JOHN FRIDLINGTON
Future-shaping policy
A national real estate industry group has released a policy proposal to regulate online listings that could stem the referral fees that some Web site operators charge.
The National Association of Realtors released a draft of the policy proposal, which seeks to govern the use of listing data on so-called virtual office Web sites, or VOWs, last Thursday. The release of the policy comes as controversy has been brewing during the last few months about companies displaying the information that Realtors collect on homes they’re trying to sell – data that is typically supplied to multiple listing services – on Web sites without getting permission from the listing brokers.
One large industry leader even issued a white paper this month criticizing some VOWs for charging referral fees to Realtors, even though some of them provide virtually no other brokerage services to buyers and sellers and do little to obtain home listings.
A work group set up by NAR has written a policy to address some of those issues. Some Bay State real estate brokers caught their first glimpse of the policy at a seminar organized by the Massachusetts Association of Realtors last week to discuss VOWs and online brokerage technologies.
The NAR proposal addresses a key sticking point for many industry leaders by basically prohibiting some Web sites, which use data from a multiple listing service owned by a real estate board or association, from collecting a referral fee for a lead it sends to another real estate broker.
The NAR proposal also requires brokers with VOWs to have a prospective buyer register by providing a name, phone number and valid e-mail address before the broker can distribute any MLS information. The VOWs also must require a consumer to choose a user name and password, and must display the competing listing broker’s name with the home listings.
Under the proposed policy, home sellers could “opt out” of the system, meaning they could prohibit the use of their home information from appearing on VOWs not owned by their listing broker.
NAR leaders will vote on the policy in May, and if it is adopted, it will go in effect on Jan. 1, 2004.
“It’s going to be a policy that’s really going to shape the future of business models,” said John Fridlington, MAR’s executive vice president.
‘Rational Basis’
In Massachusetts, Realtors on Cape Cod and the Berkshires will be most affected by any policy that NAR adopts because associations in those regions run their own multiple listing services.
But most Realtors in Massachusetts belong to the Multiple Listing Service Property Information Network, which is not owned and operated by a real estate board and has its own policy governing VOWs. That policy could be amended to be more in line with NAR’s rules on VOWs, according to John Breault, director of customer support for MLS-PIN.
Currently, MLS-PIN has a general policy on VOWs – virtual private network – that basically requires brokers to confirm that they are sharing listing data with legitimate prospective buyers, said Kathy Condon, the president and chief executive office of MLS-PIN.
However, MLS-PIN leaves it up to the brokers to come up with a way to confirm that the consumer seeking the information is actually a prospective homebuyer. Many brokers with VOWs, including Coldwell Banker Residential Brokerage, do that by requiring consumers to register – supplying a name and valid e-mail address, for example – before giving them access to the listing information.
If it’s a public access Web site that is providing limited listing information, however, MLS-PIN requires the site to provide the listing broker’s name as well.
The controversy over VOWs has emerged as an increasing number of Realtors are using the Internet to market their services, and more and more homebuyers use the computer to search for homes.
Before the advent of the Internet, Realtors strictly controlled information about for-sale homes. Traditionally, listing brokers submitted data about a home – the address, property characteristics – to the local MLS. By doing so, the Realtors essentially agreed to share that information with their competitors, and promised to compensate a competitor who brought a willing and able buyer to the table by splitting a commission if a sale occurred.
Buyers or other consumers wishing to get information about properties that were on sale had to contact a real estate agent or broker who would then print out that MLS information and either fax, mail or personally hand it out.
“The [MLS] concept is certainly the longest-standing and probably the most successful offer by competitors in a business to work together in order to sell their collective inventory,” said Brian Larson, a Minneapolis attorney and consultant who spoke at the MAR seminar last week. “It’s a surprisingly successful system when you consider how competitive these [real estate] companies are.”
But with the advent of the Internet and electronic mail, business models started to change. Consumers started demanding information more quickly and most real estate brokers started complying. Oftentimes that meant providing listings to consumers as soon as they came on the market.
“The Internet obviously blew the door off that” traditional system, said Larson, a principal of Tendal/Larson, a firm that helps Realtors implement online brokerage technologies.
Throughout the last several years, many brokers set up Web sites and started posting information about for-sale properties, even homes they weren’t specifically marketing. Often, that confused consumers who believed the listings featured on the Web site belonged to that particular broker.
The supporters of the VOWs argue that they’re basically an extension of the “bricks and mortar” of traditional real estate brokerage, according to Larson. Instead of faxing listing information to customers, Realtors argue, they now can provide those listings instantaneously via the Internet.
“But that argument’s not entirely accurate,” said Larson. Now, consumers can search the data that once wasn’t available to them, and some Realtors argue that when they signed a contract to belong to an MLS, they never agreed to post their listings on competitors’ Web sites, he explained.
The big dispute, however, has been over referral-driven businesses that “sell the lead” back to the brokers, Larson explained. “There’s a debate about what value is added by those parties,” said Larson.
“The central problem is trying to find a rational basis for distinguishing between practices that disturb the rank-and-file MLS members and practices that don’t, and then to try to write it into a policy,” he said.
With its new policy, NAR has attempted to answer some of those concerns. The newest NAR policy differs from those proposed last year. The NAR work group came up with its first policy proposal last May, which essentially would have required any broker to get permission to put their competitors’ home listings on their Web sites. NAR leaders asked the work group to revise the proposal after hearing some opposition.
After meeting in the summer, the work group drafted another policy proposal that acknowledged there was a difference between advertising and online brokerage, according to Ron Phipps, a Rhode Island broker who is the chairman of the work group.
The work group came up with a new policy that dropped the broker permission clause but instead included a condition requiring sellers’ permission to list homes on Web sites other than those belonging to their brokers. But NAR voted to table the policy in November.
In the meantime, Cendant Corp., whose real estate franchise network includes Century 21 and Coldwell Banker, released a white paper urging NAR to tighten control over the use of MLS data by certain Web sites. The company is riled that some VOWs are extracting referral fees from traditional real estate brokers for sending along a lead but offering no other service to consumers or buyers.
Yet even the latest policy that NAR has come up with has some loopholes when it comes to referral fees and other issues, according to Larson. For example, real estate brokers can still collect referral fees by sending leads they received from their VOWs if the prospective buyer is searching for a home in a community that the broker doesn’t service, and if the broker’s revenues aren’t mostly tied to referrals.
Larson acknowledged last week that it will be tough for most multiple listing services to monitor or control activities relating to referrals.
