Data Only Brokers

by Victor Lund on November 20, 2012

CoffeeBeansThere are lots of brokers who subscribe to MLS services. They are called participants, and as participants they are provided data rights beyond agents, and way beyond vendors or third parties. Moreover, participants are the nucleus of reciprocal offers of compensation, an agreement that if one broker represents a willing buyer and the other broker represents a willing seller, they will share compensation.

There is a new brokerage model that has entered the MLS sphere, and I am not sure if it is a good thing or a bad thing. I will call this type of brokerage a “Data Only Broker” or DOB. These DOBs truly are licensed brokers under state law. They join the MLS conforming to policy. They pay dues. They typically do not have agents. You see, a DOB does not intend to list homes for sale, or show homes to buyers. They are simply in it for the Data Rights and possibly referral fees. Many of these brokers can make plenty of revenue with data, especially if they scale nationally.

DOBs see themselves as mavericks of the digital frontier. They breathe the spirit of virtual brokerage, virtual office, consumer self service, digital transactions. I think that Brad Inman is calling this the “Latte of Real Estate” for his upcoming NYC conference. Inman has developed a thesis that buying or selling a home should be as simple as buying or selling a latte. After all, there is a lot of technology behind the Latte – bean growers, bean toasters, transportation logistics, customs, FDA requirements, restaurant licensing, health inspections, labor laws, service solutions, commerce, and the ever-present espresso machine. Despite all of this complexity, if you wait in line at Starbucks for about 15 minutes, you walk out with a delicious Latte. Brad is correct. Using the right technology, a consumer can purchase a home online.

Interestingly enough, the digital home purchase was not developed by some outside pioneer looking to reThink Real Estate and deliver what is NEXT for the consumer. It was enabled and developed from within as a method to digitize and expedite the real estate transaction. If we write the book of digital genesis, Adam would be played by REALTOR® Associations who brought us electronic forms, and Eve would be played by title companies who brought us transaction management. I guess that the Apple would be Docusign, without which the original sin of an electronic transaction would not be possible. With sincerity, I pray that my Old Testament metaphor does not offend anyone’s religious piety.

Fundamentally, I think that the battle between DOBs and Traditionalists resolves itself in the notion of service delivery. In some small, remote way – real estate is like a coffee shop – it comes in all forms of service delivery from the self service concession based coffee maker, to the full service, sit down, luxury couch, waitress, music playing coffee shop. Consumers have a choice in real estate too – from DOBs to Full Service. Oddly, the coffee guy that sells the vending machine does not have a beef with the coffee shop that offers full service or driveup/walkup service. They live in their own separate worlds with the only common touch point being the commodity of coffee beans.

Listing data is the coffee bean of real estate. Specifically, MLS data is the coffee bean of real estate. It is the fundamental underpinning of every service model – from the vending machine of a DOB to the luxury experience of a Christies affiliate. There are huge differences in service levels operating off of the same data; but it breaks the offer of compensation paradigm of the MLS. Here is how.

In the coffee shop paradigm, there are not two baristias providing service. There is only one. In real estate, there are two service providers representing two parties in a transaction. The house is not the differentiator, only the service level differentiates the two. On one side you have Christies, on the other side you have a DOB broker. According to lore, the Christies broker gets little, if any support in the transaction from the DOB broker because their seller representation obligations ended right around the time that they submitted the listing into the MLS, and their buyer representation ended when they secured a lead. The DOB expects an equal (or nearly equal) share of compensation for limited service. Theres the rub.

The Department of Justice and the National Association of REALTORS® came to a settlement that protects consumers by insuring that they have access to DOB services. Their freedom to exist is protected by our forefathers and the constitution of the people. MLSs must treat them accordingly and the REALTOR® Code of Ethics requires that you welcome them into the industry with due respect. DOBs are a protected minority in a melting pot of real estate democracy.

A separatists movement in real estate may be in our future if traditional brokers wish to decline offers of compensation from limited service DOBs. Traditional brokerages may take their data and leave the playground. Alternatively, traditional brokers can segment their service levels like hotels. The new brokerage may have vending machines, a coffee shop, and a silver service cafe – giving the consumer a choice. Many service industry brands have tried this before and failed. Your brand needs to exude the level of service you provide, not confuse the consumer about what to expect.

