A couple of weeks ago, I had the opportunity to speak to a group of MLS executives and leadership at the Zillow MLS Summit in Las Vegas. It was a Q&A format with Mitch Robinson from Zillow interviewing me on a number of questions and issues related to Project Upstream and the MLS. The video from that event has been released, and I asked for and received permission to share the video. I thought I would write down a few (possibly more than a few…) words to organize the thoughts there.
First, here’s the video:
It was a great half hour or so, and I’m afraid I spoke too fast — gotta work on slowing down a bunch…. The audience was mostly MLS executives and a few elected leadership to MLS boards. Accordingly, the topic is likely to be of very little interest to the average working broker/agent on the street (I mention as much in the talk). So feel free to skip it. 🙂
But if you’re in the MLS sub-industry, then it might be worth watching that. Then before you get on me about how wrong and misguided I am, read this post, since I’d prefer if you got on me for what I really believe/think. Heh. There’s a lot here, so this post may get a touch long. You’ve been warned.
Three Main Issues
This was a last-minute thing; I got invited on… the Friday before? to do a session on my views on Upstream. Regular readers already know quite a bit of my thoughts on Upstream and the MLS. This post might be a good starting point, as it is Part 1 of 3.
Over the past few months, however, I’ve come to identify three major issues/questions about Upstream as it relates to the MLS and to the structure of the real estate industry. They are:
- Who is the reference database?
- How does the relationship between brokerages get governed?
- How is Upstream not a public utility?
As you can see, the conversation ranged all over the place, but those three are my main concerns/questions. So let’s get into it.
Wait. Before we begin, I need to make clear one thing: I have no connection to Upstream, and I’m not privy to any private/confidential discussions and revelations that Upstream may have made to various people. So everything I say below about Upstream is based on public statements, what we already know, and educated guesses. That’s sort of the best we can do right now.
The Reference Database
As I’ve been saying for a while now, I am in full support of the concepts, functionality, and solutions of Project Upstream. Broker control over data, easier management of data, and alleviating problems with the “overlapping market disorder” are all things I would like to see. But I want to see all of it happening from within the MLS.
The issue I have is that as it stands now, Upstream is not a movement to install easier data management utilities on top of the MLS. It is a company — UpstreamRE, LLC — with its own board of managers, its own business model (based on brokers/agents paying to enter data into Upstream and use its tools, and the MLS paying for data from Upstream), and its own policymaking structure. That company has partnered with NAR’s wholly-owned subsidiary, RPR, to be the technology provider.
Furthermore, Upstream has stated publicly that it intends to be the “single source of truth” for real estate data:
“Upstream is a consolidated database of broker information in one place,” said Dan Elsea, president of Real Estate One and vice-chair of Upstream’s board of managers.
“The idea is to facilitate the distribution of information and to streamline the process so that a broker doesn’t have to put information multiple times in multiple places.”
Upstream is “a single source of truth” for broker information, said Cary Sylvester, a Keller Williams vice president and Upstream board member.
The problem I have with that structure is that the real estate industry — indeed, the country as a whole, given the importance of real estate to the economy — needs a “reference database”. I mean there needs to be some yardstick of accuracy, completeness, timeliness, etc.
As I say in the video, when people criticize Zillow for being “inaccurate”, the question is, “Inaccurate compared to what?” Today, that “what” is the MLS as the reference database. If Zillow only has 80% of the listings, what we mean by that is “80% of the listings in the MLS“.
In the post-Upstream world, is the MLS still the reference database? Or is it a mix of Upstream and the MLS that is the reference database? When Realtor.com runs its ads with the tagline of “Accuracy Matters”, will that mean accurate vis-a-vis… what exactly?
Closely related to that question are these:
- Who does compliance? I’ve already written at length about this, so you can just go read that post.
- Who pays for that compliance?
- If a local MLS starts to work with Upstream, and then three years later, decides to terminate the relationship, does the MLS keep a copy of all of the data it received from Upstream?
