Oh jeez, not another post on syndication and IDX...

It’s late, and I’m fairly certain that this horse I’m about to pound on some more is long since departed for greener pastures in the hereafter… but hey, what the hell, right?

So by now all readers of Notorious ROB have seen the latest developments in the Syndication Serenade:

• Metrolist pulls IDX from Diverse Solutions, a unit of Zillow
• Sandicor Puts In New Rules for Syndication
• Northeast Florida MLS Stops All Syndication, Throws It Back to Brokers

This carousel is making me dizzy!

The responses from the peanut gallery are… well, predictable. You have the lamentations of the Transparency Mafia, the chortling of the KillZillThrill Cult, various declarations of how bass-ackwards the real estate industry is, and people who just love that the MLS is “fighting back”, and so on and so forth.

And yet, no one appears to be picking up on the most important trend here. So let me beat this dead horse one more time: brokers, REALTORS, vendors, Romans, friends, countrymen… it’s time to start making your plans for the post-IDX world.

Parsing the NEFMLS Announcement

For our purposes, the fight between Metrolist and Zillow is irrelevant. That has more to do with the fact that many MLS’s rightfully think of Zillow as the lion about to come charging over the hill. Why would they think that?

Here’s Zillow explaining how they work with listing agents:

Listings quality is key: We process all feeds at least once per day, giving priority to MLS and broker feeds over other sources.  We have a team of compliance experts and technologists working hard to provide a higher-quality listing search experience and are committed to delivering accurate, up-to-date listings drawn from definitive sources. Direct listings from brokers and MLSs ensure the highest quality consumer experience.

The highlighted portion would and should send chills (and not of joy) down the spine of many a MLS executive. It’s nice that Zillow includes MLS as a definitive source, but… hey, if you have a team of compliance experts working to ensure accurate, up-to-date listings from brokers… well… do ya really need the headaches of de-duping multiple data streams?

Anyhow, that little struggle is for another day’s blogpost. For our purposes here, let’s look at the relevant parts of the NEFMLS Announcement:

Syndication is the distribution of listing data to third party non-member websites such as the aforementioned. In the beginning, the idea of syndication was a benefit provided by NEFMLS to increase listing exposure on your behalf to potential consumers via these websites.  However, now the number of available consumer oriented real estate websites has increased exponentially and therefore it is difficult (if not impossible) to choose those websites that are best for the entire membership of the NEFMLS.

Therefore, it is the consensus of the NEFMLS Board of Directors that only you, the broker, can truly determine what third party websites best fit your marketing needs. NEFMLS will continue posting all listings to those vendors that we have agreements with including REALTOR.com, fl.living.net, NEFAR.com, RealtyWEB.Net, and Jacksonville.com. 

Syndication is not IDX.  The simplest definition of Internet Data Exchange (IDX) is that it provides cooperating brokers of NEFMLS with the ability to display each other’s active listings on each other’s approved professional websites once an IDX agreement has been executed with the MLS.

…

How do I decide what sites are best?

Really, only you know which sites will fit your Internet marketing plan.  First, check the terms of use and “scorecard” for each viable channel.  Some criteria to consider is: do they re-syndicate your listing data to other sites, what type of market are they appealing to, what is their refresh rate, and how do they handle leads, just to name a few.  Also, ListHub provides reports to help you determine which sites are actually driving leads back to you.   If you find a site is not working for your “market” it is just a few simple clicks to stop syndication to a site and try a new direction.  NEFMLS will cease syndicating all listing data to AOL, HotPads, Homefinder, CLRSearch, FrontDoor, MyREALTY, Oodle, Vast, Zillow, and Trulia.

Well, a few questions come to mind immediately, don’t they?

First of all, this move by NEFMLS was a very smart one. Put the power to syndicate back into the broker’s hands; it’s their listings, so let them make the decision. The key phrase is, “Only you, the broker, can truly determine what third party websites best fit your marketing needs”.

But  what if I don’t want my listings syndicated to Realtor.com, fl.living.net, NEFAR.com, RealtyWEB.Net, and Jacksonville.com? Given that you’ve just told me that it’s my decision as to what best fits my marketing needs, what if posting my listings to RealtyWEB.Net does not fit my marketing needs? Why should the fact that the MLS has entered into some sort of contract with RealtyWEB.Net affect my marketing needs?

For that matter, what if my marketing needs do not include having buyers ask a bunch of questions about my listing to some agent sitting in an office 30 miles away who has never sold a damn thing in my area? Can I choose not to allow that agent to put my listings on her website, please?

It’s great that ListHub is going to provide scorecards on a whole panoply of publisher sites, such as refresh rate, how they handle leads, and… “reports to help you determine which sites are actually driving leads back to you.” Pardon my ignorance, but hey uh, ListHub… do ya got one of them reports for IDX sites? I’d like to know what the refresh rate of an IDX feed is. I’d like to know how the broker on the receiving end handles leads. And oh yeah, I’d like a report on which of them drive leads back to me.

Fact is, NEFMLS is dead wrong when it says, “Syndication is not IDX”. It doesn’t much matter how often you repeat the phrase, like a magic mantra of protection. It doesn’t jive with the logic of the decision, which goes as follows:

• It’s your listing.
• You decide what your marketing needs are.
• You decide where you want it published, according to your marketing needs.
• We have technology that lets you pick and choose who gets your listing.
• Except when it comes to IDX. Then it’s an all-or-nothing decision, and your marketing needs be damned.

Say what now? Why not?

If the technology to pick-and-choose which site gets my listings already exists… why would it be so difficult for me, the broker, to pick and choose which of my competitors gets to use my listings on their website, in exchange for my using their listings on mine? Hey, tell you what, I promise not to put listings of the participants who I do not grant IDX to on my site. We good then?

Once you cross the line into “partial syndication”, and make it plain that not only do you the broker have the right to send your listings only to the sites you select, but also that the technology to make this easy and simple to do already exists… well, good luck trying to hold on to IDX-As-We-Know-It.

Trouble is, all the buyer-specialist brokers and agents in a “partial IDX” scenario are well and truly screwed. Try this line on for size: “Hey, so, I know I don’t actually have any listings, and never have, and don’t plan on working with any sellers anytime soon, but… could I put your listings on my highly ranked website so I can get you to pay me half the commission that might otherwise go to one of your buyer agents instead?” Wow, who could refuse such a sweet offer!

The same goes for small independents and boutiques, unless you have such a specialized practice that your fifty listings a year are so desirable to the MegaBroker in town with 5,000 listings that they’d elect to send you their listings in exchange for you sending them yours. Get ready to hear this more often: “Geez, thanks so much for the offer to get into IDX with you, Mr. Independent. But uh, I think we’ll be okay with the 5,000 listings we got plus the 10,000 from the other Big Brokers in town. We’ll somehow manage to get ranked on Google without your 50 listings. But hey, good luck to you with your 50 listings, you hear? Don’t forget — if you got yourself a buyer, you can find our listings in the MLS!”

The Next Step in the Evolution

Let’s say that despite the logic of the “partial IDX” argument, the MLS says No.

Well, as it turns out, ListHub — the provider of the aforementioned Select-o-Matic Syndication Machine — also operates a little thing called the Real Estate Network where large franchises and brokerage networks uh… syndicate to each other. For display on each others’ websites. Yeah. Amazing thing, that.

After much pleading and banging on doors, I feel that the executives at ListHub — all of whom are really smart, really cool people, by the way, and excellent at karaoke — would be forced to go to the MLS crying bitter tears of disappointment to inform them that the broker customers really really really REALLY wanted ListHub to setup a local Real Estate Network, enabling the syndication of listings to each other on the same Select-O-Matic technology they already enjoy with third party websites. They might sigh deeply, regretting that brokers and agents have so little loyalty to the House of R. Don’t these fierce competitors know that they might hurt some of the smaller independents and buyer specialists?

No, no, such a sad world we live in that brokers and listing agents are more interested in making more money themselves to buy a new baby sealskin gun case than propping up their brethren, most of whom they consider to be Lowering The Bar morons who need to be driven out of real estate. Tragic, really. But they are our paying customers, Mr. MLS Executive, and I’m afraid we have to listen to our customers, so… we’ll be offering out a Local REN next month.

Think that’ll never happen?

A year ago, did you think any of the current brouhaha would happen?

No Woman, No Cry; Just Prepare for the Post-IDX World

It may not seem real to many of my readers, but there was a time when there was no such thing as IDX. In fact, it wasn’t that long ago. We’re talking 1999/2000 here, not 1980 or 1890. Some of you are old enough to remember practicing real estate successfully prior to IDX; others may need to find some older colleagues in and about your town.

Yes, yes, I know… quite a few people will see this inevitable move as a giant step backwards. Folks will take to Facebook and blogs and ActiveRain and Twitter and such places to write diatribes and talk about organizing a movement or a rally or some such thing. There will be lengthy posts written on how the dinosaurs have taken the industry back into the Dark Ages. Maybe there will be original poetry slams, or a music video, or an interpretive dance routine performed by masked dancers emoting sorrow and frustration. I can’t wait to see the creativity of the lamentations.

My suggestion is to do all of those things, but also to make plans for the post-IDX world. Because it’s coming, as inexorably as the Greek debt crisis is coming. You’re gonna want to be ready.

Click here to view the embedded video.

-rsh

Related posts:

1. In Which I Clarify My Worries Over Syndication and IDX, And Connect The Dots
2. Move, ListHub, and Syndication Quality Assurance

The average denizen of the RE.net cybercafe — that includes you, since you’re reading this on a blog — knows that the hot topic du jour is syndication. I wrote about it here and here already, but frankly, have been talking about this issue for quite some time. And influential bloggers like Jay Thompson and Kris Berg have weighed in, and Facebook groups are all over this issue.

And I’ve gotten a couple of phone calls, a number of emails, and Facebook messages and such debating my one critical issue with me. I wrote that the issue here isn’t syndication, which is more or less dead in its current form, but IDX. And that one cannot be against syndication but for IDX. Jay Thompson agreed, while Kris Berg (to take but one example) disagreed.

So I’d like to explore this connection more, to clarify why the distinction between syndication and IDX does not, and cannot, hold. And what that then means for the future of the industry, by connecting a couple of dots.

Syndication vs. IDX

Because Kris Berg’s argument that syndication is different from IDX is an excellent one, and one that echoes most of the others who take the same position, I’ll focus on that (and repeat much of what I wrote in the comments to her post).