Perhaps the industry needs to stop thinking about how purchasing real estate can be as easy as buying a latte, and direct our energy toward making the process fulfilling and uplifting. Technology and automation, used carefully and tactically, can contribute to that fulfilling consumer experience, but customer service needs to be directed completely toward elation and satisfaction. Move beyond the transaction and into Customer For Life.

{ 9 comments… read them below or add one }

Michael Erdman November 20, 2012 at 10:25 am

Another thoughtful post, Victor. But I’m a little confused by your Christies example.

I thought the DOBs you were talking about did not take listings or represent buyers. Also, when you refer to DOBs whose representation of a buyer “ends” when they secure a lead, are you talking about a broker who refers the buyer to another broker, and would never be dealing with Christies?

As for the DOJ/NAR settlement, on its face it only applies to VOWs, which I believe is only a subset of services a DOB may offer.

Thanks for your kind comments a few weeks back about my blog. I hope to devote some time to it in the new year.

Michael

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Victor Lund November 20, 2012 at 12:23 pm

Some DOBs do take listings. I would not put Help-U-Sell into this category, but there are a number of DOBs that limit their services exclusively to posting to the MLS. Some even put notes in the MLS that instruct other agents to call the customer for a showing!

Some DOBs generate leads on MLS data, and will represent a buyer by allowing them to submit an offer online. They will organize a showing by emailing the listing agent. The listing agent (Christies in my example) ends up doing all of the work with the buyer.

The DOJ/NAR settlement goes much further than just ordaining the use of VOW data. It also discusses service requirements – and I would suggest does it very poorly: “intent to provide services.” That crude language prevents an MLS from denying services to any participant – with or without agnets – with or without any kind of representation beyond a business license in the state, etc. Think about a broker from Maine with a website operating as a virtual brokerage in New Mexico.

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Victor Lund November 20, 2012 at 12:38 pm

To be honest with you, I was specifically trying not to mention the DOBs that are in the marketplace. Some operate brokerages expressly for the intention of operating a consumer facing website, others operate a brokerage to provide ratings on agents, others operate brokerage only to gain access to market statistics, and I am sure – absolutely sure that there are brokerages who are only there to resell data.

There are public legal initiatives to shut down these unintended activities, but I wonder what is going to happen. The point is that full service brokers may not have any interest in supporting the DOBs with their data – and it may compel them to seek MLS of choice alternatives that are better aligned with their service levels. Today, regardless of service levels, all brokers are admitted into todays MLS. Tomorrow, some brokers may seek an MLS provider that is aligned with their service level – regardless of what that is. I think that a lot of this could be managed through more effective data licensing and listing syndication – but I suspect that new MLS models may evolve as DOBs play a more significant role in servicing consumers.

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Michael Erdman November 21, 2012 at 12:08 pm

I believe the consumer protections referred to in your post only apply to VOWs, and not across the board. But you are right Victor, the settlement also amended the definition of MLS Participant contained in the Statement of MLS Policy (instead of being capable to offer and accept cooperation and compensation, the Participant must actually offer and accept same). Instead of intent, I think the question MLSs are supposed to be asking is whether the Participant “actively endeavors” in the above activities. I’d certainly be interested in learning more about MLS membership determinations that turned on the amended definition.

Given the DOJ’s interest in this very issue, it will be interesting to see where future, alternative MLSs (or whatever they get called) draw lines.

Happy Turkey Day.

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Victor Lund November 21, 2012 at 12:54 pm

“actively endeavors” – perhaps the lamest language ever drafted. In some MLSs, there are as many as 20% of subscribers who do not log into the mls for over a year or more. Are they actively endeavoring? They paid their dues, is that enough of an active endeavor? I am not trying to be a smart aleck about it – but the lack of clarity is insane. Obviously, the MLS does not go hunting for inactive endeavorers to kick out the the MLS, so there is no established practice. I see this as a quagmire of legal cases where the MLS will only disqualify an inactive endeavorer when they are doing something with the data that they don’t like. Furthermore, if they are pulling data and providing some kind of consumer service, it would seem that they would pass the active test and the endeavor test at a basic level. I look forward to watching cases arrise. Perhaps Neighborcity.com should start stocking up on Broker Licenses.

