Pass Clear Cooperation Policy, But Address the Gaping Loophole

On Saturday, the MLS Policy Committee of NAR approved the proposed Clear Cooperation Policy (also known as MLS Policy 8.0) as written and forwarded it on to the Board of Directors for approval on Monday.

I would like to urge the Board of Directors to pass Policy 8.0, but immediately begin addressing one of the biggest (if not the biggest) problem with it: the giant gaping loophole I’ll call the Office Exclusive Exemption.

To be clear, I am not a fan of Policy 8.0 as is currently written. I set forth my reasons in an earlier public post on the subject. I was hopeful that during the Committee process, amendments would be proposed that closes the loophole. This was not done, and the policy before the Board of Directors is substantially the same as we saw weeks ago.

As currently written, Policy 8.0 sucks for consumers, sucks for small brokerages, and sucks for the MLS. The outcome will be the exact opposite of what proponents of Policy 8.0 want. Instead of ending fragmentation and dark pools of information, Policy 8.0 will end up fracturing the market further, decrease the inventory in the MLS instead of increasing it, and force the MLS into impossible enforcement conundrums. It has to be changed.

However, to delay a vote is to send a strong signal in and of itself, and the MLS and the industry as a whole need the time that passing Policy 8.0 provides. It might be a short-term patch but right now, every day counts and short-term expediency is better than the status quo.

Refreshing the Argument

First, the language of Policy 8.0 was tweaked slightly to move the time limit from 24 hours to one business day. In addition, I understand that implementation was moved to May of 2020 instead of January, at the urging of CMLS.

Here is the language of the policy as it passed Committee:

Within one business day of marketing a property to the public, the listing broker must submit the listing to the MLS for cooperation with other MLS participants. Public marketing includes, but is not limited to, flyers displayed in windows, yard signs, digital marketing on public facing websites, brokerage website displays (including IDX and VOW), digital communications marketing (email blasts), multi-brokerage listing sharing networks, and applications available to the general public.

As I said, none of the language was changed at all. And this policy is mandatory, not optional, for all REALTOR MLSs.

I urge you to go back and re-read my original post, but let me repeat much of my objection from back then.

In the FAQ that accompanied Policy 8.0, we are told that this policy does not affect “office exclusive listings” at all. From NAR’s webpage on Policy 8.0:

Does Policy Statement 8.0 prohibit office exclusives?

No. “Office exclusive” listings are an important option for sellers concerned about privacy and wide exposure of their property being for sale. In an office exclusive listing, direct promotion of the listing between the brokers and licensees affiliated with the listing brokerage, and one-to-one promotion between these licensees and their clients, is not considered public advertising.

Common examples include divorce situations and celebrity clients. It allows the listing broker to market a property among the brokers and licensees affiliated with the listing brokerage. If office exclusive listings are displayed or advertised to the general public, however, those listings must also be submitted to the MLS for cooperation.

It’s important to recognize that the office exclusive is actually a brokerage exclusive; a brokerage with 10 offices can aggregate all of the exclusive listings and take advantage of that. Further, note that office exclusives are not subject to the MLS rule requiring mandatory submission of the listing to the MLS.

That loophole not only preserves most of the value of exclusive inventory strategies, I argue that it creates a new safe harbor for such strategies.

Based purely on the language of the Policy and the FAQs, it appears that a large national brokerage like NRT, Compass, or eXp can take a listing, hold it off the MLS forever and communicate it to every agent in the company.

Each of those agents can engage in “one-to-one promotion” to all of their clients. I’m assuming that a potential buyer would qualify, but that’s not actually clear, but the real problem is that “one-to-one promotion” is not defined anymore than “public marketing” is clearly defined.

The one business day grace period between “public marketing” and submission to the MLS means that the brokerage and all of its thousands of agents can use that business day to promote, market, advertise and do whatever they need to to generate as many leads as possible… and then submit it to the MLS. If that should happen over the weekend, when most buyers are looking at houses, well… those are the rules.

It’s Not About Deals; It’s About FOMO

What so many people have missed about exclusive inventory strategies is that they are not about doing deals. At the level of the individual agent, or the not-so-sharp brokerage operator, these strategies might actually be about double-ending transactions, but for smart brokerages, exclusive inventory strategies are about creating a FOMO (Fear Of Missing Out) effect in consumers and agents to create competitive advantage.