Kris writes that there are major differences between syndication to a third party and IDX:

On topic, I understand the similarities you point out between IDX and syndication, at least where the issue of who is taking the calls is concerned. Point noted. However, that is where the similarities end. Data is the IDX feed is not fraught with the same accuracy problems as TruZilia. So should we just send the IDX on over, problem solved? Of course not, at least not in my opinion. Further, one could argue (one being me) that an MLS member displaying IDX data on their site is far different than a third-party site repurposing that data for their own profit. OK, tomatoes, tomahtoes. But right or wrong, there is one reason IDX will never go away: VOWs. Take IDX away from the Brokers/agents, and you will still have IDX on every virtual office website. Think Redfin. So this is in that respect, I suppose, a “participant” issue.

As you are well aware, this is a complex issue with a lot of players affected. It is probably better argued broken down into chunks lest we get into circular arguments. However, and as a footnote, donning my self-serving hat for a minute, the biggest difference I see between IDX and TruZilia is the purpose for which the data is being used. Brokers and agents use IDX to further their own real estate business; the latter use the data to profit from our real estate business. So what? I think it’s a big distinction. By syndicating my listings, I am giving permission to these sites to auction off my business. It is the virtual equivalent of allowing an agent to slap their name rider on my yard sign and then having the sign company charge me to remove it. No sane agent would allow that, yet we seem to have no problem allowing it to occur online.

I distill the argument into three issues — break it down into chunks, as it were, like Kris suggested.

Data Accuracy

First, the argument is that syndication is fraught with inaccurate data, while IDX is accurate data. While people like Jay Thompson do point out that the MLS itself isn’t exactly the hallowed paragon of clean data, let’s take it as a given that syndication is inaccurate while IDX is accurate.

The trouble is, if the issue is one of data accuracy, the solution is simple: provide the IDX feed to syndicators. If the reason why brokers like ARG oppose syndication is because the data is inaccurate, then they would and should be agitating for syndication websites to be included in the accurate IDX feed… not to pull syndication from those websites. Of course, as we saw with Franchise IDX, the very idea of sending IDX feeds to a non-participant would result in instant rebellion by huge numbers of important brokerages. (And for good reason, by the way.)

Furthermore, the source for both feeds in many, many, many cases is the same: the MLS. As it stands, a number of syndication sites get their syndication feeds directly from the MLS, using the same data that is provided to the MLS by the brokerage. If you look through the debates about syndication for the past year or two, what you’ll notice is influential consultants like Victor Lund and Greg Larson telling brokers to look at where they syndicate their data to. What you’ll also notice is companies like ListHub fairly begging brokers to login to their control panels on the MLS and selecting the sites to which they want their data — their MLS data — sent.

A ton of problems arise from things like resyndication, and weak license terms that allow the publisher to do whatever the hell they feel like doing with the data once they get it. But the idea that the source feed for syndication is inaccurate, while the source for IDX feed is accurate, simply doesn’t bear out in the facts.

Also, it isn’t as if these third party portals are some new entity that just popped up in the last couple of years. It isn’t as if brokers and agents and consumers haven’t been complaining about overstatement of inventory, inaccurate data, and the like for at least a decade — from the very start of companies like Trulia and Zillow.

And finally, the “inaccurate data” argument always names Zillow and Trulia… and conveniently leaves out Realtor.com which gets its data via the NAR agreement… directly from the MLS. If the IDX feed, sourced from MLS data, is accurate… then so is Realtor.com.

As a result, I believe that the real reason to pull data from syndicators is not inaccurate data, but something else.

Purpose to Which Data Is Used, Or How You Make Money

Even if the data were accurate, Kris and others feel that it is a really significant difference how the recipient uses that data to make money. The problem isn’t data accuracy; the problem is that third parties are making money, charging brokers and agents, on the backs of the very brokers and agents who send them the data to make their business possible in the first place.

That there are abusive practices in the world of syndication is not debatable. Some publishers do some really horrific things with the data they get from the real estate industry. That brokers do not pay enough attention to things like Terms of Use is absolutely true.

But… the distinction between how a company makes money using property data strikes me as a difference without distinction.

Real estate agents are not putting IDX stats on their websites as a public service. They are doing it to generate buyer leads, which they will then either bring to the seller/listing agent and earn the buy-side commission on, or will put into their databases for longterm farming.

For that matter, everyone in the industry with a shred of awareness knows that there are “brokerage” companies out there, who are officially participants in the MLS, dues-paying members of the Association of REALTORS, whose entire business model is predicated on earning referral fees from other agents to whom they will ship the “lead” to. And that “lead” is generated from the IDX search sites, which some of these guys set up by the hundreds to capture every possible long-tail search term.

Does the fact that such referral-farms have a real estate license, are paying dues to the Association, and paying MLS fees make such a dramatic difference? I don’t see it.

From the listing broker standpoint, the object of putting the listing data out there either through syndication or through IDX isn’t to “help grow the real estate business of competitors”; it is to get buyer inquiries on the properties they are trying to sell for their seller clients. Does it really matter to them whether the buyer came through an agent who paid Zillow to get that buyer or through an agent who put the listing into IDX search on her website? I really, really, really doubt it. Do listing brokers even ask, “Hey, thanks for the interest in 123 Main Street… but, did you get this buyer off Zillow or off your IDX site?” I don’t think so.

Keep in mind that in the marketplace, these companies and agents are doing their level best to put each other out of business by out-competing. No listing agent or broker I know of goes into a listing presentation saying, “You know, I really ought not to take this listing, because I have enough; I think Joe over at Joe Realty should get this listing, since I know he’s hurting for business….” Not a single buyer agent takes a phone call from an interested prospect and tells him, “I’d love to work with you, but REMAX next door hasn’t had a great month, so I’d rather you go work with them instead.” No… every broker would want 100% market share if he could get it; every listing agent would want 100% of the listings if she could get it. Competition prevents that kind of monopoly, but that doesn’t mean brokers and agents stop competing with each other.

If the real reason why listing brokers hate syndication is that a non-licensee makes money from listing data… well, then they all ought to be opting out of RPR (to take but one example), all ought to be raising a huge stink about newspaper companies making money off their ads, and insisting that Zillow open up brokerage offices in various states to get a license and have a Broker-of-Record. [And should Zillow actually do such a thing, the resulting outcry would make this little brouhaha seem like a suburban dinner party by comparison.]

The purpose for which the data is being used is the same whether the company is ABC Realty or Trulia: make money. To say that it is somehow noble to further “their own real estate business” but evil to further an advertising business strikes me as a distinction worthy of Vatican monks arguing over how many angels could dance on the head of a pin.

IDX Will Never Go AWay Because of VOW

Kris points out that even if you think that syndication and IDX are the same thing, one can’t do anything about IDX because VOW (Virtual Office Websites) will always continue to exist. The Federal Government, via the DOJ, has said so. She is right, of course, but therein lies the real core of the syndication crisis.

What Jim Abbott — and quite a few of the anti-syndication folks — are upset about isn’t necessarily data accuracy, and it isn’t necessarily the distinction between licensee making money off the data or non-licensee making money off the data. It is in the large badge on his video: “Official Listing Agent”.

The real issue here is that the inquiry on the property goes to the wrong person. Jim Abbott spent quite a lot of time talking about the agent whose only qualification to discuss the property is that she bought some ad package from Zillow. The person who could best answer the buyer’s question, who knows the most about the property, is the listing agent. A close second would be an agent who works the same market, the same subdivision, the same property type as the listing agent — in other words, a direct competitor. A distant third would be an agent in the general proximity.

Read what Kris Berg herself wrote on this:

First we received an auto-generated response ensuring us that our inquiry had been sent to a “local area expert.” The “expert,” I’m sure, is a very fine company. It just happened to be one I had never heard of, with an office twenty miles away, and one who to my knowledge has never sold a home in this particular area. Next came another email informing us that an account had been set up for us on the referral agent’s website (“Our website has every listing in the San Diego area and it is updated daily”).

To be frank, this is a real problem. Imagine being the buyer who contacts the agent (whether on Zillow or on an IDX site) thinking she knows a thing or two about the property, only to find out that the agent has no frikkin clue of the town, the area, the property, nothing. Would your opinion of real estate agents be particularly high after that encounter? If the consumer never found out that the agent is unqualified to represent his interest in the purchase, is it likely that he will receive the level of service he could and should get from an agent who does know the area, does know the trends, does know the property in question? No.

And Kris is right that even if syndication got smacked down, and then IDX got killed off… brokers and agents would still have the VOW.

Here comes the connect-the-dots.

Geoffrey Lewis, Purpose of the MLS, and IDX

I have mentioned the 2006 Congressional testimony of Geoffrey Lewis from REMAX a few times on this blog. Let’s restate the whole quote:

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.

The VOW isn’t a problem at all, because in order to provide a VOW feed/access to the consumer, the broker has to establish a “client relationship” with the consumer. In most jurisdictions, that “client relationship” can be established simply by having the consumer provide an email address and registering with the broker’s website. But you still have to get that before you can open up the kimono and show the consumer listing data belonging to other brokers.

In direct contrast, the whole purpose of IDX is to enable “participants” to attract customers using the properties of their competitors. Of course, everyone has the same ability, so as long as you’re opting in to IDX, you can display the properties of your competitors as well, while they display your property.

Things break down here in two ways.

First, the “wrong person” problem exists. IDX is not confined by practice area, by qualifications, or any such thing. The broker 30 miles away who has never sold anything in your zip code can still display your listing to get a buyer inquiry. That problem with IDX is the exact same problem as exists with syndication sites.

Second, IDX works if everyone is contributing roughly the same number of listings to the pool of listings. It breaks down really quickly if only a minority of brokers and agents are contributing the vast majority of listings. And frankly, that is the way things are today.

I have it on good authority that ARG, the brokerage who started this current debate, has 25 agents and 41 listings in the Sandicor marketplace. I don’t know who the large players are in San Diego, but do know that Coldwell Banker Residential (NRT), First Team, and Prudential California are all major companies in California. Suppose for a moment that each of those three large companies contribute 20% of the listings into Sandicor: if the number is 10,000 or so, each one contributes some 2,000 listings into the pool. They may be fine with each other — give 2,000 listings, get 4,000 listings back to display on their respective sites — but are they really fine with ARG, contributing 41 listings and getting back 6,000?

