The law of unintended consequences, often cited but rarely defined, is that actions of people—and especially of government—always have effects that are unanticipated or unintended.
– Library of Economics & Liberty
I’m in St. Paul, MN, where the sun has conspired with the river to create a hundred gorgeous pleasures. Like conversing with new and old friends sitting on bar patios with 2 Gingers irish whiskey.
As one might imagine, The Realty Alliance and CMLS were both on all our minds. I’ve written a lengthy post on the topic, and Notorious B.O.B. Bemis has been absolutely crushing it with his series of posts. (Check this, and this.)
But CMLS 2013 had some other news as well, which we all would be buzzing about had it not been for the TRA bombshell. One of them is this:
The Austin Board of Realtors has decided that its more than 9,000 members can choose to syndicate their listings to third-party websites, but it will no longer help them do it.
On Sept. 30, the trade group’s board of directors voted to end ABoR’s agreement with listing syndicator ListHub, citing concerns about unethical business practices and inaccurate listing data on consumer websites not affiliated with a Realtor trade group.
Read the whole thing on Inman; Andrea Brambila has done a great job of covering the story. But this move concerns me, because of the Law of Unintended Consequences. Let’s get into it.
As we see from the story, ACTRIS — the MLS owned and operated by the Austin Board of REALTORS — is disconnecting itself from Listhub and through that action, from syndicating to every website that isn’t “REALTOR-related”. ABoR will continue to syndicate to “REALTOR-affiliated” sites however:
ABoR will continue to feed its members’ listings to Realtor-affiliated sites, including realtor.com (the official search portal of the National Association of Realtors), AustinHomeSearch.com (ABoR’s official search site), and TexasRealEstate.com (operated by the Texas Association of Realtors).
The rationale for this move is that these websites adhere to the Code of Ethics:
In a statement, AboR President Cathy Coneway said third-party websites that receive syndicated data are not required to provide reliable property information or to protect consumers through the Realtor code of ethics.
“This lack of regulation has resulted in outdated, inaccurate property information being displayed online that disappoints homebuyers and frustrates sellers,” she said.
Inaccurate data on consumer sites sets “false expectations for consumers that inhibit their ability to make sound real estate decisions” and “damage(s) the reputation of Realtors” when consumers rely on the inaccurate data and believe their Realtor to be misinformed, ABoR said.
“Examples include when clients feel they’re losing out on properties that they find on non-Realtor websites but which are actually no longer available, and inaccurate property valuation estimates on these sites,” the trade group said.
There was also the complaint that the portals make money from REALTORS by selling leads:
Non-Realtor sites also use listings to sell consumer leads to agents other than the listing agent and therefore damage the business of the Realtors providing the listing information, ABoR said. Some such websites display listing agent information in a way that misleads consumers about who actually represents a seller and encourages them to contact someone who may not knowledgeable about the property or market area, the trade group added.
- Data accuracy is a red herring, since the easy solution there is to send accurate listings to the portals.
- The real issue is that the inquiry goes to someone who is not the listing agent.
ABoR’s position that non-REALTOR sites use listings to sell consumer leads is incompatible with continuing to feed REALTOR.com, since Move also uses listings to sell consumer leads through a program called Co-Broke Connect. Last I checked, Move was still a publicly traded company not owned and operated by a REALTOR, but I guess after this summer’s decision by NAR to embrace REALTOR.com as “our website”, it’s some sort of an adopted cousin or something. (Meanwhile, it’s amazing how often Redfin, an actual brokerage with actual licensed agents that actually belongs to the MLS as a full-blown Participant, is considered a third-party portal by REALTORS and their leaders.)
More importantly, the whole point of IDX (Internet Data eXchange) is for consumer leads to go to someone other than the listing agent. Every single IDX website in ABoR’s demesne could be said to encourage consumers to contact someone who isn’t knowledgeable about the property or market area. Until and unless the MLS puts in some sort of knowledge, expertise, or market area requirements on IDX, that is the plain reality.
