Keep Calm, And Carry On?

I’ve been busy packing my house, putting everything into a moving truck, and then driving for a couple of days across this beautiful country of ours to pay much attention to the RE.net. Hence, I didn’t quite realize that somehow, I may have played a tiny part in triggering some kind of a panic in the streets of Carlisle, Dublin, Dundee, Humberside….

Apparently, it got so bad that Michael Wurzer, CEO of FBS — which makes FlexMLS software — wrote a post on the FBS Blog entitled The Feds Are Coming! in which he condemns the “wild-eyed speculations” of “lobbyists” like Daniel Castro of Information Technology & Innovation Foundation, and “pundits” like yours truly. While I’m pretty sure Daniel is not a lobbyist, since think tank academics do not lobby as a general rule, I guess I’m fine with being a pundit. At least I don’t have to defend the status quo because my company’s future depends upon it.

In any event, Michael directly calls me out in the post saying that my wild-eyed speculation about:

…a federally mandated national database that is “easily available to all data users, including consumers, Wall Street, government, and academia” but he doesn’t even attempt to address the question of what “easily available” means, including who would authorize that access.

I didn’t think I needed to explain such details in a 15 minute Black Swan type of speech at Inman designed more to entertain and get people thinking than to lay out a real case for government action, but… I’m happy to oblige.

The current reactions from parts of the industry speak to a fundamental reality of real estate industry that often gets overlooked. And it helps to illustrate why change and innovation so often come from the outside. This isn’t unique to real estate by any means, but from a strategy standpoint, it’s worth thinking about.

So let’s get into it!

About My One Possible Future

So the first thing to note is that my presentation at Inman was not “Here is THE DEFINITIVE FUTURE of the MLS!” I said at the outset that there is no scenario in which there is no MLS, but that what we end up with might not look like a MLS to us. I’ve done a number of similar “Black Swan Events” presentations over the years, and was largely met with “Wow, that’s interesting to think about!” instead of panic.

I even wrote a followup post to expand and explain further that the point was to do the “hole, not a drill” thinking exercise so that MLS leaders can focus on what’s important and what’s not important.

Had it not been for the presentation by Daniel Castro of ITIF and the news about two Congressmen sending a letter to the DOJ and the FTC about investigating the real estate industry in light of the NAR-DOJ settlement expiring this year, I think everyone does the “Huh, that’s interesting!” and moves on.

So let’s start with this: at no point did I say, nor do I think, that my public-private partnership is the inevitable future of the MLS. It was merely one such possible future, used to illustrate the core problem: that the industry focuses on the tool (the MLS) as opposed to what the tool is supposed to accomplish (accurate listings database + cooperation and compensation). Not the drill, but the hole!

Naturally, that means I should have laid out details about who governs access to listing data….

Michael Wurzer Complains

So in his post, in which he urges calm, Michael writes:

So, the basic question remains, who would authorize access to the listing database and what would be the terms of use required for that access? If we apply the open banking model to real estate, the seller and/or listing broker would be the one to authorize access, which essentially is exactly what happens today when the seller either goes FSBO or hires a broker to market their listing for them. Now, to be clear, I know there are lots of nuances that people will be quick to put forth about whether the seller, broker, etc., should authorize access, but we don’t need to dive into all that here. The point simply is that the fantasy of  a federally mandated national listing database wouldn’t mean wide-open access for anyone to grab the listings and advertise them on any site they want, rather someone would be controlling access to the listings, which is exactly what happens today.

I also understand that improvements can be made to standardize the listings more and make APIs easier and easier to use, but, first, that’s already happening through RESO and, again, that’s not really the point. The point is that, even with the most efficient and standardized API in the world, there are still terms of use and approvals required for accessing the APIs, they aren’t going to be just set out into the wild for anyone to do whatever they want with them. So, in the end, just as I advised MLSs not to be afraid of no ghosts with AMP, I wouldn’t get too stirred up about the specter of federal intervention. Keep an eye out, just don’t get hung-over and fear the worst.

I mean, I get it. I understand. When you’re in the business of making drills, every hole has to be made by a drill. Holes themselves are merely a byproduct of the drill, aren’t they?

I do agree with Michael insofar as saying, “Keep an eye out, just don’t get hung-over and fear the worst.” Or, put differently:

You are quite unlikely to lose money by betting on the status quo being maintained in the real estate industry. History is on your side! Don’t sweat it! Change gets talked about, but never comes!

Until it does.

And industry is never ready for the change, even as people see it coming from a mile away. The complex interwoven web that makes up any industry in advanced economies makes it very difficult to change. In a regulated industry, one of the most important parts of that web is the government. Real estate is a prime example.

Big Bad Voodoo Daddy Government

So while I get why Michael makes the criticism that he does, I think he misses the point entirely. He’s seeing things from the industry’s perspective as one of the premier software vendors for the MLS as it exists today.

So for Michael, it’s really important to define what “easily available” means because the answer then leads to the real issue: someone to authorize access to data and govern its usage. That someone today is the MLS, and the tool it uses is the MLS software platform. The mention of RESO further solidifies the assumption that what would happen is government coming in and working with the real estate industry.