Jim Abbott says in his video that Zillow, Trulia and Realtor.com “need our listings along with our costly professional photography, descriptive language, and virtual tours” to drive traffic to their sites. Couldn’t CB say the same about ARGSD.com? Without the thousands of listings, along with costly professional photography, descriptive language, and virtual tours created and paid for by CB, First Team, and PruCal, would ARG be able to drive as much traffic to its website as it does today?

As Jay Thompson has pointed out in the past, the answer is “Absolutely Not”. Jay has one of the top websites for Phoenix real estate. Without IDX, however, even Jay would have a tough time getting traffic and leads from his website. His business would be imperiled without IDX.

And while Jay isn’t a buyer-specialist who only deals with buyers, there are hundreds, if not thousands, of brokers and agents whose whole business is dependent on IDX to generate traffic and leads… without contributing a single listing back into the pool.

This is, to quote another popular industry saying, bringing a fork to a potluck.

Did You Know About REN?

So while the industry’s eyes are focused on the syndication debate… did you know that a major step that has direct implications on this whole syndication-IDX issue was taken earlier this month?

Here’s the announcement:

CAMPBELL, Calif., Jan. 11, 2012 /PRNewswire/ — ListHub, the largest syndicator of real estate listings, today announced the launch of the Real Estate Network (REN) to extend the syndication of property listings to highly trafficked websites operated by real estate franchisors and brokerage networks. ListHub’s Real Estate Network will be available at no charge and as a voluntary syndication option for brokers and Multiple Listing Services (MLSs). ListHub is operated by Move, Inc., (NASDAQ: MOVE), the leader in online real estate.

Century 21, Coldwell Banker, Realty Executives International, and RE/MAX are among the first publishers to join the network at launch. Together, these publisher websites attract 4.3 million unique visitors[1] each month. ListHub expects to add additional franchisor and broker network websites to the Real Estate Network in the near future.

Victor Lund of WAVGroup, in talking about REN, said, the rules are comparable to IDX and look pretty reasonable. As a matter of fact, they are comparable to IDX, and do look pretty reasonable. Yes, indeed they do.

They are so comparable and so reasonable, in fact, that I wonder what the motivation of Century 21, Coldwell Banker, Realty Executives, and RE/MAX brokers to continue participating in their local MLS’s IDX might be — especially once some of the other larger networks (such as LeadingRE, Realty Alliance, and the like) join up as well. These other large players are bringing substantial number of listings to the party; would the RE/MAX broker in San Diego (for example) really feel like they’re getting a whole lot more from the buyer brokerages and small independents in San Diego who bring a few listings and take thousands out?

Time will tell, I suppose, but what I know of human beings and how they are motivated suggests strongly that they will not continue to support the business model of their competitors without getting much in return.

The Big Question

The above is why I predicted that we’d be talking about the End of IDX by the end of 2012. Looks like I was too conservative in how quickly this would develop.

Some folks have developed the impression that I’m pro-syndication, and am criticizing Jim Abbott’s decision. Nothing could be further from the truth. I believe syndication needs to be controlled and reformed. Some of the most abusive practices have to be ended. I am, if anything, wholly sympathetic to Jim and the frustrations he felt to make the decision that he did.

But all of those things, to me, pale in comparison to the Big Issue, the Big Question. It is the same one posed by Geoffrey Lewis lo these many years ago.

Is the purpose of listing data, of the MLS itself, to help participants serve existing clients… or to help participants attract new clients?

On the resolution of that question hangs the future of real estate. And too many of the partisans on both sides of the syndication issue are simply not aware of the fundamental question at the heart of the syndication issue.

Your questions, thoughts, critiques, and such are — as always — welcome.

-rsh

Related posts:

1. Syndication: Here We Go
2. The Fly in the Syndication Ointment…
3. Extinction Event Horizon: Real Estate

Another brief update, before my day of continuous meetings begin….

Regarding my post yesterday on the syndication brouhaha brought on by Abbott Realty Group… first, you need to read Jay Thompson’s take on the subject. He takes longer to articulate the issue than I did, and I think more clearly than I have:

If you feel syndicators are harming consumers by making it difficult to contact listing agents, they you must, MUST, also keep  your listings out of IDX distribution. The exact same issue of not reaching the listing agent that seems to bother so many in syndication also exists in IDX.

Trust me, we get calls and emails – seven days a week – from people searching on this very site who think we are the listing agent for the property they are viewing. Every. Day.

Don’t get me wrong. I **LOVE** IDX. It’s the lifeblood of my prospect generation efforts. 6,742 IDX search registrations in 2011 is a great thing. But if one of your main arguments for pulling your listings out of syndication is because potential buyers are confused and can’t reach the listing agent, then you MUST also pull out of IDX. The same problem exists in both systems. You can’t have your cake and eat it too. Pulling out of syndication but using IDX smacks of hypocrisy.

The “syndication debate” will not end with smacking down TruZiltor. It will ultimately end up being a debate about buyer agency, the purpose of the MLS, the purpose of data-sharing. I’ve been predicting we’ll be doing that by NAR Annual in November. Maybe it’ll happen sooner than that.

I think that’s a wonderful, needed debate within the industry. Bring it on, I say, and sooner the better.

The Real McFly

But the real fly in the ointment, it occurs to me, is that the anti-syndication folks — who, by the way, are entirely justified in their frustration — are fighting over an exhausted oil well. Sure, there are a few barrels left in there, I suppose, but the big boys have already moved on to the next arena: mobile.

Consider that a mere ten years ago, Microsoft was the biggest, baddest kid on the block. Today, they’re an object of faintly scornful pity. The biggest rivalry in technology today is between Apple and Google… because of mobile. And Google pretty much owns the Internet. Doesn’t matter. The real battle is over who will control mobile and the apps that have become so important in that world.

I don’t have any privileged access to the data, but I’d bet dollars to donuts that the internal metrics over at Zillow, Trulia, and Realtor.com show that the traffic from their mobile apps are growing exponentially… at the expense of terrestrial web traffic. If any of their reps would care to confirm or deny, I’d welcome it.

So we could see a situation in the very near future that the brokers (and the MLS) will emerge victorious on the syndication front, pull all the listings from the aggregators, spend millions setting up awesome consumer facing websites, and find themselves well and truly screwed because all the traffic is going to mobile apps.

Sure, consumers will Google “San Diego real estate” and Sandicor will be the proud number one destination that comes up, and ARGSD.com will be a close second. Fantastic! Except that by that time, majority of consumers won’t be Googling anything of the sort. Instead, they’ll flip open their Kindle Fire or Apple iPad or Asus Eee Pad, and tap the Zillow App or Realtor.com App.

What now, brown cow?

Check Out Your AppStore…

Competing on Google for keyword dominance in a given location is a wholly different affair than competing for positioning in the AppStore. Doing a quick search for “real estate” in the Apple AppStore just now, I see the following in the Top Ten:

1. Realestate.co.nz (New Zealand — irrelevant to me)
2. Zillow.com
3. Realtor.com
4. Trulia
5. RE/MAX Hallmark (Canadian real estate company. Congratulations! But 1 and 1/2 star rating? Ouch)
6. Century 21
7. Loopnet (Commercial real estate)
8. Homes.com
9. Redfin
10. StreetEasy

HAR.com’s app comes in 13th, which is impressive nonetheless, but if I don’t live in Houston, that app is as relevant to me as the New Zealand real estate app. As an interesting aside, here are a couple of comments on the RE/MAX Hallmark app from users:

“My 5-year old can write a more functional app than this. This thing shouldn’t even be free. They need to pay us to waste time using this app. I would be ashamed if I allowed a business to publish an app like this with my name on it. Get it right guys….”

“I live in TN. Looking for a place in IN. Why do I care about what’s ONLY in Ontario? Dumb dumb dumb. Does not even deserve the 1 star I’m giving it.”

There’s no way you can get these people back to even give your app a shot again. In the App-driven world, you either get it right the first time, or you’re done.

So… here are my parting questions as food for thought…

The modern Internet was born sometime around 1996 with the introduction of Netscape. It is now 2012. There are still agent and broker websites that look as if they were designed in 1996, and have the functionality of something created by blind Bangladeshi web designers in a hurry. I personally know of MLS websites that won’t open in anything other than Internet Explorer… of a version Microsoft is about to discontinue supporting.

This is in an area of technology that is so mature that it’s going to join the AARP soon. What makes you think that real estate brokers, MLS’s, franchises and the vendors who work for them could go head to head with the Silicon Valley boys and girls of Realtor, Zillow, Trulia, or <Insert Name Here>-dot-com in the new and developing world of mobile technology and app development?

More importantly, because fact is that there are brilliant people in our industry, if we wanted to compete with actual technology companies… what would such an effort cost? Who could bear such a cost, and how?

What now, brown cow?

-rsh

Related posts:

1. Seven Predictions for 2012, The Techno Edition
2. Syndication: Here We Go

Easy Is Not Simple

I would write a review of my week in New York City at the Inman Connect conference… except that I was in meetings pretty much all day long, and missed all but one session. I’ll direct you instead to people like Sean Carpenter for a recap.

But I did have a great series of #lobbycon sessions with new friends and old, typically over cocktails, and sometimes on street corners. That made me have one of those “a-ha” moments, which is either a flash of insight or complete idiocy. I figured you guys could tell me which it is.

Simple. Easy. The two are not the same thing. In fact, I think I could make a pretty strong argument that they are actually opposites of each other. That which is simple is rarely easy, and that which is easy is rarely simple.

I had the feeling last week that within real estate, all of the conversation, all of the energy, all of the innovation (to the extent that such is innovative at all) is around Easy. We rarely, if ever, talk about that which is Simple. Because for whatever reason, the Simple is hopelessly unrealistic in our industry.

Allow me to explain by way of introducing a new concept: The Starbucks Index.

The Starbucks Index

This is a concept born of conversations on the streetcorner, after cocktails, with Matthew Shadbolt and Jeffrey Kershner. It is a way of evaluating technology, tools, apps, and techniques. It consists of a single question:

Does this technology/tool/app make me more money than my hanging out at Starbucks for an equivalent amount of time?

If the answer is No, then you should stop using it/doing it. If the answer is Yes, then by all means, you should use it/do it more.