So if you take a step back, the bottom line here is that REALTORS don’t want to pay for leads from media/advertising companies, and that they feel that “data accuracy” is their competitive advantage against the portals. I suppose ABoR’s move has to be understood as a way of trying to disadvantage the “non-REALTOR” websites — particularly Zillow and Trulia — in favor of the “REALTOR” websites, whether operated by the MLS itself, by brokers, by agents, or by the adopted step-cousin, Move, Inc.
The Rationale: Consumer Protection
Thing is, the rationale given for the move by ABoR is full of solicitude for the poor consumer. According to ABoR, the consumer is hurt in three ways:
- Outdated and inaccurate property information disappoints homebuyers and frustrates sellers.
- Inaccurate data sets false expectations for consumers that inhibit their ability to make sound real estate decisions. For example, consumers feel they’re losing out on properties they find on non-REALTOR websites which are no longer available.
- Inaccurate property valuation estimates hurt consumers by setting false expectations.
So all in all, the idea is that restricting accurate data only to REALTOR-websites, who abide by the Code of Ethics, benefits consumers.
For what it’s worth, let’s just say we all buy the argument here. Restricting information only to REALTOR websites helps consumers. If so, shouldn’t we be doing something immediately about pocket listings, FSBO, rentals, and new construction?
If we accept the arguments above, then pocket listings are always and in every case harmful to consumers. The seller’s desire for privacy has to be balanced against the need of the consumer to have accurate information on all available housing.
After all, inaccurate property valuation hurts consumers; how can there be accurate property valuation when comps from pocket listings are not taken into account? Inaccurate information on properties disappoint and frustrate buyers; how much more must they be disappointed and frustrated that For-Sale By Owner homes cannot be found on their agent’s website or drip email? How can we be insensitive to the harm that consumers suffer because the new construction right in the neighborhood cannot be found on the REALTOR website for the simple reason that the house doesn’t actually exist yet?
Plus, since so many people are not buyers, but renters, limiting information on rental properties only to those listed by a REALTOR does the consumer no favors.
I bring up these extreme cases to point something out:
The more the MLS and the Association talk about consumer protection, the more it becomes obvious that they are not able to protect the consumer fully.
The Association/MLS cannot compel owners to enter FSBO’s into the MLS. They cannot force sellers to forego pocket listings. They cannot mandate property management companies or large corporate landlords to put their rental availability information into the MLS.
Only the government can do these things.
Unintended Consequence #1: Attract Regulators
In a recent post, I openly worried that the focus on consumers opens the door for government regulation of the MLS as a “public utility”, particularly by the CFPB which has plenary authority over mortgages. Brian Larson, whom I respect immensely for his knowledge and intelligence, took me to task.
Though I agree with Rob’s ultimate conclusion, that MLSs may be better suited to be B2B transactional communities than consumer-focused media companies, I think his post does not make the case that MLSs are lately skewing in the latter direction — or that the government would be more interested in regulating MLSs if they did so.
For what it’s worth, I sincerely hope Brian is right on how unlikely it is that the MLS will be forced into being a public utility. But I think Brian misses my point. I was not suggesting that the CFPB would regulate the MLS. I don’t speak to Richard Cordray on a regular basis, so I have no idea what he is likely or not likely to do. I don’t know if state regulators might step in or not.
My point was that the real estate industry no longer has an argument against such regulation, against being forced to turn the MLS into a public utility, should regulators take a step (however likely or unlikely you think that is). I also disagree with Brian on whether Dodd-Frank provides enough legislative authority for the CFPB to regulate MLS, but that’s starting to get into minutiae.
The ABoR press release actually uses the words “lack of regulation” to justify its action. What I wonder about is why ABoR thinks it is the appropriate regulatory authority here, when no civil authority anywhere has ever empowered it through duly enacted legislation to be that authority?
My take is that like Yahweh, Government is a jealous god. It does not take kindly to the idea that corporate interests can regulate themselves, at least without government oversight. In the Government’s eyes, the ability to self-regulate is a privilege, and every single instance of corporate interests deciding for themselves what is and is not in the interests of the consumer has been looked at cross-eyed by Government.
