Home Brokers & Agents On Project Upstream (Part 1): Great Concept, Problematic Execution

On Project Upstream (Part 1): Great Concept, Problematic Execution

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This is a slide I used at a T3 Summit for a “Black Swan” Presentation

At the Inman Connect conference that just wrapped up, there was a “town hall” on a variety of topics featuring industry thought leaders like Marilyn Wilson of the WAV Group, Mark McLaughlin of Pacific Union, Joseph Rand of BHG Rand Realty, and Katie Maxwell of Intero. One question I asked was about Project Upstream, the recently revealed collaboration between a group of brokerages and national franchise companies and NAR’s RPR. I asked the question for a specific reason, and I think it’s worth going into it in some depth.

I asked it because I believe in Project Upstream as a concept, as a philosophy. I believe in the idea of broker control over listings 110%. I believe in the efficiency gains that brokerages want to achieve 110%. Everything that Project Upstream wants to achieve, I support wholeheartedly. But the way that the Upstream people have chosen to achieve those goals raises a major concern that simply has not been raised yet in the industry. It’s time to raise it.

The Q&A

The question I started off with was, “What is the percentage of broker participation at which Upstream is a success?”

Put another way, suppose Upstream is launched, and only 2-3 brokerages join it. Is it still a success, because those 2-3 brokerages get control over listings, and get the efficiency gains from a single point of entry?

Mark McLaughin of Pacific Union started to say that yes, it would be, but then added that there is tremendous commitment on the part of the brokerage community — including national franchise brands — to Upstream. The clear implication is that a huge chunk of the brokerages want Upstream. (By the way, it was clarified from stage that Upstream and Broker Public Portal are two entirely different initiatives.)

My followup then was that if a “huge percentage” of brokers nationally or in a given market join Upstream, at what point does it become a public utility subject to regulation by government authorities? Joseph Rand, a lawyer by training, declared “Never.” I disagree with Joseph. And I understand that he didn’t exactly have time to research the issue or think about it further, so I’d be curious about his answer once I’ve laid out my concerns.

Upstream, As We Know It

First of all, everyone involved with Project Upstream has made it perfectly clear that Upstream is not an MLS. It could start to look a bit like a “national MLS” if it really gets traction, if the “huge commitment” from the industry translates into 90% participation in Upstream, but Upstream will never offer cooperation and compensation, or have rules and regulations, or offer IDX or such things.

Here’s what WAV Group, the official consultant of UpstreamRE, LLC, wrote when it revealed Project Upstream:

Upstream is not an MLS!

Real estate firms across America have obstreperous data management problems. Three of those problems include the disorderly replication of add/edit; the replication and inconsistency of data formats; and the challenge of perfecting Copyright. These challenges that face firms are interrelated in many ways.

So Upstream is most definitely NOT an MLS. It is a “data management” utility that will eliminate the “duplicate add/edit” problem by offering a single point of entry. It eliminates the “replication and inconsistency of data formats” which means:

Overlapping market disorder has plagued real estate forever. It has caused firms to enter and maintain data in multiple MLSs. Firms are also operating a wide range of back office data management systems, including franchise data management solutions. Replicating data is the process of storing the same information in multiple databases. It’s expensive and wasteful. Different data base formats also create incremental costs whenever systems need to share data. It requires data mapping and aggregation. Again, it’s expensive and wasteful. Firms participating in Upstream will individually manage their data in a common format and in a common database.

“Upstream always has been about making practitioners much more efficient in the handling of their data, thus lowering the cost, time and effort they spend,” said Craig Cheatham, secretary of the UpstreamRE, LLC Board. “And, brokers will be able to regain much better control of that data, for which they ultimately are held responsible.”

And that quote leads to the third problem Upstream seeks to solve: data distribution.

Project Upstream recognizes the incredible lack of efficiency in data distribution. Upstream will solve this problem by providing firms with a single data distribution dashboard to send their data wherever they want – an MLS system, a franchise system, a technology vendor, or even a publisher. The broker, and only the broker will be in control of where its data goes. [Emphasis added]

That last sentence, in a way, is the key motivation behind Upstream. A number of brokers I’ve spoken to made it clear that they’re not happy with the fact that the MLS is entering direct syndication deals with portals, which causes the duplicate data problem if the brokerage has done a direct syndication deal itself, or ends up making the brokerage’s listings available if it doesn’t want them sent in the first place.