Each individual agent will have a different Starbucks Index, because people are unique, and some personalities work better for the “hang out at Starbucks and talk to random people” than others do. So my thought is that an agent should spend 100 hours over the course of a month or so simply hanging out at Starbucks, going about her daily business, perhaps wearing the REALTOR pin, maybe with a big sign taped to the lid of her laptop, whatever. Then see if that hanging out at Starbucks results in any production. Maybe you struck up a conversation with someone, who turned out to have a friend looking to sell. Maybe you met someone visiting town and thinking about relocating. Whatever it is, track all your production from any contacts and meetings resulting from hanging out at Starbucks. Divide by 100, and you get your Dollars Per Hour at Starbucks number, or your Starbucks Index.

Any new app, new technology, new anything should beat this Starbucks Index. If 100 hours of blogging, to take an example, results in less money per hour than hanging out at Starbucks, you should stop blogging and start hanging out at Starbucks more. If 100 hours spent on developing a mobile app results in Starbucks Index + 30, then you should develop more mobile apps.

Of course, there is the financial metric as well: price of the technology/app vs. price of multiple venti latte’s over 100 hours of hanging out at Starbucks.

Simplicity

What I realized with that semi-tongue in cheek index is that it’s funny because it illustrates the tension between the Simple and the Easy. As we have heard time and again — and verified at Hear It Direct Charleston — is that real estate still remains a business of referrals and social contacts. With the (in)frequency of transactions by repeat customers, the real estate agent has to meet new people somehow to stay in business.

Well, the Simple way of meeting new people is to go where new people are — like a Starbucks. And then to actually engage in conversation, shake hands, whatever and meet new people. That’s the Simple answer: go meet new people.

But it is far from the Easy answer. It isn’t easy to put yourself into new, potentially awkward social situations. It isn’t easy to approach strangers and engage them in conversation (ask any guy who’s tried to pick up a girl at a bar). It isn’t easy to face potential rejection… at all.

There are other Simple strategies for real estate, right? Going door to door, knocking on them like a traveling salesman, and asking for business is Simple — but that’s hardly Easy. Making cold calls is Simple, but it isn’t Easy.

So naturally, because we’re all human, we all look for an Easy solution. Advertise on billboards, because it is Easier to take incoming calls than to make outgoing calls. Setup fantastic real estate websites, because it is Easier to get found on Google and convert web leads than it is to send out postcards to thousands of homeowners.

At the end of the day, it doesn’t much matter what strategy one uses to generate business, as long as it does. The trap is, however, that sometimes, the best answer, the best strategy is the Simple one, but it isn’t Easy. And the natural human desire to avoid doing difficult things leads to perdition.

Easy Is Complex

I am struck more and more by how complex Easy actually is. I’m writing this post on a Mac laptop, and Apple has built one of the largest companies in the world on Easy. (And beauty, but that’s another topic.)  The computer mouse and the graphical user interface are complete breakthroughs, and the history of how Steve Jobs “stole” the idea from Xerox PARC has been well documented.

But consider just how much work, how much design, how much technology goes into making it Easy for me to interact with my computer. Consider this WordPress platform that makes it so Easy for me to write posts. I remember writing “posts” on the early Internet using vi over telnet using raw HTML. This, by comparison, is a piece of cake. But the work of the programmers, the designers, and the engineers behind WordPress makes this work Easy.

Doing the Easy thing, then, means engaging with enormous complex systems. It is Easy to put a listing into the MLS, and have it appear like magic on your IDX search; but if you pause and consider just how many people work day and night to make that Easy thing possible, you realize that you are part of a complex system with many, many players in it.

One result is that in trying to make things Easier, one gets sucked into the complexity that makes the Easy possible. How many real estate agents went through courses, webinars, bought books on, worked with designers, hired programmers, and learned bits of computer science… to be able to put up a blog about their local real estate market? The purpose of that blog is to make it Easier to stay top of mind of consumers in that market.

The Simple solution to achieve the same goal might have been, perhaps, hanging out at Starbucks, or hosting seminars at the office, or throwing a series of luncheons with local residents. But all of those are more difficult to do than to write a blogpost, and depending on one’s personality/social sphere/etc., less effective than blogging.

Nonetheless, what struck me was how people had to learn and become part of an enormous complex system in order to do the Easy thing; and arguably, in many cases, they become distracted from the effective, Simple, yet difficult things that have been proven to work time and again.

A Simple Love…

The point, if there is one, is that in our natural quest to be more efficient, to do less work, we seek out the Easy solutions. But sometimes, it is the Simple solution that you want, not the Easy solution that sucks you into a world of complexity that is far outside your core competence.

And what is Simple and what is Easy are different for each individual. Hence the notion of the Starbucks Index being different for each person. Which means that the tools that make your life Easy may not be the same tools that make my life Easy. And what is Simple to me may be anything but Simple to you.

In closing… listen to Alison Krauss, the greatest living American musician, sing about A Simple Love… and consider just how hard it is to get that simple a love, and how much work it takes to keep it:

Click here to view the embedded video.

No related posts.

Continuing the tradition that started when the earth was young (or last year… depending on your definition of “time”), I’d like to present this year’s version of “Predictions Guaranteed to be Wrong, Or Your Money Back”! As we saw in the report card post, last year, I went 4.5 for 7 in predictions. I hope to bat lower for this year’s predictions. Of course, I can guarantee 0 for 7 by making ridiculous predictions, like “The Jets will win the SuperBowl”.

Without further ado, the predictions for 2012…

Click here to view the embedded video.

1. The Decline Continues

There may be people who believe that it’s just a matter of time before the real estate market comes back strong, and that 2012 is the year. All that pent-up demand! All those Gen-Y kids getting married and needing starter homes! Sadly, I’m not one of those people, although I sure would like to be.

There’s too much chaos in macroeconomic trends to predict what could happen. The best case scenario has some sort of black swan event that dramatically improves employment, willingness of banks to lend, and so on. The worst case scenario — far more likely, so let’s call it a “grey swan” event — leads to global financial collapse… and I rather doubt we’ll be worried that much about industry issues if that happens. We’ll all be worrying more about finding food and fending off bandits.

So the middle-of-the-road boring prediction is that we will see neither dramatic collapse nor dramatic improvement in 2012. Instead, we’ll continue the slow and steady decline that has been the story over the past couple of years. This is particularly likely because 2012 is not only a presidential election year, but one that has been billed as “the most important election ever” by most of the commentariat. Once the GOP primary is over, I expect both candidates to propose nothing dramatic and do nothing shocking that could upset the markets. Sure, we’ll get minor policy statements from both the GOP candidate and from Obama, but it seems rather unlikely that we would see Fannie/Freddie shut down, or really significant QRM regulation promulgated, or the mortgage interest deduction eliminated. Not in 2012, not with the political situation the way it is.

Last year, I worried about possible systemic risk from foreclosuregate. That risk hasn’t disappeared entirely, but it went dormant throughout 2011 as more and more institutions reached settlements to avoid upsetting the entire apple cart, and the small lawsuits are making their way through the legal system. In 2011, the Supreme Court denied cert on a CA case involving MERS; a decision there could have been dramatic, but we soldier on without clear legal guidance for now.

But the “middle-of-the-road” doesn’t look as trouble-free as 2011 did, in retrospect. Europe is really, really, and I mean, really heating up. In case you’ve been living under a rock, or resolutely refusing to hear any news, there is a financial crisis in Europe that threatens the global economy. It isn’t just the poor cousins like Greece, Portugal, and Spain that are facing crises anymore; now we’re talking about Italy, Belgium, and France.

The reason why we should care, of course, is that most large banks — including nominally American banks like JP Morgan Chase, Bank of America, Citibank, etc. — have exposure to European debt crises in various ways. First, they might own some Italian sovereign bonds, which might default. More likely, however, they are sure to have counterparties, investors, depositors, borrowers, etc. who are European financial institutions. If they go belly-up, then American banks will not remain unscathed. If you really want to scare yourself, spend some time on the Zero Hedge blog enjoying some “doom-porn” as they call themselves.

The impact on real estate is obvious: the private mortgage market cannot recover if Europe gets any worse. Without available financing, fewer people will buy homes. Even the foreclosures and short sales can’t be moved if there are no funding sources. Furthermore, banks will turn off credit to companies because they themselves have to preserve capital to survive; that in turn means layoffs, rising unemployment and so on down the awful cascade road.

The hope today is that the smart guys in NY, DC, Brussels, and elsewhere could somehow manage the decline, reassure the markets, and keep things lurching along for a while. We’ll see if that effort is successful in 2012. My guess is that it will be moderately successful, preventing all-out panic and bank runs, but that we’ll continue to see banks being very skittish, economic growth being sluggish, unemployment not improving at all, and general malaise throughout 2012.

One possible bright spot for real estate in 2012 is that investor activity could be very high, since the global economic crisis is financial in nature: meaning, keeping money in the bank is a dangerous thing if you’re really, truly, stupendously rich. Sure, you can stock up on gold and silver as a hedge, but at some point, you’re going to want to look at putting some money into income-producing real estate. If I were a German millionaire, I know I’d want to look at some apartment complexes in high-growth places in the United States… like Houston.

Relatedly, I think we’ll see an all-time high in rental activity in 2012. The real estate company that figures out how to do rentals profitably stands to reap the whirlwind in 2012.

Click here to view the embedded video.

2. The Start of the End for IDX

Note that I am not predicting that IDX itself will go away in 2012. I am predicting that 2012 is the year when the conversation turns to whether IDX is necessary at all.

Most industry data people know that the issue of 2012 will be listing syndication. Edina Realty’s move to pull listings out of syndication was just the first; most people expect to see a wave of brokerages pulling listings from syndication, to replace it with something they can control far more effectively. I suspect that the major franchises have to be laying the groundwork to do the same. It makes little sense for Coldwell Banker or REMAX to continue to spend tens of millions of dollars on their corporate websites to then have all of its franchisees help the portals beat the pants off of them. If the name of the game is consumer attention, then everybody is in competition with everybody else. The third party portals are the first up on the data-based competition.

I don’t believe that is where things will end. Most people think I’m nuts, so I’m more than happy to be wrong on this prediction. But logic has its own force that might take some time to develop, but develop it will. I think the timeframe is towards the second half of the year.

The essential struggle is not “who should control the data” and so on. Those are actually surface symptoms of the underlying question, which goes to the heart of American real estate: “Why should I make my data available to you?”

I keep going back to this testimony by Geoffrey Lewis of REMAX during the 2006 Congressional hearings, but I think it’s 100% the issue in real estate today:

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.