Buyers sign up for your emails out of fear that they might miss out on an exclusive. You use this database of buyers to recruit agents, who fear that they might be missing out on leads and worry about competing against your agent who can walk into a listing appointment talking about the 5,000 buyers you have in your database. Those agents bring listings with them, which you use to begin the cycle again. This “network effect” is the superpower that Andrew Flachner so eloquently outlined in his post about using buyer data and exclusive listings to gain a competitive advantage.

And just in case you can’t connect the dots, the brokerages who can most effectively use Office Exclusives as a competitive lever are the big brokerages with lots of agents and lots of listings. The small independent is screwed. The boutique brokerage? Screwed. The small 3-person brokerages that makes up the vast majority of the Participants in any given MLS? Screwed. Nobody really cares about your seven Office Exclusive listings, not when the top five Big Box Brokerages in town have several thousand. Oh by the way, your IDX feed is now short several thousand listings.

Even large independents will be hurt. Many smaller franchised brokerages will be hurt, unless their franchise can do something about it. (Which I assure you, their franchises most certainly will.)

Clear Cooperation went 80% of the way to stopping the use of listings to create a FOMO effect, but it did not go all the way. So the FOMO effect remains: you just have to use Office Exclusives instead of Coming Soon to get it going.

Don’t Worry Is Not an Answer

In a thoughtful response to my original post, Sam DeBord, CEO of RESO and a member of the advisory board that drafted the language of Policy 8.0, suggests that I am overthinking things and worrying too much.

He writes:

NRT’s 50,000 agents across dozens of states aren’t going to call all of their clients about a listing in Akron, OH. This is going to be a single market phenomenon.

Could a brokerage enact a robust single market agent-to-client direct outreach program outside of the MLS? They can today, and they could under the new policy. Office exclusives have been around for a long time, yet many, many agents will still input listings in the MLS as their primary practice because they understand the client and consumer benefit.

Is calling consumers directly on the phone the future of real estate marketing, such that it makes Policy 8.0’s effects on digital marketing practices “useless?” Or has listing awareness become almost exclusively a web-based activity?

Let’s not throw the clarity on public marketing out with the bathwater. Incentives for MLS inclusion would be significantly increased with the new guidelines in Policy 8.0. With the near ubiquity of digital marketing for real estate listings today, MLS inventory would almost certainly grow.

As I said, I think Sam misses the point of exclusive inventory strategies. Whether NRT’s 50,000 agents across dozens of states will or won’t call their clients about a listing in Akron, OH is not the point. The point is the perception by consumers and by agents that the NRT has a giant database of properties that are held off the MLS as Office Exclusive listings and if you want to know about them, whether in Akron or in your backyard, you had better contact an NRT agent/join the NRT as an agent.

It doesn’t take much to create that perception. A call center staffed by licensed assistants would do quite a lot to let consumers know that the NRT has exclusive listings. A well-run agent team with its ISAs could spend a few hours a day banging phones to tell buyers about exclusives that aren’t on the MLS, aren’t on Zillow, and that no other brokerage’s agents even know about.

Once you get the flywheel moving, it becomes self-reinforcing: buyers come to you because they don’t want to miss out on exclusive listings, so you build a huge buyer database, which makes sellers want to list with you because you have a huge buyer database, which makes agents come to you so they don’t miss out on the leads and aren’t at a disadvantage in listing presentations, which brings more listings to your Office Exclusives, which reinforces the whole loop over and over again.

The entire time that this is going on, you the brokerage and all of your agents are full members of the MLS, able to see the inventory of all the other brokerages who have submitted them to the MLS, bring buyers to them, get compensated, and so on, while you keep all of yours off the MLS for 10 days, a month, or however long your agreement with the seller goes.

How that is going to enhance cooperation or make it clearer is as yet unexplained.

To point to the fact that office exclusives have been around for a long time without this being a problem is not an answer. They haven’t been used like this before because there was no need: Coming Soon and Top Agent Network worked just fine in the absence of a policy. But after Policy 8.0, the Office Exclusive with its safe harbor provisions is the NAR-sanctioned way to implement an exclusive inventory strategy.

The Enforcement Problem

The other major problem with Policy 8.0 as written is the problem of enforcement.

Enforcing some of the provisions is going to prove tricky at best, and require litigation at worst.

For an example of the former, I wonder how exactly an MLS is going to monitor email between an agent and her database of clients and potential clients to determine whether that email is public marketing or private one-to-one communication. Is the MLS to create fake “secret shopper” accounts to monitor emails? Demand random access to an agents private email account to periodic audits? Use secret surveillance technology?