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Jonathan Cardella November 27, 2012 at 5:16 pm

Victor, this is an astute analysis regarding the infamous “endeavoring” language. But you better watch what you say or the real estate mafia may put you on its hit list! You don’t want to be there, I promise…

NeighborCity did originally stock up on broker licenses. Heck, we even were an MRIS member at one point, a few years back. Apparently we weren’t “actively endeavoring” and our use of the data to make referrals (and to rank and rate agents) are both outside the scope of their permitted uses. It would seem that our 100K targeted client referrals to NAR/MLS members qualifies as “actively endeavoring” but apparently MLS executives have their own definition of “actively endeavoring” and NeighborCity’s business model does not qualify.

Regarding the DOB models; consumer choice is key to having a thriving market and that’s why the DOJ stepped in… because they recognize the importance of choice and innovation to the the future of the market. But what’s foolish is to think that the industry as a whole or any one entity knows what the customer needs and therefore can shape an Epcot Center-styled alternate reality around an imagined ideal consumer experience. What we need is a healthy environment for bringing innovative products and services to market so that small business can respond to the needs of the consumer, their real estate agent and broker; e.g. fair rules of the game, access to data, maybe capital sources for financing these ideas, enforcement of anti-trust laws and decrees, etc. If we have that, the market will naturally grow its patchwork or value-added network of ever improving technology and services tethered around the needs of the buyer, seller and their brokers. Imagine a cost-efficient manner for underwriting all of the liabilities in a home purchase and sale that removes the need of hiring a home inspector and perhaps most of the existing disclosure requirements, thereby removing most of the friction that currently mires the financing, purchase and sale of real estate, ushering in drastic growth in purchases of sight-unseen homes from domestic, foreign and institutional buyers. Or imagine the improvements in the tools that Zillow will give away for free if it actually had accurate listing data? I mean, their practically giving away websites that would’ve cost thousands just years ago. You can’t say the benefits don’t flow through to the agent and consumer, in terms of user experience, when a an innovative startup succeeds (not to mention the creation of jobs and economic expansion that is vital to buoying economy and protecting our freedoms).

The thing that bothers me the most is that no one considers the consumer in all this scheming and planning regarding “the use of the data” and what models and uses will be permitted or banned, and similarly, no one considers the law. Those two are actually interrelated since any use of the data that abandons your fiduciary duty as an agent or broker is self-dealing, which is illegal. This can be evidenced by the alleged copyrights claimed by the MLSs with respect to the data stored within the MLS systems. Brokers are paid a commission for closing the deal. That’s what pays for those photographs and that is the sole purpose for which they have access to the property to take those photographs. Let me repeat, brokers and agents are paid to sell homes and when they list a home or take a client, they are agreeing to do their best to achieve that result. Filing copyrights of your client’s listing information with the intention of selectively distributing it to “friendly” channels and to businesses with revenue models that they deem acceptable, is an abandonment of that promise. Withholding listing information from entire audiences and channels that would be otherwise free to reach if it weren’t for the actions of some MLSs, brokers, agents, etc. is a breach of fiduciary duty. And collectively snubbing the offers and listings of clients that come from DOBs or alternative brokerage models is not only a serious breach of fiduciary duty by the agent and broker that buries that offer skips over that listing, but it is also known as a group boycott, which is a serious violation of anti-trust law. Ask the homeowner who gets foreclosed if he minds that his home wasn’t on Trulia or Zillow or 1000 other potential syndication channels. Or that his price reduction won’t be reflected on those sites for another 7 days, despite the fact that he’ll be out of his home by then, while their wholly ineffective syndication vendors fail as they are supposed to… Or to the family that missed out on the opportunity to own the perfect home in the top school system their kids so desperately need to attend, because they trusted their agent to show them homes and he skipped the ones listed by Redfin or some new entrant.

I think you hit on a great point in your article when you said that the MLS model depends on their being two brokerages at the table – their must be cooperation for the MLS to be useful. But by promoting a very pro-listing agent listing distribution scheme, they threaten to make buy-side brokerage a thing of the past and in doing so, marginalize their own value. Since MLSs are controlled by the big brokers (that typically control the listing inventory in their respective markets), perhaps they are intentionally leading their MLSs off the cliff, so to speak, out of self-interest, and the MLS won’t figure it out until its too late. Because if all the consumer demand flows straight through to the listing agent thanks to stricter regulations on data syndication and use terms that require that listing agent and their contact information to be the ONLY call to action on a listing page, then it sure does make it difficult for a buyer’s agent to generate a client lead using any form of modern technology. And without buy-side agents, their is no need for cooperation and MLSs. Anyone can store the data and serve it up to end users. The MLS is a system for cooperation, not a mere property database. Its the cooperation, not the data, that is the MLS’s true value proposition. But alas, I fear they are too ignorant to recognize their own best features.