Lewis was testifying about the MLS, but you can easily replace the word “MLS” with “listing data” and you have pretty much the hot and heavy issue of today. More and more brokers are uncomfortable with syndication, because it allows other agents and brokers to use listing data to attract customers. The whole raison d’etre of a third party portal — all of them describe themselves as media companies — is to generate traffic and leads. And abuses and mistakes and bad policies in the syndication world led to what we see today.

However, the logic of “you earn a customer, you get to use my listing data with the customer” applies with exact same force to IDX, a policy that has been the source of so much drama over the past few years. I know I’ve begun hearing some opinions from strong listing brokerages that just like the portals bring a fork to a potluck, so do the buyer brokerages who do nothing but use IDX to rank high in Google and bring precious few listings to the table.

I expect that by November, at next year’s NAR Annual, we’ll start to see a small movement away from IDX at least in some markets where certain brokers have market power.

Click here to view the embedded video.

 3. Mobile Finally Arrives, At Last

I know mobile has been one of the hot topics in real estate for a few years now. And I’ve always been a bit of a skeptic, despite the fact that mobile makes all sorts of sense for real estate, because of the issue of battery life. Two years ago, I wrote that 2010 will not be the year of the mobile based primarily on issue of battery life. I still don’t believe that mobile phones will be the dominant technology for real estate consumers.

So why is 2012 the year when mobile arrives? Because of tablets. The iPad’s success can hardly be doubted, and with the larger device, battery life is no longer a major concern. Furthermore, because a tablet is not a mobile phone, there isn’t the same incentive to preserve battery life. Nonetheless, the iPad and its competitors remain high-end luxury goods for people with money. Even the base non-3G iPad ends up costing north of $700 when it’s all said and done. The 3G models can easily reach $1000 with accessories and such. The competition, like Samsung Galaxy, Motorola Xoom, the Blackberry Playbook, was not exactly setting the world on fire.

Then Amazon releases the Kindle Fire. It is priced to be affordable for most consumers, and only Amazon has the content ecosystem to compete with Apple’s iTunes universe. Both Amazon and Apple are big players in Cloud infrastructure that is a natural add-on to mobile computing platforms. I do know from some friends that Amazon has big plans for mobile, and I suspect further that Apple won’t just lie down and take it; they will come out with new products and services to compete. This is not to mention all the other companies and software developers who will be getting into the game.

All that competition implies that consumers will have a wide variety of platforms at different price points to get into mobile computing. And battery life will not be as big an issue, as most tablet devices boast 8+ hours of battery life, and that big battery is meant to be used for mobile computing, not for taking and making phone calls.

Oh yeah, and 4G rollout continued throughout 2011, and will continue in 2012. Wifi-class bandwidth over the airwaves is transformative, and more and more consumers will have tablets connected to 4G networks. Just a matter of time.

Furthermore, at the HearItDirect Charleston event (video footage coming soon, I promise, as we’re still editing more than 8 hours of video), I asked the consumer panelists about mobile, and heard some amazing things. One of them was the fact that unlike web search, consumers looked at every single real estate app in the AppStore. In a couple of cases, they downloaded them, tried them out for a while, then deleted them if the app didn’t meet their needs. I asked them specifically, “So if a brokerage or an agent had an app, you’d have found it and used it?” and the answer was unanimously, “Yes.”

That’s amazing. Considering the difficulty and the SEO gamesmanship that goes on for a website to be found in Google, mobile apps will be the Blue Ocean strategy for 2012. Yes, eventually, the space will get so crowded that the impact will be less. But at least in 2012, I see major gains for companies that develop and launch mobile apps.

Click here to view the embedded video.

4. Broker-centric Models go Mainstream

I believe that 2012 is the year when we see broker-centric models start to go mainstream. A combination of factors is making the current agent-centric model, born of the RE/MAX revolution of the late 70′s, less and less viable. Most of those factors are items regular readers of Notorious ROB have already seen here:

• Terrible real estate market leads to the growing gap between the Haves and the Have-Nots in real estate — the middle is disappearing, and that’s where conventional brokerages make their money.
• Technology continues to become more and more important, yet the cost to compete in technology continues to rise (for example, consider #3 above about mobile: app development is likely beyond the reach of most small brokers and individual agents).
• Agent teams are growing in popularity and importance, but those are nothing more than proto-brokerages without the legal liability; crucially, however, an agent team is the broker-centric model of real estate.

The battle over data syndication (and the soon to be coming battle over IDX) is at its surface about data. At the core, it’s about who should be at the center of the real estate industry: the broker, or someone else. For decades, the answer was, “someone else” — the agent, the portals, the franchises, the MLS, the vendors… anybody but the broker, who focused on recruiting.

For the past couple of years, we’ve seen the counter-movement to that agent-centric model. The poster child for the movement is  Krisstina Wise of the GoodLife Team, who is very active in writing about and speaking about the broker-centric model of her company. But for whatever reason, GoodLife Team remains very much a small boutique — it is, as a matter of fact, an agent team that became a brokerage, thereby proving my point about teams = proto-brokerage.

I believe that 2012 will see the first mainstreaming of the broker-centric model. I think it is quite likely that one of the companies active in the syndication/IDX debates — a HomeServices of America company perhaps, or someone like Shorewest, or a Leading RE company — will be the first to really implement a broker-centric strategy. Such a company is likely to have dominant market share to try it, but upon trying it, they will find that they do not lose market share, do not lose agents to competitors, but increase their profitability and ultimately gain market share by leveraging superior capabilities in technology and by managing consumer relationships centrally with a strong brand.

That is when broker-centric models go mainstream. And I believe it happens in 2012. It is unlikely to be reported widely when it does happen, since it will be implemented incrementally, step by step. But happen it will.

Click here to view the embedded video.

 5. Keller Williams Overtakes Coldwell Banker for Top Spot

It seems contrary to prediction #3 above, but I think there’s a decent chance that Keller Williams will overtake Coldwell Banker for the top spot as the largest real estate company (i.e., franchise) in the United States.

In 2011, we saw Keller Williams overtake Century 21 to become the second largest company. Only two years earlier, in 2009, Keller Williams surpassed RE/MAX to become the third largest. On that timeline, 2013 is probably the more likely year for the KW dominance, but I think there’s a decent chance of it happening in 2012.

Big part of the reason is that Coldwell Banker continues to shrink. In 2007, Old Blue boasted 120,000 affiliated agents; in 2011, Coldwell Banker talks about having “more than 86,000 sales associates and brokers“. (Note that in 2007, Century 21 had 144,000 agents, while KW had 74,000.) KW isn’t growing explosively: in 2009, when it took over third place, it had 73,000 agents, which is fewer than it had in 2007. In 2011, it has some 77,000 agents (almost 80K counting Canada, which Coldwell Banker surely does). But it is growing, while the others are shrinking.

Big part of the success of KW, I believe, is related to the success and popularity of agent teams. Of all of the companies in real estate today, KW understands and supports agent teams the most. Its operations, its technology platforms, its training courses, quite a lot of its activities in fact, are built around agent teams. In a sense, KW is a franchise of franchises — each of its brokerages (or “market centers” in KW lingo) is effectively a franchisor with a bunch of proto-brokerages underneath it.

As the bad market continues, the highly profitable and successful agent teams continue to accelerate their growth… at the expense of somebody. And market share and success beget market share and success, and so the snowball keeps rolling downhill.

It is a bit of an out-on-a-limb prediction, but it seems to me that if the trend continues, KW should gain a bit, while Coldwell Banker will lose a bit. Supposing KW gains 4% and CB loses 4%, at the end of 2012, we should have KW with about 83,000 agents and CB with about 82,500. There’s a decent chance that KW ends the year as the largest real estate company.

Click here to view the embedded video.

 6. Watson Makes an Entrance

I wrote about Watson in 2011; I think this might be one of the most significant technologies in years. And I believe that we will see Watson implemented, in some way, in real estate by the end of 2012.

The issue is money. Watson technology is brand new, and it took IBM years and years of work, and tens if not hundreds of millions of dollars to develop. IBM isn’t likely to be giving it away for chump change. Then there’s the matter of programming Watson so it works, which means feeding it terabytes upon terabytes of data. Deploying Watson, then, is likely to be a bet-your-company strategic decision costing in the tens of millions of dollars, and thousands of engineering/programming manhours. So who in the real estate industry has that kind of cash laying around, technical talent, and access to terabytes upon terabytes of data?

My bet is on Zillow, flush with its IPO cash, and a business model that doesn’t really rely upon political approval from REALTOR organizations. But I wouldn’t count out other big organizations with money: Move, Inc., Trulia, and possibly one of the major companies (Realogy? KW?) and/or NAR via the RPR subsidiary. A possibility is a MLS like MRIS or HAR that has the mandate to compete head-to-head with the portals for consumer traffic. And an outside possibility is a company like Redfin.

And a major question will be whether the Real Estate Watson will be consumer-facing or professional-facing: will it be deployed more as a “customer service” type of machine that answers consumer questions directly, or an expert system designed to provide quick answers to professionals (i.e., affiliates of major franchises, subscribers to a MLS, etc.)? If we are fortunate, we might see both varieties, to see which one will ultimately win out in the next few years.

Click here to view the embedded video.

 7. The MLS Transforms

All of the above should work towards the beginning of a transformation in the MLS: the backbone of the residential real estate industry. I believe we start to see it take root in 2012.

The broker-centric models that are the future of the industry require substantially more in technology investment than we have seen in the past decade or so. One of the things that the Internet era brought to businesses everywhere was lowering the cost of communication, particularly mass communication. Indeed, if we think back to the birth of the RE.net, one of the promises that the third party portals brought to the industry was to save on advertising costs over the then-dominant model of newspaper advertising. As the Web advanced, and brought with it things like blogs, social media, and Twitter, the cost of advertising and lead generation technology continued to drop. Back in the beginning, even the simplest website might have cost tens of thousands of dollars; today, you can buy one for $9.99 a month from any variety of website vendors.

The next wave of technology does not appear to be heading in that direction. If anything, the cost of entry is getting higher and higher, rather than lower and lower, because market power is becoming more and more concentrated. Making a website on the open World Wide Web was and is a simple matter. Making an iPad app in the closed Apple ecosystem is a different proposition, and dealing with the complexity of competing platforms (Apple, Android, and who-knows-what-else) is different still. And the cost of entry into the AI/expert systems space will make all of those costs pale in comparison.