Even if the technology exists, putting one’s paying members under Stasi-like surveillance strikes me as a poor business decision. YMMV.

For an example of the latter, what happens if a franchise like RE/MAX or Keller Williams decides to implement a “Company Exclusive” program because many of their franchisees are not big enough to create an effective Office Exclusives program? They are not brokerages. On the plain language of Policy 8.0, they are not allowed to do that.

But the franchisor is not under the jurisdiction of the MLS; only its franchisees are. NextHome can tell every single MLS in the country to go to hell. Now what? The MLS is going to go after its own Participant brokerages who are required by their franchise agreements to submit listing information to their franchisor? Good luck with that.

As my friend James Dwiggins, who operates the NextHome franchise said when I brought up the scenario to him, “I got the world’s largest law firm on speed dial.” And NextHome is small compared to RE/MAX, Keller Williams, and the Realogy brands.

Then again, if the MLS decides to allow a franchise to create its own “Company Exclusives” program in plain contravention of the mandatory Policy 8.0, how likely is it that the large brokerages are going to stand by and simply let that happen? We saw them go against the big national franchises during the Franchise IDX kerfuffle, if you remember that episode. They’re not going to make an issue with Franchise Exclusives?

Enforcing Policy 8.0 as written is a nightmare. I’m glad implementation was pushed out to May. Because time is what we need today.

(By the way, this is why David Charron and I wrote and published our white paper, MLS Path Forward, to try and avoid the enforcement nightmares of Policy 8.0 and the concession of the primary marketplace. I now wish we had written it sooner.)

Pointing Out the Obvious: This Sucks

Although the Interwebz is filled with various REALTOR types virtue signaling that Policy 8.0 is a big win for consumers and for the industry, it is anything but as it is currently written.

By failing to stomp out exclusive inventory strategies — in fact, Policy 8.0 creates a safe harbor — we have set up a future in which the consumer will have to go to multiple brokerages to find out what’s actually on the market. Contra Sam DeBord’s prediction, MLS inventory will not increase but decrease as large brokerages realize the competitive advantages to be gained from Office Exclusive platforms.

Coming Soon at least had the virtue of one day appearing on the MLS; Office Exclusives, as we are told by NAR itself, is exempt from the mandatory submission requirement, until and unless they are “publicly marketed.”

The counter-argument is that sellers want wide exposure to the full marketplace and will get it after 8.0. Let’s think about that.

First, just about everyone defending Coming Soon and even pocket listings talk about celebrities, people in abusive domestic situations, and unique properties and say that not everyone wants dozens of showings, people tracking dirt through the house. From a comment on Facebook:

These are all types of sellers that do not want the steady stream of visitors/showings, open houses, online photos, videos, 3D tours that we would normally employ in the sale of property.

Highest price isn’t every seller’s top priority.

The history of the economy is filled with examples of where goods and services that are not “necessary” start at the high end luxury market, then filter down to the masses. ABS brakes, smartphones, private limousines (Uber started out that way), vacation villas (AirBnB anyone?), personal chefs (Blue Apron?), etc. etc.

Why proponents of 8.0 believe that the average seller doesn’t value privacy, loves having a steady stream of strangers walking through their house, and enjoys putting their kids and dogs into the family minivan two or three times on a Saturday is beyond me. Of course they value such things. If the rich and famous want it, so do they.

Second, every opponent of the iBuyer model frets that sellers are leaving money on the table to take advantage of the convenience provided by instant offers. They fret because thousands and thousands of people have voted with their wallets that they would rather skip the hassle of the traditional process, even if that means they have to take thousands less.

Why would it be any different with Office Exclusive strategies in the hands of a reasonably skilled salesperson?

If an agent who has enough sales skills to talk himself into a family’s dining room for a listing presentation can’t talk up the benefits of an Office Exclusive enough to get the seller to try it for a month or two, that agent needs more training. I can come up with a few scripts myself, right here, right now, and I am hardly an expert in sales training.

  • “Why should only Tom Cruise get the White Glove Elite treatment? You deserve it too!”
  • “Your house is just so unique and special; I think we can get you asking price without having to deal with hordes of buyers.”
  • “The top performers in my company are so much better to deal with than the masses of crappy agents out there! Say, have you read this DANGER report from NAR? Let me show you.”
  • “There’s no risk to you, because if we can’t get what we want, we’ll put it into the MLS.”

And that’s only if the seller brings up an objection. Most listing presentations aren’t in the nature of “here are your options” but more in the nature of, “This is our marketing program designed to maximize gain and minimize pain. Trust me, I’m an expert.”