One unintended consequence of ABoR’s action here is that it draws the eyes of people who have actually been empowered by voters, acting through their elected representatives, who then setup regulators to make sure that consumers are protected from businesses. Lack of regulation results in inaccurate information that disappoints consumers? Well, let’s make sure that such industry regulations are indeed something that gets the job done, shall we? Why don’t you submit your proposed regulations to us, you know, the proper authorities, for some “oversight”, so we can make sure they’re adequate?
Again, let me make this warning as clear as possible. As long as the MLS was a business-to-business network of brokers, for brokers, and by brokers, there was a strong argument that the government need not get involved in the name of “public interest” or “consumer protection”. The more that organized real estate keeps talking about consumer protection, the more likely it is that someone who is actually charged with consumer protection by the Powers That Be will think it worth investigating.
I do need to address this point, from Brian’s post:
First, as evidence of what Rob describes as “this focus on consumers by the MLS,” he notes efforts by CoreLogic and RPR to use MLS data to create data analytics in the real estate vertical; and CMLS’s SourceMLS program, which is designed to allow listings web sites to make assertions to consumers like this: “the real estate property information you are viewing has been supplied directly from the multiple listing service (MLS).” Neither of these activities represents a watershed change in direction for MLSs, and discussions about these types of activities have been going on at CMLS at least since Bob Hale started urging everyone to consider an MLS consumer-facing website—I think that was back in 1984 or ’85, about the time Al Gore invented the Internet. (Funny that Rob didn’t mention that consumer-focussediest MLS, HAR.)
I don’t believe, and I haven’t argued, that having a public facing website is in and of itself grounds for rousing regulator interest. SourceMLS in and of itself may not be enough. But combine all of these actions with the rationale given for them by the MLSs themselves — such as ABoR’s press release talking about protecting consumers and lack of regulation — and I don’t think anyone should be so sanguine.
Unintended Consequence #2: Value Erosion
The second possible unintended consequence is not regulatory, but practical. For a while, I’ve argued that the reason why the MLS has become so important was that in the newspaper age, it was the most cost-effective form of advertising a home for sale. I’ve argued time and again that it is a mistake to call listings “data”; they are fundamentally advertisements.
More recently, I’ve wondered if what the brokers and agents value the MLS for today is that it is the conduit through which they advertise properties for sale on the ultimate destination: the Internet and mobile apps where consumers actually are today.
ABoR chose to stop being that conduit. If brokers and agents want to put ads where consumers are (in their judgment, with which one could disagree… but it’s their call) like Zillow and Trulia, then they can do it themselves, directly. Okay, so far so good.
If buyers continue to flock to those portals, it seems reasonable to think that sellers will eventually demand (or even worse, assume) that their homes be advertised where buyers are. That seems particularly likely when Zillow is running highly effective TV ads these days. If sellers want listings advertised on those sites, then it seems to me that listing agents are not likely to refuse them.
Okay… so eventually, the vast bulk of listing agents and listing brokers are sending their ads directly to the portals, since the MLS isn’t involved in that at all. At that point, the MLS is less valuable to those brokers and agents.
Furthermore, Newton’s third law of motion says that every action generates an equal and opposite reaction. That also applies to life in general. Should MLS’s start following ABoR’s lead here, what do we think the extremely well-funded, well-run, and innovative tech/marketing companies like Zillow are likely to do? Throw their hands up, sell everything in a fire sale, and go home?
Or are they likely to redouble their efforts to make direct connections to brokers and agents?
Me, I’m leaning towards the latter.
Furthermore, should the conflict between MLS and the portals get to a critical stage, is it really that unthinkable that someone like Zillow might drop a suggestion or two with the regulators that they take a look at consumer protection issues in real estate information? (See Unintended Consequence #1 above) Have I mentioned that Zillow knows Obama? And senators? And other members of the Powers That Be?
ABoR and a rather large number of the real estate commentariat believe that the portals will simply knuckle under. They believe that the MLS still has that power. I’m less certain, but time will tell.
(FWIW, there is a difference between the way ABoR is doing this and the way Huntsville is doing this.)
Unintended Consequence #3: Insert Realty Alliance
The final unintended consequence here comes from the “nuclear option” threatened by The Realty Alliance and other big brokers.