Once, the MLS was created because computers were expensive. A single brokerage couldn’t really justify the cost involved in setting up a server room. As the cost of technology dropped, and performance rose, the need to have a MLS as a way to pool resources for technology decreased. I believe all that is about to change. We are going back into a tech cycle where doing things on the cheap won’t cut it anymore, at least not if a company wants to become a broker-centric operation.

The Web will not be the primary space for competition for consumer traffic and customer loyalty; mobile will be. And competing with Zillow for local SEO is one thing; competing with Zillow on the AppStore is a different proposition. There will be a few brokers who can afford to do so; everyone else will need to look elsewhere. And I think they’ll look increasingly at the MLS. It is the logical vehicle.

The issue that stands in the way, of course, and the debate and discussion that will begin in earnest in 2012, is MLS governance. Who will make the rules? Who will make policy, set priorities, and investment decisions? Who will, in short, control the MLS? Today, most MLS are Association-owned, and follow the rules of NAR. The Franchise IDX issue raised the possibility that at least some brokers don’t care for the status quo; the upcoming syndication fight will tell us all much about who will make policy in the end.

However it all shakes out, the role of the MLS will begin to transform once again. In the past ten years, we have seen the MLS go from an exchange for members, into a data repository for pass-thru to the Internet in various ways. What’s next for the MLS? And how many can make that transition before it’s too late?

Click here to view the embedded video.

Happy New Year!

If you’ve reached this point, it means you actually read through some 3700 words. Hey, I got nothing but love for you, the few readers who actually read this blog, instead of just the headlines. You are the few, the bored, the Notorines.

Remember, all predictions guaranteed wrong, or your money back! We’ll revisit this post at the end of the year for the grading session.

Happy 2012 everybody. May it be your most prosperous year ever, filled with hope, faith, and love.

-rsh

Related posts:

1. Seven Predictions for 2011, With Music Videos!
2. On Google’s Latest Real Estate Foray: Implications & Speculations
3. Have You Seen Me? The Role of the Broker in Contemporary Real Estate

In 2009, I batted .600 in predictions for 2010.  And I thought that was fun. It’s one thing to make predictions; it’s another to look back and see how those predictions fared.

How did I do last year in predicting events of 2011? I was hoping to be maybe 1 out of 7, since most of my predictions last year were of the doom-n-gloom variety. Sadly, I think I’m 4.5 out of 7 for a .642 batting average. Hall of Fame (Infamy?), here I come.

We’ll review my take on the predictions for 2011 after the jump.

1. The Beginning of the End of the Homeownership Society – NO

The trend towards government policy pullback from homeownership remains, but thankfully, we did not see the kind of pullback I was predicting. In fact, Congress acted to keep up support for housing by raising the FHA loan limits in November.

A lot of the news-making that happened in 2011 — the proposal by Treasury and HUD to eliminate Fannie/Freddie, the QRM regulations, the threatened end of the mortgage interest deduction — simply fizzled out in the latter half of the year. That isn’t to say those proposals are dead. But the dysfunction in Washington DC in the grips of an election season meant that nobody was willing to take bold steps backwards or forwards. So status quo it is, at least for another year.

2. Mass Confusion in Real Estate Finance – NO

Once again, thankfully, I was wrong on this prediction. The seeds of confusion and discontent have been sown, and there are lawsuits in various courts making their way through the system, but at least in 2011, we didn’t see an implosion in housing finance of the sort I was worried about. The infamous company MERS at the heart of the crisis withdrew from the foreclosure business in 2011. The institutional lawsuits I was worried about have not blown up; instead, it looks as if the big banks and investors are settling things amongst themselves. We’re not out of the woods (and likely won’t be without a Supreme Court decision), but at least 2011 wasn’t the year.

3. Double Dip in Housing – YES

Unfortunately, I have to say I was right on this one. CNN Money reported on a “double dip in housing” in the summer of 2011. Then we had the most recent report about housing prices sliding in November:

However, worse than expected sales of existing homes also pointed to sluggish housing market recovery. Existing-home sales for November rose 4% to a seasonally adjusted annual rate of 4.42 million units from 4.25 million in October, according to the National Association of Realtors. The reported figure for November was a disappointment given that October sales were downwardly revised from 4.97 million to 4.25 million units.

The average house price in the United States at the end of 2011 is the lowest it has been since 2003. I don’t know what else to call these numbers but a double dip in housing.

4. The Age of Less Will Arrive – SORTA

I think I’m giving myself half a point here. The fullblown Age of Less did not arrive in 2011 — once again, thanks be to God/Zeus/Gaea/deity of your choice here — in large part because predictions #1 and #2 did not come true. We did not see the sort of mass exodus from the real estate industry of brokers and agents.

On the other hand, the industry is continuing to shrink. NAR’s Monthly Membership Report shows that in November of 2010, there were 1.08 million members of NAR; in November of 2011, that number is 1.02 million. It’s another 5.4% drop year over year, as some 50,000 REALTORS either (a) left the Association or (b) left the industry altogether.

Anecdotal reports from various vendors who sell to the real estate industry is that it is getting harder and harder to get realtors to spend money. Many simply can’t afford it; others are taking a wait-and-see approach. Conference attendance numbers are down as well. It isn’t hard evidence, but there you have it.

Either way, based on a 5% drop, I’m giving myself half a point here.

5. The Real Estate Industry Will Fail To React – YES

Here’s what I wrote back in 2010:

Unfortunately, on the whole, I think the real estate industry will fail to react to the Age of Less. There will be exceptions, of course. But I fear that the vast majority of companies, brokers, agents, Associations, MLS, tech vendors, and others will spend an inordinate amount of time and energy rearranging deck chairs on the Titanic. There will be much effort spent focusing on ancillary issues like agent ratings, franchise IDX, the DotMLS domain, QR Codes and so on while the entire infrastructure of contemporary real estate crumbles around them.

You tell me how I got this one wrong.

6. Return of the Broker – YES

A heartening sign is that this prediction appears to have come true in 2011. Brokers large and small are starting to react to changed business realities by reasserting themselves. Two most obvious examples are the Franchise IDX issue and the recent efforts by brokers to regain control over their listing data. Edina Realty’s decision to pull listings off syndication made waves, but that’s just the tip of the iceberg. MRIS, the nation’s second largest MLS, recently put up a guest blogpost from Jon Coile, the President & CEO of Champion Realty. The money grafs:

As their business models matured and our “partners” experienced pressure to create new revenue streams, many of these same companies started quietly selling the right to be positioned on a property results page as “the agent,” as in, “contact the agent for more information on this listing.” The only problem is, “the agent” that these aggregators put forward as an expert doesn’t necessarily know anything about the property, the neighborhood or the community. They are merely agents who have bought the rights to receive a percentage of all listing inquiries for a particular zip code.

…

That erosion of data oversight and accuracy  – plus the variety of methods of inserting other agents on our listings as “the agent” – is why you are now hearing about agents and brokers making the move to remove their listing inventory from the national aggregators. [Emphasis mine]

Actually, it goes beyond that simply because of that “…and brokers”. Why brokers? Under the old model of brokerage — that of warehousing as many agents as possible — why would a broker care all that much? He didn’t for ten years. Why now? Plus, we should have heard a far louder outcry from the actual listing agents themselves; we have not. If anything, the wide disparity of opinion on the wisdom of syndication amongst the agent population suggests that there is nothing like consensus there. So what’s this all about?

To me, the answer is that the broker is reasserting himself. We’ll see how this plays out in 2012, but it happened in 2011.

7. No Groundbreaking New Technology – YES

Yeah…

Nuff said? Feel free to name a single groundbreaking technology from 2011. Coz I can’t.

Forward, Into 2012

I’m working on my predictions for 2012, along with music videos, of course. Feel free to send suggestions my way ( works) or post them in the comments. As always, your thoughts and comments are welcome.

Thanks!

-rsh

Related posts:

1. Seven Predictions for 2011, With Music Videos!
2. Quick: The Prezi From My NRG/HAR Talk Today

Say hello to Watson

Over on Facebook, in one of the real estate discussion groups I’m involved with, Loren Sanders posted the following:

I saw a documentary called “The Pit” about floor traders on the New York Board of Trade. It shows before and after they were bought out by an electronic trading company ICE. It is not an exact parallel to real estate but it shows clearly that progress waits for no one and no one (or company) is bigger than than market. That is my long winded lead in to: What are you doing now so your service will be relevant 2 years from now?

That sparked a bunch of discussion. The trailer for The Pit, by the way is here:

Click here to view the embedded video.

The movie is about the impact of technology on the Wall Street traders in the actual trading pits. Loren raises a really interesting question.

As it happens, I just contributed a chapter to Stefan Swanepoel’s upcoming report, speculating on the state of real estate in 2022. I’d call it science fiction, since ten years might as well be fifty years for trying to see where technology is headed. But I did find something while researching and thinking about that which is worth thinking about more.

Because of space limitations in print format, I couldn’t really get into all of the detail I’ve been thinking about. So I figured I’d think out loud here with you all.

A Little Bit About Watson

What most people know about Watson is that it played Jeopardy against human opponents. “Hey, how cute! A computer that plays Jeopardy!” is likely the extent of the average person’s reaction to Watson. But why would IBM spend tens if not hundreds of millions of dollars, and five to six years of time, using some of its best computer scientists and engineers… just to play a game show?

The answer is that Watson represents a breakthrough in how human beings interact with computers:

Watson’s ability to understand the meaning and context of human language, and rapidly process information to find precise answers to complex questions, holds enormous potential to transform how computers help people accomplish tasks in business and their personal lives. Watson will enable people to rapidly find specific answers to complex questions. The technology could be applied in areas such as healthcare, for accurately diagnosing patients, to improve online self-service help desks, to provide tourists and citizens with specific information regarding cities, prompt customer support via phone, and much more. [Emphasis mine]

So what is this Watson thing anyhow?

Well, it’s a supercomputer comprised of 90 servers with 2,880 processor cores, running IBM’s proprietary DeepQA software. That computing power is married to a very large and very fast storage system that holds the equivalent of a million books. And IBM claims to have spent years feeding mountains of information into Watson’s database.

Right now, you’re thinking — as I did — um, so what? It’s a big computer tied to a big database. Well, check out what the IBM people think Watson will be able to do.

Click here to view the embedded video.

So, Watson will be able to sift through thousands, millions of facts to help a doctor diagnose the specific symptoms of a specific person. It will be able to answer questions and provide confidence scores, and the reasons for why Watson believes that the answer is the right one. Watson will be able to digest, remember, and process more facts, more information, and more data than any human being possibly could.