The other key motivation behind Upstream is control over the MLS. WAV Group actually defined “obstreperous” in its post as “noisy, difficult to control, unruly, unmanageable, disorderly, undisciplined, rowdy, disruptive” but applied it to “data management”. It is clear that many brokerages also think of some MLSs as obstreperous as well, and for good reason. Because some of them really are.

Keep in mind that Upstream was born out of broker frustration, particularly from the largest brokerage who are members of The Realty Alliance and Leading RE. And lest we forget, the frustration with the MLS and the motivation for Upstream were clearly articulated in 2013 at the CMLS Conference, when the Most Interesting 30 Minutes in Real Estate took place. As I wrote then:

This is one session I wish I had videotaped, since Cheatham’s comments were jaw-dropping, even though he delivered them with consummate grace and diplomacy. Words and phrases like “nuclear option”, “push the red button”, “don’t plan too many more of these CMLS events into the future”, and of course, “You have ten days” are… shall we say… attention-grabbing?

Taken together, then, Upstream is that “nuclear option” that brokerages want to have as a club over the heads of obstreperous (I’d like to thank the WAV Group for this wonderful word) MLSs who do whatever they want with the brokerage’s listing data, including sending listings to various portals to which the brokerage does not want them sent.

Again, everything that brokerages want, I support. Duplicate add/edit, replication problems, and distribution problems are all real problems. Rogue runaway MLSs with piss-poor governance are a real problem. So yes, let’s solve those problems by all means. I’m 110% for that.

So what’s the concern?

The Public Utility Issue

I’ve written on these pages in years past about the “public utility” issue. You can check out this, this, and this for starters. In each case, I talked about the 2006 House Hearings when the industry defended the MLS as being something other than a public utility.

Again, for emphasis, here’s Stephen Brobeck of the Consumer Federation of America arguing for making the MLS into a public utility:

Accordingly, it is in the interest of both buyers and sellers for there to be complete information on Internet listings and for this information to be easily accessible. Dominant brokers and their trade association, however, have succeeded in restricting consumer access to information through their control of multiple listing services (MLSs) and the national listing service, Realtor.com, which they feed. [Emphasis mine]

The key argument was that the MLS was about consumer access to listing information. Therefore, the main argument brought to bear against the idea that the MLS is or should be a public utility was that it was a B2B network, created by brokerages, for brokerages, to enable brokerages to do business, and had nothing to do with consumers.

Geoffrey Lewis, Chief Legal Counsel of REMAX:

The MLS was designed as a B2B vehicle, not a business-to-consumer vehicle. It was designed as a mutual sharing of information by industry peers to facilitate the sale of and search for properties. The idea was that cooperating brokers and agents would work to earn their own customers using their own assets and then share listings via the MLS. The concept is simple: you earn a customer, you get to use the MLS with the customer. The concept is not: you get free access to the MLS and then you use it to advertise the properties of your competitors in order to attract customers. [Emphasis mine]

That line of argument prevailed. The movement to classify the MLS as a public utility died out. Had the industry lost that battle in 2006, it is very likely that today, there would either be 50 state MLSs or one national one — which sounds attractive to many of you, except for the fact that every single business decision would be subject to the “guidance” of each of the state’s real estate regulation authority, or to some national regulator such as HUD or CFPB.

Ask the mortgage people how much they enjoy being told what to do, what to charge, and how they can run their businesses by government bureaucrats.

Project Upstream Is A Public Utility

Now, here comes Project Upstream. As conceived of right now, it is an actual company — UpstreamRE, LLC — that will be owned and managed by a group of brokerages and national franchise companies. That company will enter into an agreement with RPR, a subsidiary of the National Association of REALTORS, to provide a national database with a single point of entry for listings, and a mechanism by which the brokerage will be able to dictate where and how listings information will flow.

