listings of others via bilateral syndication:
Big Broker LLC might reasonably conclude that they can afford to forego the right to display the nonexistent listings of buyer brokerages, and still have pretty much what they want to have — near-total listing coverage.
By entering into bilateral syndication agreements with Big Franchisee, Big Independent, and any smaller brokerage who has listings, and are willing to live with the terms of Big Brokerage LLC’s syndication license.
Said license might include things like, “You will agree to display my logo and listing agent contact information next to all of my listings that you display on your website.” In fact, such bilateral agreements could simply copy and paste the IDX rules for the given market, but agreements would be done only amongst those brokerages who have listings to contribute to the pool.
We already know that during the last battle, over Franchise IDX, Leading RE stood with The Realty Alliance. We also know that after losing on the Franchise IDX issue, a number of franchises joined together in something called the Real Estate Network, powered by ListHub. I do not know who else is part of REN, but note the testimonial from Mike Pappas of the Keyes Company:
“We have promoted our listings on competitors’ websites for years through IDX to maximize the marketing value we deliver to our sellers, and we view the Real Estate Network as an extension of that effort. As long as I control where my listings go, and can rely on clear rules for how they are displayed, I welcome this additional distribution.”
Seems to me that REN would positively welcome the addition of the Realty Alliance brokerages with their massive market power to the network. Throw in Leading RE brokerages, and possibly someone like the NRT (the largest brokerage in the country), into the mix and we’re talking about something that could plausibly replace IDX altogether.
The MLS, in the meanwhile, would suffer greatly should many of its large brokers pull out of IDX. The vast majority of brokers and agents in the MLS are not major listing brokers or massive listing agents. They’re buyer representatives for whom IDX is their lifeblood. If the MLS cannot provide them with (let’s say) 30-50% of the listings in the marketplace, they’re going to pitch a fit. The angry phone calls from those subscribers alone would keep the MLS CEO busy for weeks, if not months, and the emergency board meetings to discuss the issue will be fun places for a journalist to visit.
Keep in mind that all of the listings are in the MLS itself. A buyer agent can get all of the information on all of the listings. It’s just that they can’t use those listings to generate leads.
The 80/20 rule, I think, also applies to listings and brokerages. I don’t have any data to support this, but I think it’s not unreasonable to think that perhaps 20% of the brokerages generate 80% of the listings in the MLS. And it is quite likely that those 20% of the brokerages are your large brokerages who have no problems with chopping the legs out from the 80% who are tiny mom-n-pop shops specializing in buyer brokerage.
Second Stage: Launch a Competing MLS
Should the step of pulling out of IDX not get the job done, then phase two is not going to be pulling out of the MLS. It is more likely to be launching a competing MLS service.
There are already a number of broker-owned MLS’s in the country, with some of them being very large and very well-respected companies, such as MLS PIN and Northwest MLS. In Atlanta, a broker-owned MLS competes head-to-head with an Association MLS.
The key feature of the broker-owned MLS is that it is not bound by NAR policies. All of the drama and angst over issues like Franchise IDX, like public facing websites, and the like are often looked at with a yawn by the CEO’s of broker-owned MLS’s because until and unless their own boards adopt such policies, they don’t have to deal with it.
A listing service owned and operated by The Realty Alliance (and its allies) will be the vision that The Realty Alliance has for the MLS: core service of the data aggregation, compliance, and cooperation/compensation only. The culture of that MLS will be one where it serves the broker — especially the listing broker — above all. That is what The Realty Alliance has pushed for in letter after letter, year after year.
A couple of years ago, I was in conversation with a brokerage technology executive, who again shall remain nameless. The topic turned to Franchise IDX kerfuffle and the MLS, and he made the observation that if you stripped the MLS down to its core essential service — no more marketing departments, no expensive training programs, expensive travel for board members, certainly no public websites or agent products or whatever — that he could offer the MLS for about $2.50 per subscriber.
I believe that is a possible, even likely, path for The Realty Alliance here. Stay in the current MLS, because you can’t screw your own agents over by taking them out of the MLS. But launch a competing service for $2/mo to everyone in the market. (Such a service is cheap enough for large brokers, such as members of the Realty Alliance, to just pay for their agents, so even that obstacle is removed.) Run them in parallel, while convincing the other strong listing brokers that they should join the TRAMLS (The Realty Alliance MLS) as well.
Remember that they pulled out of IDX in the OldMLS; guess where their listings will be available? That’s right, TRAMLS. And for $2/mo?
Once you get to a critical mass — say 51% of the practitioners in the marketplace, and critically, the 20% of the brokers who control 80% of the listings — then and only then can you pull out of the expensive, cumbersome, NAR-policy-controlled OldMLS.
In the meantime, if nothing else, the pricing pressure on the OldMLS will be intense.
Answering Objections on the TRAMLS Concept
Last night, I’ve had hours of cocktail-fueled conversations on the TRAMLS idea with people who really know MLS. There are a couple of objections they — MLS CEO’s, technology providers, vendors, etc. — bring up.
First, they point out that the MLS platform is tremendously complicated, and that there is no way that The Realty Alliance has one under contract without them having heard about it.