Then there’s this:

Click here to view the embedded video.

“Watson would change the business model of how call centers are set up.”

The reason is that Watson is the first question answering computer. The current technology is limited to pointing humans to documents, websites, and places where the answer might reside. Think of Google. You go on Google and ask it, “What’s the best flatscreen TV for under $1000?” and you get a whole list of links back. You don’t actually get the answer from Google. Or Bing. Or any search engine, even those on a retailer’s website. You get a list of webpages, documents, or whatever with the right keywords and you get to figure out if that answers your question.

More often than not, those webpages and documents do not answer the question. Hence, the frustration of using Google to find a specific answer to a specific question, and the related human skill known as “Google-Fu”.

Let’s Think About Real Estate For A Moment Here

With Watson in mind, let’s think about real estate. What is it that a broker or agent actually does day to day? As I see it, most of what a realtor does is answer questions. Managing the transaction itself — meaning, filling out paperwork, and managing the workflow — is such a minor part of the practice of real estate that most successful agents have transaction assistants who would handle all or most of that work.

If a realtor is working with a seller, she has to answer questions on pricing, on market trends, buyer preferences, on what marketing strategies would be most effective, whether to drop the price and if so, by how much, etc. etc.

If she is working with a buyer, she might be asked about neighborhoods, schools, local market trends, and specific properties — “How big is the backyard on that colonial we looked at on Friday?” Based on what I heard from the Charleston HearItDirect event, some buyers really want to know about their potential neighbors: what are they like, will I fit in, is it a strong community or one where people don’t talk to their neighbors, etc. etc. One consumer actually said that the job of a realtor is to build communities, not just to sell houses. The Fair Housing Administration might have an opinion on that, but he has a point. Maybe she has to handle questions about what the HOA rules are, what the taxes are, about local zoning regulations, any environmental hazards, soil composition… who the hell knows the infinite variety of things that a buyer might want to know?

A major shift in the post-Internet era has been the ability of consumers to get the answers to some, though by no means all, of their questions from the Web. The “data is everywhere” meme may or may not hold true in the future, but there is no denying that more and more consumers come to their real estate agent having done all of their own research and homework.

And you know what? It is unclear to me whether consumers actually enjoy doing that research or not. Again, referring back to the Charleston HearItDirect event, more than one of the buyers mentioned how the search for the house became a part-time job. It became a hobby of sorts… albeit, not necessarily an enjoyable one.

The reason, I believe, is because current search technology does not provide answers; it only provides pointers to places where answers might be found. It is then up to the consumer, with his limited knowledge and ability to analyze the actual data (Zestimates, market trends, etc.) to figure out what all this data means. The smart consumer of today, like yours truly, just skips over all that frustration and hires a buyer agent to go do it all for him. Yay for realtors… right?

Enter Watson

As far as I can tell, here we have a computer system that is able to store, digest, analyze, and weigh terabytes upon terabytes of data. It is able to understand natural language queries, even through speech recognition, enough to run hundreds of parallel algorithms against the database, weigh the possible answers, reach a confidence score, and then provide the answer and the reasons why it believe that answer is correct. Watson is able to do this for doctors who need to quickly diagnose what is wrong with a particular human being with a particular set of symptoms given his age, diet, general health, previous medical history, etc. etc. and so forth.

Here we have a machine that major corporations will use to replace thousands of human call center operators, because customers can just call in, ask a question (“My TV is broken”), go through a set of back-and-forth with Watson, and then get an answer.

If a machine is able to provide answers as personal, as specific, as unique as what a single patient’s symptoms mean… is it really unthinkable that it could provide answers to what house is right for a particular family? Connect up your personal datasets — from Facebook, from Twitter, from your travel sites, from Spotify or Pandora, from your magazine subscriptions, etc. — and Watson can tailor the answer to your specific lifestyle. Is that impossible to imagine? I can imagine it.

If Watson works via natural language speech recognition, well enough to play Jeopardy, and major computer scientists are hard at work right now tweaking and improving that speech recognition capability, we are no longer talking about having some consumer go visit a website, type in queries, and such. We’re talking about calling up a phone number, and conversing with Watson and getting an answer. (By the way, Siri + Watson makes a whole lot of sense now, doesn’t it?)

From where I sit, so much of the value of having a realtor is replaced by something like Watson. Of course, there’s the irreplaceable human element — the emotional support, the counseling, and having someone to make sure the transaction is going to close — but so much of what a realtor does for the consumer is answering questions. Replace that, and one wonders what the value would be.

Which brings us full circle back to Loren Sanders’s question: What are you doing now so your service will be relevant 2 years from now?

I’m sure one of the answers someone will bring up is, “Pfah, technology, schmechnology — this here is a relationship business, son, which you would understand if you had ever gone belly to belly with a real buyer or seller.” Well, I got news for ya. I have great relationships with my personal realtors — Sue Adler in NJ, and Blayne Vackar in Texas. They’re both good friends of mine, and wonderful people, who also happen to be experts in the real estate game.

But if I can get truly accurate pricing, backed up with evidence and confidence scores, from Watson; if I can get all my questions about neighborhoods, local restaurants, zoning regulations, HOA rules, and so on and so forth answered by Watson; if I can have Watson pull together all of the available economic data and market data from throughout the country and in my local marketplace, weigh the evidence, analyze for reliability, and provide me the answer to “How’s the market doing?”… let’s just say that my good friends with whom I have strong relationships would need to adjust their expectations on what I’m willing to pay in commissions.

And I’m just about the most industry and realtor-friendly consumer you’re going to find.

To Make Thing Even More Interesting…

The first and most natural response to the above should be, “You’re crazy, Rob. A computer will never replace a human being, no matter how connected it is.” The more knowledgeable people — many who tend to read this blog — will point out all the various flaws of Watson. It doesn’t get everything right. It doesn’t really understand human language. It lacks the ability to anticipate the question. And it doesn’t know to ask the right questions — something that is uniquely human, so far.

All true. But consider: What made the breakthrough that is Watson possible? Why did we see Watson emerge in 2011?

Here’s the New York Times in 2010, writing about Watson:

Ferrucci’s main breakthrough was not the design of any single, brilliant new technique for analyzing language. Indeed, many of the statistical techniques Watson employs were already well known by computer scientists. One important thing that makes Watson so different is its enormous speed and memory. Taking advantage of I.B.M.’s supercomputing heft, Ferrucci’s team input millions of documents into Watson to build up its knowledge base — including, he says, “books, reference material, any sort of dictionary, thesauri, folksonomies, taxonomies, encyclopedias, any kind of reference material you can imagine getting your hands on or licensing. Novels, bibles, plays.” [Emphasis mine]

All that was necessary for Watson to become reality is “enormous speed and memory”. Ferrucci jokes in this TED panel about Watson that the Power750 chips that power Watson is “off the shelf” and he can get you a price for that.

Now… consider the phenomenon known as Moore’s Law:

Moore’s law describes a long-term trend in the history of computing hardware: the number of transistors that can be placed inexpensively on an integrated circuit doubles approximately every two years.

In practice, Moore’s Law has translated into computers doubling in speed and power roughly every two years. And… the real world implications of the Moore’s Law are as follows.

Ten years ago, in 2001, the top of the line Apple computer was the PowerMac G4 800 Dual Processor Quicksilver, a mid-tower desktop, with the following specs:

The Apple Power Macintosh G4/800 DP (Quicksilver) features dual 800 MHz PowerPC 7450 (G4) processors each with the AltiVec “Velocity Engine” vector processing unit, 256k “on chip” level 2 cache, and 2 MB of level 3 backside cache. It shipped configured with 256 MB of RAM, an 80 GB Ultra ATA/66 hard drive, a 2X DVD-R/CD-RW “SuperDrive”, and a 4X AGP NVIDIA GeForce 2 MX TwinView graphics card — capable of powering dual displays — with 64 MB of SDRAM. AirPort (802.11b) was available by custom configuration.

That was state of the art just ten years ago, and it cost $3,500. It did not come with a monitor or keyboard.

The least expensive MacBook Air in 2011 has these specs:

The Apple MacBook Air “Core i5″ 1.6 11″ (Mid-2011/Thunderbolt) features a 32-nm “Sandy Bridge” 1.6 GHz Intel “Core i5″ processor (2467M) with two independent processor “cores” on a single chip, a 3 MB shared level 3 cache, 2 GB or 4GB of onboard 1333 MHz DDR3 SDRAM (which cannot be upgraded after purchase), 64 GB or 128GB of flash storage, and an Intel HD Graphics 3000 graphics processor with either 256 MB or 384 MB of DDR3 SDRAM shared with system memory. This all is packed in a razor thin (0.11-0.68 inch), 2.3 pound, aluminum case with an integrated “FaceTime” video camera, a backlit full-size keyboard (the function keys are smaller, however) and an 11.6″ widescreen TFT LED backlit active-matrix “glossy” display (1366×768 native resolution).

The entry level 13” MacBook Air has 4GB of DDR3 RAM, and 128GB of flash storage, and retails for $1300. It is more than twice as powerful as the cutting edge desktop of 2001, has 16 times the RAM, which is faster and higher performing than the 256MB of RAM in the PowerMac, and comes with video camera, keyboard, and a monitor… in a 2.3lb package. For about a third of the price.

And that’s comparing computers. What about the iPad2? A device whose whole category didn’t even exist five years ago:

It is powered by a custom-designed 1 GHz dual-core Apple A5 “system on a chip”, has 16 GB, 32 GB, or 64 GB of flash memory, front and rear mounted cameras, 802.11a/b/g/n Wi-Fi support, an accelerometer, a three-axis gyroscope, an ambient light sensor, digital compass, a speaker and a built-in mic packed in a 0.34 inch thick, 1.33 pound glass and aluminum case with a black or white front and an aluminum back. The battery life of this iPad 2 is reportedly 10 hours “surfing the web on Wi-Fi, watching video, or listening to music.”

The tiny little iPad, which didn’t even exist as a category ten years ago, has faster CPU (dual-core = dual processor) than the top-of-the-line computer of 2001, double the RAM at 512MB , and nearly as much disk space – except that its “disk drive” is 64GB of flash memory, which is faster than spinning disk drives. And it costs $700.