That “where and how” includes the MLS itself, includes other brokerages, and includes the portals. Upstream is not, has sworn up and down that it will not be, an MLS. It is, instead, a “data management” platform for brokerages to control listings. Since it is not an MLS, and the MLS still exists, the B2B function of the MLS will not be replaced or taken up by Upstream. One of the main objectives of Upstream, then, is to place brokerages at the center of the B2C — business to consumer — activity.

How then, do we avoid Upstream being classified as a public utility? It’s core raison d’etre is to control consumer access to listing data. That’s right in the wheelhouse of various regulators who are charged with consumer protection. As conceived of now, Upstream is a company that seeks to displace the MLS from being involved in the flow of listing information from the brokerage to consumers, by creating and using a national database that sits “ahead of” the MLS itself.

This is where my question about percentage of brokers that need to participate in Upstream before it can be considered a success comes in. If Upstream is indeed nothing more than just a universal single point of entry for data, then even if only one brokerage used it, it would be a success. If Upstream is just a data-deduping utility, then why it requires “huge commitment” from all of the major players in real estate, and a $12 million investment from NAR, is completely unclear.

Let’s be real about Upstream. It cannot be a success unless the majority — if not the vast super-majority — of brokerages participate in it. 15% participation just isn’t gonna cut it. The huge commitment and momentum that it is gathering reflect the long-standing frustrations of brokerages around the country about MLS governance, MLS policies, and MLS (ab)uses of listing information. But a big chunk of the motivation behind Upstream is precisely to control consumer access to listings.

It’s just a matter of time before that entity draws the attention of the government. I mean, it isn’t as if the government doesn’t know who NAR is. It isn’t as if the FTC didn’t just finish months of work crawling up Zillow’s backside for its Trulia acquisition. The government is aware of real estate, and is paying close attention to what’s going on.

So post-Upstream, if they come in and say, “You know what? You’re a public utility, and we’re gonna get all up in your business,” what will be our defense then? We can’t say that Upstream is a B2B network that is all about cooperation and compensation. We can’t say Upstream is about “you earn a customer, you get to use Upstream to serve the customer” because Upstream is clearly not about that.

So Upstream, as conceived of right now, has two possible outcomes:

  1. Only a few brokerages participate, for the data management advantages, and then no one in the industry actually cares very much about it, because only 20-30% of brokerages participate in it. Or,
  2. The vast majority of brokerages participate, for the data management advantages, as well as having a “nuclear option” held over the heads of obstreperous MLSs, and having a national facility for controlling distribution of listing information to consumers. And in that case, it will absolutely invite the regulators to step in for the sake of “consumer protection”.

Neither strikes me as a good outcome. As I’ve said, the goals of Upstream are absolutely wonderful. Brokerages should control their data. They should have a far easier, far more modern way of handling data. They should not be held captive to some 850+ tiny MLS’s who act like morons from time to time.

Thankfully, there is an alternative, and technology that makes the alternative possible. In the next part of this series, I’ll discuss both, and why the real estate industry should choose that path instead of the one that it is on today.

-rsh

9 COMMENTS

  1. Insightful comments, as usual. Although I can’t help but notice a somewhat common thread in some of your statements:
    “…some MLSs as obstreperous as well, and for good reason. Because some of them really are.”
    “Rogue runaway MLSs with piss-poor governance are a real problem.”
    “…tiny MLS’s who act like morons from time to time.”
    Your anti-MLS sentiments are really starting to show . . .

    • Thanks for the comment, Mark, but um… given most of my clients have been/are MLS’s, and most of my career has been spent trying to preserve and save the MLS… maybe you mean that I have an anti-crappy MLS sentiment. Because there are some out there that are crappy. The well-run MLSs are a jewel, a treasure of the industry, that is unique as a model of cooperative competition. The piss-poor MLSs are terrible, and a burden on the industry.

      • Rob, your comments above are so on point about crappy MLS organizations. I think one of the major problems is that when an MLS is crappy they don’t even realize it. There is no introspection.

  2. […] Every single person involved with the MLS or with MLS technology supports those goals. Go ahead, try to find some MLS CEO somewhere who says, “No, no, I really would rather my brokers have to enter listing data seventeen times.” I myself have said publicly on every occasion that I support 100% the goals of Upstream. Here’s a post of mine from August of 2015: […]

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