My take is that the MLS platform is tremendously complicated not because the technology is complicated, because frankly it is not, but because the rules and procedures of the MLS are complicated. Simplify those rules, and the technology is not exactly cutting edge stuff. A database, a property search, an Add/Edit module, and some ways of getting the data out. Layer data compliance on top, and voila! The MLS.
Given that The Realty Alliance wants to strip the MLS down to its core function of data maintenance and data access… why wouldn’t those rules be stripped down to the core? And if stripped down the core, just how hard or expensive is it for brokerages as sophisticated and as wealthy as members of The Realty Alliance to hire a group of smart developers out of Estonia to build them a custom MLS platform?
Do we really think that a company like Long & Foster or Crye-Leike don’t have the technology competence to build a property database? In fact, do we really think that they don’t already have such a system for their in-house needs? I know Realogy has had CREST for decades, which has things like Add/Edit, property search, reporting tools, etc. Are we really assuming that these billion-dollar enterprises don’t have something very close to a MLS already?
Second, they point out that running the customer service, training and compliance is complex and expensive. I don’t doubt that at all.
At the same time, my view is that training is complex because the existing MLS platforms are terrible. The UI practices of the average MLS system belong in the Hall of Infamy for user interface design. Create a better UI, with simplified rules, and training requirements drop off the cliff.
Furthermore, think of the 80/20 rule. What percentage of an MLS’s subscribers need training on listing Add/Edit at all? If they don’t take listings, then why do they need anything other than property search, CMA, and setting up client email gateways?
For that matter, were the smart CTO’s of the Realty Alliance companies to put their heads together and design their ideal MLS system from scratch… do we really think they wouldn’t build something that leverages 2013 technology, instead of 1993 technology? Things like open API access to enable each brokerage to build the MLS directly into their intranet systems? I mean, if I could think of it, then I’m sure they could think of it and then some.
In fact, if you’re a large brokerage, shouldn’t you want to take on the customer service and training functions for your agents? Weave the MLS into the in-house systems, and you’ve got a significant advantage in retention and recruiting, especially over the tiny mom-n-pops who only compete on high commission splits. Train an agent up on how to use the MLS, and provide the customer service to that agent directly, and it’ll be far harder for some 100% shop to headhunt the agent away. The switching costs for that agent go way up under this scenario.
There are many other aspects to think about and debate here, but those are the top objections and my answers to them.
Why The Threat?
One last thing. One MLS CEO I spoke to later in the evening was fuming. His point was, “Why are you threatening me? If you’re going to do something, then just do it, instead of making these vague threats like a punk.” He’s got a point.
But I believe there is a reason why Craig Cheatham came to CMLS, and why he made such strong threats. I think this is a last-chance effort to get the NAR to surrender.
The ten-days reference was not to a doomsday clock. It was a reference to the fact that The Realty Alliance is meeting in ten days. I wonder if the point of the threat was to put pressure on NAR, on Dale Stinton, on Laurie Janik, on Gary Thomas the President, and the future leadership of NAR, to show up in person and concede to the list of demands of the Realty Alliance. Keep in mind that the NAR Annual Convention is a few weeks after the Realty Alliance meetings.
Perhaps the deal is this. Dale Stinton shows up at the Realty Alliance meeting, is presented with a list of non-negotiable demands (Cheatham mentioned some 45 pages of complaints by his member brokers) that must be adopted by NAR’s MLS Policy Committee and then approved by the NAR Board of Directors in November, or the Red Button gets pushed. If NAR pushed the Realtor.com changes through with an emergency meeting, then the Realty Alliance logically believes that NAR can push these changes through as well.
Should NAR adopt a set of policies which are nothing short of revolutionary — and they’ll be revolutionary because the key principle will be around governance being tilted towards large brokers — then the Realty Alliance can stand down. They’ve won, without firing a shot, and I suspect they’ll accept that outcome.
But… I don’t believe this is a negotiating ploy. Given what happened at Midyear, I don’t think the Realty Alliance is much in the mood for negotiating and getting half-a-loaf type of result. Given the strength of the threats, and the apparent seriousness of the large brokerages, I think this is a take-it-or-leave-it deal. The list of demands is a surrender document; what is negotiable are tiny fringe issues, not the central core issue: henceforth the large brokerages shall rule the MLS, and through that control, rule the industry.
Given the mood amongst Association leaders and the MLS leaders — many of whom were blase about this latest round of threats with a “we’ve heard all that before” and “this is a lot of noise that will result in a whole lot of nothing” — I suspect that NAR will reject those demands, if indeed they show up at the Realty Alliance meetings at all.
Then the war is on. IDX first, then competing MLS next.
Once again, I stress that these are all speculations based on nothing but what I think. As a blogger, I can do such things. And I stress that these are predictions sure to be wrong, or your money back.
What I’d like to know from perceptive readers is what you think is likely to happen going forward. Will there be open war, with missiles in the air, or will we have a last-minute settlement? Why are the things I’ve outlined completely off-base, or perhaps why are they logical? If you happen to know what the bottom-line demands of the large brokerages are, then I’d like to know that as well.
Thanks for reading through some 4,000 words. This is a big complex topic, and we’ll see how things unfold. But hey, as per the Chinese curse, we are living through interesting times.