It may be that a change in the overall market away from the insane seller’s market that we have had for several years would help soften the impact, but even when buyers have the upper hand, they still want to know what amazing deals they might be missing.

“Fiduciary duty!” cry the proponents of Policy 8.0. And they would be 100% correct. But if every agent and every brokerage behaved in accordance with the strict requirements of fiduciary duty, we wouldn’t need MLS rules and policies now, would we? As Thomas Jefferson said, if men were angels, no government would be necessary.

So maybe not tomorrow, not next week, but the Office Exclusive future is within sight.

Vote Yes, But Immediately Send to Committee for Revision

Having said all that, the alternative to passing Policy 8.0 on Monday is to do nothing, or to kick the can down the road. That’s even worse than the Office Exclusives problem above.

Realogy just announced that it launched Exclusive Look to all of its company-owned brokerages, and plan to launch it to the entire Coldwell Banker network nationwide by the end of the year. What is Exclusive Look?

Coldwell Banker Real Estate, announced today the beta launch of Exclusive Look. Exclusive Look is an in-network marketing tool for coming soon listings that empowers Coldwell Banker® affiliated agents to share and search for listings before they are placed in the Multiple Listing Service (MLS) or other public sites.

The agent-to-agent tool allows an affiliated agent to share an upcoming listing, consistent with MLS rules, with ease in-network. The Exclusive Look platform also enables agents to promote their buyer and seller wants and needs within the Coldwell Banker national agent network to help clients find properties at the price and specifications they desire. This product operates alongside an already existing feature on ColdwellBankerHomes.com that allows any consumer to search for properties that are not yet on the MLS.

Passing Policy 8.0 means at least buying some time so Realogy doesn’t move ahead at warp speed with Exclusive Look. I can’t imagine that HomeServices of America, RE/MAX, Keller Williams, and other large companies don’t already have their version of Exclusive Look in beta testing and are ready to announce any day now.

Just putting the brakes on that kind of effort is helpful right now. Forcing companies to make tweaks or changes to their exclusive inventory strategies is helpful right now, until we all can figure out the right approach to the problem.

So for those readers who are NAR Directors — or know NAR Directors — who will be voting on Monday on Policy 8.0, I would like to urge immediate passage but coupled with an immediate directive to send the adopted Policy 8.0 to Committee for revisions.

If we are all generally agreed on what we want to see — preserving the MLS as the primary marketplace, not allowing brokerages to compete on the basis of exclusive inventory, with procedures to allow sellers to control how they want their homes marketed — then provide that directive to the Committee. And pass Policy 8.0 even knowing that it is deeply flawed because you need to put the brakes on what’s happening right now.

I hope this post is not too late.

-rsh

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7 Comments

Join the discussion and state your opinion. Some comments may be held in moderation. I try to get to them as soon as possible, but may be traveling or unable to approve comments immediately. I do not censor comments, but reserve the right to remove anything that looks like spam, trolling, or just outright inappropriate.

  1. I do hope this is not too late… I have posted and tried to share with others.
    Read you tomorrow…

  2. Well, this is interesting.

  3. Perhaps a large portion of the NAR advertising surcharge could be devoted to a public awareness campaign about “the greatest tool ever invented to sell your house”-the MLS. Greg Robertson already has some ad copy prepared!

  4. ROB,

    It looks like the time has arrived for the last hill to be climbed.

    Since “we buy homes for cash” has made a successful resurgence, FSBO 3.0 is next on deck.

    IMO, an “in-or-out” MLS policy will only strengthen and produce new models that don’t need the MLS to satisfy consumer needs and wants.

    This one may end up in the “be careful what you wish” for bucket.

    Personally, we’ve waited a long time for this…..hopefully it’s been worth the wait. FSBO 3.0! 🙂

    We’ll see.

    Thanks,
    Brian

  5. […] Rob Hahn, who has expressed his discomfort with the rule as originally written, published another opinion piece on his blog with slight change of heart. He urged the association to pass the policy then […]

  6. Rob Hahn, you can add the follow holes:
    What if the seller advertises this office exclusive?
    Also what if the licensed builder who is also a licensed broker only puts in part of their inventory ? They are also the owner so cant they advertise their non mls inventory?
    Lastly what happens in various state license laws where the brokerage name must be on all advertising of listings? Is the seller causing the broker to violate license law?

  7. Love to hear your thoughts on this Rob! It seems like their heart is in the right place, but the technical details have a ways to go. Appreciate the insights.

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