- If there is a conflict between records in the MLS and in Upstream, which trumps the other?
Relationship Between Brokerages
The second question and concern has to do with the relationship between brokerages. As I mentioned in the video, my friend Sam Debord and I have been having debates about the concept of the “broker sphere”. He thinks there is such a thing, and I do not.
My reasons for denying the existence of a “broker sphere” is that brokerages are competitors. And they do compete rather fiercely against each other in the marketplace for recruiting, retention, brand recognition, market share, etc. etc. And brokerages come in all different shapes and sizes and business models. There are discount brokerages, MLS-only brokerages, full service brokerages, boutique brokerages, etc. etc. To say that these competitors who are trying their level best to put each other out of business constitute a “sphere” is a stretch to me.
The only exception to that rule of competition is cooperation and compensation. The MLS. It is why I call the MLS a miracle of coopetition. The MLS is the only institution where otherwise fierce competitors come together and agree to cooperate with each other, because the benefits of cooperation there outweigh the costs of cooperation.
But to suggest that a giant brokerage, like Long & Foster, shares the same concerns and business practices outside of cooperation & compensation with some 3-person independent, or a 50-person franchisee of some national company, strikes me as an illusion. Data management and data distribution may be a very big deal for Long & Foster; it’s probably not something that a 3-person independent in one market, one MLS thinks about very much.
The entity that governs the relationship between brokerages today is the MLS, with an assist from the Association’s Code of Ethics. The MLS is able to govern that relationship today because of its unique role as the reference database and the marketplace for professionals. If that is imperiled because of some third party, whether Upstream or some giant portal or Google, then that’s a problem.
One of the issues I brought up was the idea that there is an inherent conflict between Big Brokers and Small Brokers. Quite a few MLS’s resolve that conflict by ensuring that there is representation on governing bodies of large, mid-size, and small brokerages. I did not know what the Board of Directors (Managers?) of UpstreamRE, LLC. looked like, but I did know what the Board of the Broker Public Portal (which is supported by quite a few of the same players behind Upstream) looked like. I pointed out in the video that Pacific Union was considered a “Small Broker” on BPP. In 2015, Pacific Union was the #9 brokerage on RealTrends 500 in volume with $6.75 billion in sales.
If that’s a small broker, well….
Since that video, a reader who was in attendance sent me the list of the Board of Directors of Upstream. It looks like this:
- Bill Riss, Coldwell Banker Bain
- Bob Moline, HSA (Chairman)
- Cary Sylvester, KW (Search Committee)
- Charles Oppler, Prominent Properties
- Craig Cheatham, Realty Alliance (Secretary)
- Dan Elsea, Real Estate One (Vice Chairman)
- Earl Lee, Berkshire Hathaway Home Services
- Frank Perdichizzi, Private Label Realty (Treasurer)
- George Eastment, Long & Foster
- Gurtej Sodhi, Crye-Leike (RFP Committee)
- Joseph Horning, Shorewest Realtors
- Kent Hanley, William Raveis
- Mark McLaughlin, Pacific Union
- Pam O’Connor, LeadingRE
- Rick Haase, ERA Latter & Blum
- Steve Baird, Baird & Warner
These are some of the biggest names in our industry, some of our best and brightest leaders. Powerful men and women with huge influence. I know quite a few of them and have nothing but respect for them as individuals and as business leaders.
But not one is a small broker. Not one. The smallest on that list would be Private Label Realty, which was #212 on RealTrends 500 with “only” $832 million in sales in 2015. The next smallest is Prominent Properties, #132 on RealTrends 500 with $1.2 billion in sales.
Meanwhile, the average MLS has hundreds or thousands of Participant Brokers, and the vast majority (we’re talking like 80%+) are small independents with fewer than five agents. I have met and worked with great volunteer leaders on Association and MLS boards who are from exactly that kind of small brokerage.
The local MLS governs the relationship, creates the rules of the road, and operates a marketplace for the benefit of the largest and the smallest brokerage. It has for decades.