At the outset, let’s be clear that The Realty Alliance is downplaying anything super-dramatic:
I suppose we must accept this blog as one of the “online speculators” spreading incorrect messages. Of course, I’ve already admitted to the speculation and cannot wait to see the correct message from TRA.
At the same time, however, we do have this:
So. We don’t know what we all got wrong, but “the industry now has options that are feasible today that were not realistic a short time ago” sounds like more than “we can keep talking more, fellas” to me. And speaking only for myself, language like “why have the MLSs waited until the industry had started down a road that could offer alternatives” sounds a whole lot like what I’ve sketched out.
But time will tell, and I’m embracing the predictions sure to be wrong, or your money back route.
Nonetheless, in terms of unintended consequences, let’s consider something that Craig Cheatham said at CMLS that kind of slipped by under the radar. In telling the assembled MLS folks that TRA’s member brokers see the MLS as the #1 headache/concern/problem, Cheatham let slip that those members no longer consider the portals to be a serious problem. Part of the feeling, apparently, was that the public portals like Zillow and Trulia are way overvalued, that they will see their stock prices tank, etc.
The other part of the feeling, I think, could be based on the fact that large brokerages can easily work out a business relationship with the portals. I wrote about Howard Hanna’s deal with the portals a while back and said:
It seems obvious that Zillow would want to cater to a Howard Hanna, or to a HomeServices of America, or a Crye-Leike. Would they really extend the same deal on the same terms to a 10-person firm with 30 or so listings? I seriously doubt it. At least, not at the same price point as Zillow would charge Howard Hanna.
Syndication was always about business. And one of the big dogs just struck what it considers to be a good deal. The other big dogs, if they don’t have that same deal, will be seeking it. The little guys who aren’t extended the same terms, at the same price, are simply going to be at a competitive disadvantage vis-a-vis the big dogs. Their listing agents have to deal with the indignities of having Buyer Agents pegged next to their listings, or Showcase Ads splashed all over them, or both… or they can forego getting the traffic that Zillow generates. Or… they can jump ship over to Howard Hanna and be assured that all leads on their listings would come directly to them.
Should we think it significant at all that Howard Hanna, the nation’s 4th largest brokerage, is a member of The Realty Alliance? Could the other members have learned about the pros and cons of working directly with the portals from Howard Hanna’s experience?
Hell, since we’ve already been chastised for getting things wrong with our speculation, why not speculate further, right? If yer gonna do the time, might as well do the crime, I say.
If big brokers no longer see the portals as a problem, and in fact have learned from Howard Hanna’s experience that paying the portals off to gain a competitive advantage works, seems to me that a rational business decision is for large networks like TRA, LeadingRE, and others to just do deals with the portals in exchange for major concessions.
Combined with the MLS deciding that it will no longer provide syndication services to its members, the unintended consequence of such a thing is that the portals are likely to have far more listings than any broker/agent website or any public-facing portal site. (Except in unique markets like Houston.)
Before you go spouting conventional wisdom about how that would ruin those brokers, think about it a minute. As per the Howard Hanna template, not one of the listing agents of those brokers are hurt in the least. In fact, they benefit from the corporate partnership, since all of the leads from the portals now go to them directly, without the “three-headed monster” problem. Losing IDX isn’t a big deal if the brokerage can provide them with the alternative “private IDX” type of functionality. The MLS still exists, they’re all still members, they can still see all of the listings in the marketplace, and the VOW is unaffected.
Their competitors, who work at mom-n-pop brokerages, have a fraction of the available listings on their IDX websites. But um, those folks are competitors. Sure, if you’re a buyer specialist at a Big Brokerage After This, you might have to replace your IDX site with BrokerIDX or something, but on the other hand, you could also be getting a flood of leads from your brokerage as well. Who knows?
I just don’t think pulling out of IDX is the automatic suicide pact that some folks think it is.
Well, This Got Long
What else is news, right?
The good news is that we should start to see some real details, get some real information, as opposed to speculation and incorrect messages in the next several days. The good news is that none of these things are graven in stone. The good news is that we’re living through interesting times in real estate. The bad news is that we’re living through interesting times in real estate.
Your opinions, as always, are welcome.