One of the core services of brokerages and their agents is pricing property. In the olden days, it was less scientific than it is right now. On an individual property, agents deliver CMAs or BPOs. Today, using MLS data, brokers are now automating their services. Sometimes this service is called Automated Valuation Modeling, or AVMs.
There is a healthy and robust marketplace for AVMs in the financial services industry. Banks want to know the debt-to-equity ratio on homes they hold mortgages on. They also want to use AVMs as a method to validate home appraisals. Government uses AVMs to make monetary policy surrounding affordable housing and interest rates. Of course, the government also wants to make sure that their sponsored entities like Fanny Mae and Freddie Mac are making healthy loans. Insurance companies want to use AVMs to calculate property insurance rates and claims. Investment analysts use AVMs as a measure of the health of the real estate market that correlates to an exhaustive set of predictors on where stock prices are going for both individual companies, as well as sectors of companies. Largely speaking, brokers have been cut out of this marketplace.
Historically, the financial services industry has been fed AVMs that are based upon public record data. As industry experts understand, public record data lags behind MLS data by weeks or even months. Moreover, the detail of the property tax record is simple, and does not take detailed housing features into account. The National Association of REALTORS® worked with the federal government and other entities after the housing crisis to point out that using active listing data in monitoring the health of the real estate industry would have allowed them to “see” the housing bubble as the number of for sale homes in the MLS swelled, and along with it – days on market and wider gaps in list-to-sell ratios.
MLS users knew what was going on well in advance of public records. Public records first displayed lower volume and, along with it, lower prices. It was not until pre-foreclosure and foreclosure records began to hit public records that the financial market saw the bubble. By then, it had already burst.
Knowing that a broker’s data in the MLS has value to the financial industry, the National Association of REALTORS® founded a company called Realtors Property Resource™ or RPR. RPR is unique in that it combines public record data with MLS data to provide services to the financial services industry. In exchange for the data license from MLSs, RPR provides REALTORS® with a valuable reporting service so that they can provide the best market information to the customers they serve. They also offer REALTORS® an AVM called the Realtor Valuation Model™ or RVM. The RVM is also a tool REALTORS® can provide to their clients as another reference to Zillow’s consumer AVM, called the Zestimate™. Recently, RPR has also delivered a beta product that allows brokers to display the RVM on their consumer facing websites.
CoreLogic is among the leaders in providing the financial services sector with AVMs. They reacted to the launch of Realtors Property Resource by offering to pay MLSs a data license fee so that they could create similar products as RPR for the financial market, products that combine MLS data with public record data. In an update sent to MLSs last week, CoreLogic mentioned that 100 MLSs now license data to them and that they have paid out $1.8M in licensing fees. Some MLSs pass this income or a portion of it back to brokers. Others use the income for delivering more services or offsetting dues.
There are a number of brokerages that agree NAR and the MLSs are doing a great job of moating the industry by carefully constructing data license agreements for the use of broker data in the financial markets for AVMs. There are other brokers who disagree. They believe that MLS data and the services that are fed by MLS data are the providence of brokerage. Some believe that MLSs are using their data to provide “brokerage services” in a way that limits the broker’s ability to construct organizations that will meet the needs of the financial industry. In parlance, there is a great debate about who has the ability or right to this data and its uses.
Brian Larson of the law firm of Larson/Skinner is running a series of articles on their blog that dig into the MLS rules and regulations regarding the use of MLS data by brokers to perform AVMs. In truth, NAR has not provided MLSs with clear guidance beyond the overarching statement that MLSs “may not preclude participants (brokers) from engaging in otherwise permissible activities.”
NAR is in a tricky spot. The Department of Justice is advocating for a free market in brokerage that allows them extensive use of MLS data. Although their settlement regarding Virtual Office Websites was related to working with consumers through electronic display, it is not clear where it limits electronic use. Moreover, NAR has invested dearly in the development of their product for the financial services industry. If brokers have an open door to deliver competitive products, it will join the CoreLogic effort to increase competition and possibly reduce the market opportunity. Some brokers have said that NAR should recuse itself from defining the policy on the issue because they have a horse in the race.
Some Guidance: Data Licensing is a core service of the MLS. If brokers do not approve of particular uses of their data (by any party) outlined in those licenses, they may opt-out. The “opt-out” is a powerful right that brokers are rarely denied. I applaud all parties involved in this policy consideration for allowing broker AVMs until such time as time as the policy is clarified. It would be anti-competitive to do otherwise if MLSs are licensing data for AVMs to other parties and not its own broker participants.
If your MLS does not license broker participant data to any party for this use, and you want to wait until the policy is clear – that is probably a cautious but acceptable tack. If your MLS does not license data to anyone for AVMs today but you want to give your broker participant a go-to-market advantage, license it to them first – but do it carefully and understand that this issue is still somewhat up in the air. Under no circumstances should an MLS “preclude participants from engaging in otherwise permissible activities:” National Association of REALTORS®.
Follow the discussion at LarsonSkinner.com http://www.larsonskinner.com/2014/04/can-mls-brokers-build-avms-using-data-brokers.html
As a consulting firm, we have no vested interest in the outcomes of this policy refinement, although we do recognize that it will have a lasting impact on the business of our clients. We do believe that it is incumbent upon the MLS policy committee to clarify this issue at the upcoming NAR Midyear Realtor Party meetings in Washington D.C. this May. MLSs and brokers alike should become fully aware of this issue and share their opinion with their leadership for representation at the MLS Policy Committee meeting. Send a letter to your MLS or make a call today!Disclaimer: WAV Group clients include The Realty Alliance, The National Association of REALTORS, and CoreLogic. We also have deep respect for the work of Larson/Skinner in representing their clients on contracts related to data licensing.