Finally, one point worth reconsidering is where you said “The DOB expects an equal (or nearly equal) share of compensation for limited service. Theres the rub.”. It’s naive to think the DOB sets his fee, like its naive to think the government built your business. The logical DOB charges as much as the market will allow. If the DOB is providing a great value, he will get fair compensation for his service. You see, the DOB can’t force anyone to accept his referrals or purchase his services. There is no coercive power that these DOBs hold over the agents and brokers! If the service is worth the money, people will pay… And DOBs aren’t necessarily limited services, as you insinuate. Some may be more limited than full service, but they are more customized to the client’s needs because the DOB is enabling them to purchase just the services they want at a reduced price or to obtain services that didn’t formerly exist, e.g. agent recommendations. And the consumer, being free-willed, deserves the right to chose just the services he wants and not be shoe-horned into some one-size fits all real estate brokerage model where all of the services are bundled by force (market coordination/collusion). But then again, that would require the real estate industry to come under the rule of law… And don’t expect that to happen anytime soon.

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Judith Lindenau November 26, 2012 at 5:21 am

Two comments, Victor. First, your statement “Perhaps the industry needs to stop thinking about how purchasing real estate can be as easy as buying a latte, and direct our energy toward making the process fulfilling and uplifting” is a bit naive, I think. Given the example of American consumerism over the Thanksgiving weekend, does it seem like this is a ‘fulfilling and uplifting’ process? Or an exercise in acquisition?

Secondly, I’ve felt MLSs are missing something by not having a ‘read only’ access level for the MLS. No reason it has to be broker level, either: there are a lot of folks (bankers, title companies, assessors, etc) who would be happy to be ‘read-only’. They want the data for other reasons. Ask these folks to be affiliate members, sign a code of conduct relating to data usage, a terminate their membership and access if they are abusive of the system. It would seem to me to work for everybody…..

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Victor Lund November 26, 2012 at 8:20 am

I really like the read-only access level for the MLS – great thinking.

I still have a hard time thinking that consumers want to purchase homes like buying a latte. We will add some questions into our consumer pannel and find out what home buyers and sellers think of the concept.

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Sheila Dodson November 29, 2012 at 6:49 am

Very interesting concepts and thoughts being presented here. Like Judith, I thought the comment,“Perhaps the industry needs to stop thinking about how purchasing real estate can be as easy as buying a latte, and direct our energy toward making the process fulfilling and uplifting”

Purchasing Real Estate is much more complicated and has broader and longer effects than buying a latte. The service models and what is offered could certainly be broadened. To effectively do this, the industry will have to change from the inside out. When you enter into a coffee shop – you have the money or the plastic to purchase if you so desire. You make the choice based on the service, timing and your own desire for the beverage – you have choices and the single commodity among competitors is the coffee bean. You don’t need guidance and you certainly don’t need a bank to lend you the money to purchase. These choices are made by where you buy – full service – self service or use the machine. Real Estate purchases are much more complicated.

The coffee shop – doesn’t have overhead like a Real Estate office and all of the employee are paid with the expectation that people will come in buy their latte product – and if not they will close down. The don’t sell the cups that you take to other places to have them filled – unlike the RE Brokerage. They have “commissioned” sales people that give you the cup – show you the choices to fill it with – then assist you to the point you can actually walk away with the cup of your choice – filled with the blend of your choice – and paid for with time.

Instead of talking about how to make the purchase of “RE” simpler and less complicated – perhaps we should talk about the complexity of it, how it is a long term investment and you need the help and guidance to make good decisions and understand what you are buying. After all we can all have a bad coffee or latte – but lets face it, it doesn’t change the economy of the person, the town or the nation like the bad purchase of real estate. They are totally different. Lets concentrate on making it better – more professional and like the bad coffee shop – the brokerage close down if they don’t meet the need of the consumer- the agents can no longer serve when they can’t make a living.

As far as read only status – we have had that for years for Appraisers. They can’t change the data – but have full access to it. The public has read only access through public display of data on MLS websites, brokers and third party syndication. That is nothing new.

What is wrong with a group of professionals who make their living and it is their profession having access to a database of information that they build and use? .

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