That’s quite likely to happen, but it might not. I’m not vested in the outcome one way or another, because the entire scenario is a giant “Imagine if…” exercise designed to get people thinking about the goals and objectives of the MLS as opposed to the tools we use to achieve them: hole, not the drill.

What I will point out, however, is that those folks charged with strategy need to destroy their illusions. Some things that constrain our options are fundamental realities of an industry; others are just assumptions. Money is always and everywhere fundamental realities: the best ideas die on the vine without funding. The need for complicated business listing entry rules is not.

One fundamental reality of the real estate industry is that it is a regulated and licensed industry. That’s not an opinion, it’s not an assumption, it is the actual reality with laws on the books and regulators active in real estate.

The panic in the industry stems from the prospect of government action. We all understand that the biggest of the big brokers, the largest of the large MLSs, those who today rule in the industry in one form or another are all entirely subservient to Big Bad Voodoo Daddy that is the government.

So “easily available” could mean one thing to those of us in the industry; it could mean something else entirely to a government bureaucrat. Who would authorize data access? If the Big Bad Voodoo Daddy gets involved, who do you think would authorize that access? RESO standards are likely to be adopted, but there’s nothing that says that a new federal real estate data regulator wouldn’t promulgate its own data standards with input from not just the real estate industry (which at this point includes Zillow, no matter how much some folks froth at the mouth) but consumer advocacy organizations, banks, Wall Street, Silicon Valley, #BlackLivesMatters activists, etc. etc. and so on and so forth.

The real estate industry likes to hold itself out as rugged entrepreneurs who wake up each day unemployed. There’s a lot of celebration of innovation, no matter how minor: “Lighted yard signs! Game changer!” But fact is, even as we strike poses of independence, we all know deep in our hearts that we work in a heavily regulated, licensed industry that is almost entirely dependent on government policies to function.

The nerve that the news about DOJ and FTC hit is that most sensitive of nerves. No wonder people are freaking out.

Government License Means Government Control

Commenters on this Inman post (as an example) fret that the government would force brokers to share data with third party users, or with consumers, under the current theory of the real estate industry that the data “belongs” to the listing broker. One person, Cindy Anderson, says:

Um, that is information a Realtor collected and contracted, its property of the Real Estate Broker and not John Q Public. That is like saying that Wall Mart should not lock its doors and just let consumers take stuff directly off the shelves, any old time they would like. Zillow lobby and nothing more. Mr Marinio seems clueless.

Mr. Marino may very well be clueless. (Kind of interesting that Cindy only mentions the Republican… don’t forget David Cicilline (D-RI) in your opprobrium!) But confusing a retailer with a licensed professional betrays a different level of cluelessness.

Brokers asserting ownership interest in listing data will quickly find out that (a) there is no such ownership interest, and (b) it doesn’t matter anyway. Why?

Because the government could simply make it a condition of your real estate license that you submit data to a government database, with ownership in that data going to the government database in question.

Here’s what I wrote in my post expanding on my Inman comments:

It would be the easiest thing in the world to mandate that all real estate activity be entered into a single common database. The reason why it would be so easy is that every single broker and agent in North America has a job because of a license from the government. I’m not sure that new legislation would even be necessary, since all of the real estate licensing law I’ve read gives tons of authority to some regulator to promulgate new regulations in the name of consumer protection.

All of the brave and outraged commenters on Inman hosting a raging storm in a teapot have jobs because of a license from the government. The assumption that the industry controls itself turns out to be an illusion.

After all, we live in a time when the government can compel us to buy something we don’t want to buy, like health insurance. And that applies to everyday people who don’t need a government permit to go to work everyday, not businesspeople who have to take a test for the privilege of making a living.

The Gordian Knot and the Solution Thereto

Alexander Cuts the Gordian Knot, by Jean-François Godefroy

Whenever the topic of real change in the MLS comes up, a common rejoinder is that outsiders don’t know just how complicated and complex things are in real estate.

Why, there are hundreds of complex business rules that govern data entry alone! Regional variations and differences have to be accounted for, dontcha know? Plus, the complex relationship between Participants, the REALTOR Association, the MLS, home owner privacy rights, buyer agents, and so on and so forth — it’s really, really complicated!

That’s all true. But what is equally true is that everything in the real estate industry is complicated because we’ve all been trying to get stuff done without the benefit of government power. So it takes weeks, months, and years of careful back and forth negotiation and political intrigue to get anything done.

So when people like Daniel Castro, or folks from DOJ and FTC and Congress get involved, the response is, “You just don’t understand how complicated this stuff is!” Hell, I know there are plenty of people who think I don’t know what the hell I’m talking about because I’ve never run an MLS.

But at the same time, we have panel after panel at conference after conference where industry insiders talking to other industry insiders say, “It’s not technology that’s the problem; it’s the politics” on a huge number of issues from consolidation to data sharing to Upstream to whatever else.