If we are moving into a different sort of future, then I think as an industry, we ought to at least discuss that and whether that’s a good thing or a bad thing. Here are a few related questions to this big overarching question:
- Should the interests of small brokers (and I mean really small brokers) be protected at all?
- How would their interests be protected?
- How will the behavior of small brokers be controlled?
- What about non-traditional brokerages? Should their interests be protected? If so, how? And how will their behavior be controlled?
The Public Utility Issue
I wrote about this at some length in the past, so I’ll direct you to that post and summarize here:
- Project Upstream, as it is currently conceived, is a company owned by the largest brokerages and national franchise companies in the industry.
- It is powered by RPR, a wholly-owned subsidiary of NAR.
- Upstream leaders have sworn up and down on a stack of Bibles that Upstream will not be an MLS, but a data management and data distribution company.
- Data distribution of Upstream will be intimately connected to data distribution to the consumer.
- The current position of Upstream is that it will not decide, dictate, or influence where a broker sends his listing data (Inman News – might require subscription).
- Upstream has been very careful to ensure that there is no anti-trust problem and nothing it will build or provide will be anti-competitive.
As I state in the video, my concern is that anti-trust is not the issue. Regulation is. In this context, it’s worth quoting from the Inman article linked to above:
“Upstream, in comparison, is a data management company that enables individual brokers and agents the ability to choose with whom they would like to share information. Upstream will not decide or dictate where data will be distributed — we are the mechanism for distribution.”
That extends to data agreements as well. Upstream will not collectively negotiate data agreements for member brokers with portals such as Zillow, Trulia or realtor.com, Sylvester said.
“We are creating standard license agreements that may be used by our members; however, it is a member’s choice to use the standard agreement, or create their own,” she said.
“Either way, the agreement is between the Member and any data recipient they authorize.”
Thing is, I went to law school with a number of people who are today Federal regulators: SEC, FCC, NTSB, etc. I contemplated a career myself as a regulator. I think I have a pretty good grasp of what they think and how they think.
The point I make is that all regulators, but particularly Federal regulators, believe two things:
- They do not trust the industry; and
- They know better than corporations what is best for consumers.
If you do not have that mindset, you cannot be a regulator. I mean, what is the point of regulating an industry if your attitude is, “You go ahead with what you think is right; we trust you know what’s best for consumers!”
So in that context, I suppose I wonder why Upstream thinks that it can create these standard license agreements that may affect the consumer’s ability to access real estate information. Why wouldn’t, for example, HUD want to have a say in how such standard license agreements are structured and written to make sure that consumer access to real estate information is protected?
That’s not an anti-trust issue; in fact, the nature of public utilities is for the government to grant a monopoly in exchange for regulatory oversight. So that’s what would happen if we take this down the line. Upstream, and through Upstream, the MLS, would become a public utility with the explicit permission to be a monopoly. In exchange, the government would regulate who, what, where, when, and how real estate data is distributed to make sure that consumers are protected. Is that what we want as an industry?
As yet, I have not received a satisfactory answer as to why I’m crazy for worrying about this takeover of real estate data by the government. I would like one, and frankly, I think the real estate industry deserves an answer.
I wanted to make sure that I jotted down my thoughts on these issues/questions because there’s a difference between speaking on a stage and writing things down. I often don’t know what I think until I’ve read what I’ve written.
But in closing, let me say this: something is happening in the real estate industry. I’m often accused of being a Chicken Little doomsayer, because… well, I can be. But there’s something different about what’s going on now. I know T3 Summit is happening today and the rest of this week, and I suspect that there will be these conversations that will be had in hallways and lobby bars.
When CEO’s of major MLS’s use words like “open war”, there’s something going on. When influential and powerful people say things like, “we’re paying lip service”, there’s something going on. As yet, none of us know what is going on, and where things will head. But I do think that we are living through interesting times and that the next several months and years might see some fundamental restructuring of how the industry is organized.
Maybe it’s time.