If there is one thing that government can do, it’s cut through years and years of complexity, cut through layers upon layers of stuff we’ve built up in the industry, and get shit done. Trouble is, none of us are going to like it very much.

 

An Example from British Columbia

In case you think I’m speculating once again, take a look at what’s happening north of the border, in British Columbia.

In 2016, the government of British Columbia ended self-regulation of real estate and put into place a Superintendent of Real Estate, a gentleman named Michael Noseworthy. Well, late last year, he put into place new rules banning dual agency throughout British Columbia.

He’s set to do more in the near future; he said as much.

That’s one guy who makes that decision. One man who decides who, when, where and how real estate brokerage will be conducted throughout a major province of a first world advanced economy.

One man come in the name of GOV
One man come and go
One man come he to justify
One man to overthrow

What is abundantly clear is that all of the powers-that-be in the real estate industry, from CREA to BCREA to large brokerages to thousands of Realtors, actually controlled very little when Big Bad Voodoo Daddy got involved. Sure, they can comment, lobby, advise, and complain but at the end of the day, Noseworthy decides.

Here’s a story about one small REALTOR Board expressing concern about changes to dual agency:

The B.C. Northern Real Estate Board says it is disappointed in a decision by the province’s real estate regulator to ban limited dual agency.

The move, announced Wednesday by Michael Noseworthy, the superintendent of real estate, comes without clear practice guidelines for small offices, the BCNREB said in a statement issued Friday.

That’s what it looks like when the government has decided to act. You issue statements. You complain about the lack of “clear practice guidelines” and beg ask the Authorities for guidance. You get busy lobbying and getting involved with politics, because you no longer control whatever it is that you thought you controlled.

Just imagine how long it would have taken for CREA or BCREA to do away with dual agency through the normal Association Code of Conduct route.

None of the above is fictional, or speculative. These things happened, and are happening. Not a whole lot the real estate industry can do about things like this.

The Great Dilemma

So. The dilemma that confronts the real estate industry is this:

Like Alexander the Great, the government could simply cut through the layers and layers of complexity that we have built up over the years around the MLS. It hasn’t yet, and maybe never will, but that doesn’t mean that it can’t do it. It most certainly can.

Problem is, the end result will likely be a mess, like most government programs are, because the government isn’t really good at much other than war and policing. (And one could argue that private militaries are better at both… but that’s a different topic altogether.)

It is getting more and more difficult to argue that the real estate industry itself can change because of the complex web of vested interests and relationships that the status quo has become.

Normally, one could simply argue that the best thing to do is to let capitalism and the markets figure things out. As a libertarian, I lean that way in virtually all cases.

But that argument about letting the markets figure things out simply doesn’t hold up when we’re talking about a licensed industry. It doesn’t hold up when years go by on something as straightforward as data standards… and in 2018, Bob Goldberg has to issue threats to non-compliant MLSs.

And yet… the government? Gah! I mean who in their right minds want government bureaucrats telling them what to do and how to do it?

 

So Three Questions, Out of Love

The purpose of my Inman presentation, the purpose of my followup post, hell, the purpose of my consulting career to date is to get industry leaders thinking strategically.

My hope was and remains that at least some of the intelligent and capable MLS leaders in attendance would start to think about the “hole” that the MLS is supposed to make instead of the “drill” that is the MLS. Because I love the MLS system as a whole. It is the consumer’s best friend, and it is the institution that has (imperfectly) imposed order on the residential real estate market. It’s the envy of the world, what we’ve built here.

I really don’t want to see it die out, and see the government take over, because… well, the government has proven its suckitude time and again.

At the same time, if the industry keeps focusing on the drill instead of the hole, the day is going to come when somebody goes, “Why the hell do we need this ancient mechanical tool to make a hole? I’ve got a laser right here!”

So, let’s assume for the sake of argument that all of your fears about government action come true. Let’s say that Google plus Feds plus 50 States results in 50 different databases, 50 different standards, 50 different state-by-state rules. Say the prospect of taking your orders from some Real Estate Czar scares you and pisses you off. Say that your worst nightmare about Zillow comes true and it becomes the largest brokerage overnight and takes all your listings and seduces your wife to boot.

Just imagine the worst that a federally mandated government database would look like. Then ask yourself these three questions:

  1. Is that really worse than what we have today? In what way?
  2. Will any consumer anywhere notice any difference?
  3. What percentage of the roughly 5 million annual home sale transactions will be lost because of a government-sanctioned national real estate data utility?

If the answers to those three questions in your secret heart do not give you comfort, then I’d like to suggest that it’s time you started making plans and doing things to change those answers as quickly as you possibly can.

Because what I painted on Inman stage was just one possibility. Just one highly unlikely possibility. If I could predict the future, I’d be in the sports book business, not the real estate consulting business. Trust me on that.

But I do know this: The future of the MLS will either come from within, as the industry focuses on the hole, instead of the drill… or it will come from without, as other people realize there’s a cheaper, easier, more efficient way to make a MLS-shaped hole.

So by all means, don’t panic! Keep calm!

But do ask whether you just want to carry on as before.

-rsh

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