Just two years from now, Watson will be twice as fast, twice as powerful, have twice the memory capacity, and have larger and faster storage. A mere six years from now, Watson will be eight times as powerful. And maybe everyone will have a Watson-powered Siri-type assistant on their mobile devices over 5G LTE networks….

Conclusions?

It is so easy to spiral into sci-fi land. Technology has a way of surprising us with how quickly it advances, and it also surprises us with how little it changes. The internal combustion engine is still with us, after all.

I don’t know that I draw any particular conclusion about what real estate will look like as technology advances. I do think, however, that the changes are likely to be orthogonal rather than linear — meaning, it isn’t enough to project what we have today forward. We have to think that technology will go sideways… into areas and capabilities we’re not expecting.

Strategy, then, dictates that those in charge of thinking longterm about their companies should pay some attention to these unexpected developments, and start thinking about how to answer Loren’s question: What are you doing now so your service will be relevant 2/4/6/8/10 years from now?

Oh yeah, go buy a copy of Stefan’s report in which my full piece appears. #shamelessplug #butitsforafriend

Related posts:

1. Moore’s Law and Real Estate: Speculations
2. Quick Question on Zillow’s IPO
3. Quick: The Prezi From My NRG/HAR Talk Today

It was the best of times, it was the worst of times. The recently concluded NAR Convention in Anaheim that is. On the one hand, it was great to see old friends, make new friends, and engage in some wonderful conversations about everything from IDX Policy to branding to dating habits of college students. On the other hand, the entire convention was infused with an air of obstinate unreality, as if we all were jewel-bedecked revelers on The Titanic, dancing the night way sipping on champagne….

Based on hallway conversations, based on drunken whispers at industry parties, and based on what I’ve read and heard over the past few months, I believe there is an extinction-level event approaching the real estate industry. And all of the official groups, all of the powers that be, have failed to address it. So I will.

There is, I believe, a real chance that in the next three to six months, we will see the splintering of the foundation of the industry: the MLS and the Associations. The world that comes next, a world without the Multiple Listing Service, will be one filled with unintended consequences.

Words Around the Campfire, and the Dog That Did Not Bark

The first place to start is this report by AgentGenius that 75 of the largest brokerages in the country are contemplating pulling out of the entire system: the MLS and the Associations that own/control them. Now, the report was unconfirmed, and remains unconfirmed. But the buzz around the NAR event amongst the people who work in this side of the business is that AG wasn’t entirely off the mark. One MLS executive told me that he was at a cocktail party when a REMAX broker in his area mentioned something called “REMAX MLS”. Was that just a slip of the tongue? Or a Freudian slip? Or is REMAX starting a professional soccer team?

Then we have what I consider to be a curious absence of talk or action. The MLS IDX Policy Committee meeting was jam-packed, but not much happened. Franchisor IDX was repealed in its entirety, and the rest of the key IDX rules was sent back to a working group, thereby punting on the issues for another six months. But what I found quite amazing is that no one spoke up on repealing the Franchisor IDX rule. Six months ago, that issue was extremely contentious, and major leaders from major organizations gave impassioned speeches to the MLS Committee either in opposition to the policy or in support of it.

This time around, no one got up to address the committee. I knew that people like Bob Moline of HomeServices of America and Alex Perriello of Realogy were at the convention, and both had addressed the Committee at Mid-Year. But neither of them said a word. Nor did anyone else from any of the major brokerages or franchise organizations. To me, this is the dog that didn’t bark. Not a word? On such a huge issue?

It could be that they all knew the decision was done, and whatever they said wouldn’t matter. They chose not to waste their time. It could be that. On the other hand, it could also be that they know something that we don’t, which makes the MLS Policy Committee utterly irrelevant.

And how could you blame any such conspiracy-minded thinking, when it appears from the direct personal observations of a MLS Policy Committee member that there are real problems with how decisions get made (or don’t get made) at NAR. Then look at the comments, where important influencers like Kevin McQueen write things like: “Just saying, it’s time to move forward with a new approach. It’s coming.”

Something is up. There’s too much smoke for there not to be a fire somewhere.

The Event Horizon

So let’s assume, for the sake of discussion, that we will see a wholesale separation by major brokerages and national franchises from the system of organized real estate we have in place today: the Multiple Listing Service, and the Association of REALTORS(R) that own/control them. Such a “rebel alliance” will not simply pull out of the MLS or the Association; they will pull out of both, because they must pull out of both in order to achieve their aims of independence from existing policies and governing bodies.

What does that world look like?

The Rebel MLS

What might a “rebel MLS” look like? What would be so different about it that total separation is necessary? Based on the issues surfaced at NAR Midyear, which I wrote about in some detail here, I think the core concept of the “MLS” will be dramatically different.

The existing paradigm of the MLS today is that its core mission includes helping its members market properties. That could be done with a public website, as Bob Hale has done at HAR, or with a variety of tools and features to help MLS subscribers market their listings or their services, or by providing syndication feeds, IDX, email tools, etc. to subscribers.

The paradigm of the Rebel MLS, I believe, would exclude any and all marketing functions from the “MLS”, and return the MLS to simply creating an industry-only walled garden.

The key insight is in this 2006 Congressional testimony from Geoffrey Lewis 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.

Whatever a Rebel MLS might look like, I believe that the core concept will be: “You earn a customer, you get to use the MLS with the customer.” All marketing-related functions and activities would be pushed back to the “participant”, either a brokerage or a licensed real estate agent.

The End of IDX, Syndication, the MLS Consumer Website

The most important change, then, has to be that within the Rebel MLS, there can be no such thing as Internet Data eXchange, or IDX. The whole purpose of IDX is to allow participants to use MLS data to earn a customer. All of the policy debates, all of the complicated rules, all of the fighting at the NAR MLS Policy Committee — all of these things have to do with the fact that IDX allows participants to the MLS to use the listings of other brokers for marketing.

As a result, I don’t agree with Jay Thompson’s heartfelt Open Letter in one respect. He writes, “Why a permanent subcommittee? Because IDX (in some form or another) isn’t going away.” Actually, Jay, IDX in all of its forms could very well be going away.

Syndication would survive, but it seems unlikely to me that the MLS would have much of a policy role in data syndication. Sure, the Rebel MLS might still be involved in the technical details of transmitting data from one source to another, but there isn’t the need for all of the opt-in vs. opt-out dance that goes on today. Every single syndication feed would be opt-in, by specific website, with specific license granted by the specific broker.

It goes without saying that the Rebel MLS would have no such thing as a public-facing consumer website owned and operated by the MLS. We’ve been hearing from brokerages for years now that they don’t want their local MLS to get into competition with them for traffic and eyeballs. Is there any chance that the Rebel MLS would do such a thing? Not in my view.

Intended and Unintended Consequences

The end of IDX, the end of MLS-controlled syndication, and the end of the MLS public website would all be, I think, intended consequences of the Rebel MLS. The idea is to restore the MLS to a “B2B network” to be used by participants only upon having acquired a client first, in order to service that client. By leaving the local Association, the brokers and agents of the Rebel MLS are no longer bound by NAR’s policies and rules governing not just IDX, but everything MLS.

Control over listings, control over data, control over all of the information return to the brokerage that has gone out and gotten the home seller to sign a listing agreement.

What, however, might be some unintended consequences?

1. Zillow Takes Over

The brokerages who might be aiming to regain control over their listings are quite likely to find out that all they have done is to hand over control over the real estate industry to Zillow.com. I wrote a couple of weeks ago that Zillow’s acquisition of DiverseSolutions, an IDX provider, was to position itself as the residential version of Loopnet. I noted that should there be real schism in the industry, Zillow stands to gain tremendously.

This is something I’ve seen happen in commercial real estate, where there is no MLS, and NAR has very little power. Commercial brokerages accepted companies like Loopnet and CoStar because they were no threat at all; if you think getting a $500K residential listing from a family is difficult, try getting a $5 billion portfolio from a bunch of seasoned business executives. And yet, as the Internet grew in importance, even in commercial real estate, quite a few firms found themselves in a position where they had to subscribe to either Loopnet or CoStar or both.

Why? Because those sites were the only ones with almost all of the listings in a marketplace.

When an organic monopoly breaks, there has to be a substantial enough defection from the monopoly such that those leaving are not immediately and instantly crushed in the marketplace. Me choosing not to use Ebay.com anymore to sell my used CD’s doesn’t mean a thing to anyone else, least of all Ebay, and eventually, all that happens is that my used CD-selling business goes kaput. But if 50% of Ebay users choose to start using some new auction site, well, that’s a different story, isn’t it? With the MLS, a couple of brokers with 5% of the market choosing to exit the MLS makes everyone else shrug, and the other brokers will just have a field day poaching agents from the breakaway brokerages. But if 50% of the market leaves? Different story.

If there is a “Rebel Alliance”, its members wouldn’t pull out without getting at least 30-40% of all of the listings in a given market to take with them. Perhaps it will take an actual majority, at least of listings, to be safe from the inevitable retaliation. At the same time, it is difficult to think of a scenario in which the rebel alliance takes a huge supermajority of listings and users (let’s say 70% plus) with them. If they have that kind of market domination, they can simply force the MLS and the Association to do their bidding. There would be no reason to leave.

So the number, in my mind, is somewhere between 40 and 50% of the listings in a market. Below that number, the rebel alliance is too small to avoid getting marginalized; above that number, the rebel alliance has enough power to force their agenda on existing organizations.

We will have two “MLS” organizations, one Association controlled, and the other Broker controlled, each with roughly half of the listings. Realtor.com, which has relied mostly on its agreement with NAR to get listing feeds directly from the MLS, would find that it only has half of the listings. Trulia and Zillow, on the other hand, have been hard at work going door to door to each individual broker to get their syndication feed. Suddenly, post-schism, only those two would have more than half of the listings in a market.

And only Zillow has the ability to offer out a “ZDX” product, enabling its premier agents to use Zillow data to market themselves since half of the MLS data is no longer available for that purpose. Plus, Zillow is already public, and has a significant warchest. Trulia is not, and does not, at least as of this writing.

Ergo, unintended consequence #1: Zillow takes over the industry. Just a matter of time post-Schism.

2. The End of Buyer Brokerage

Unintended consequence #2 is that a Rebel MLS means the end of buyer brokerage. It might take some time, but without IDX, without mass syndication, and without a single source of all of the listings, there is no real conceivable way that a pure buyer brokerage could survive. If you only have two listings, and no right to display any other listing anywhere, how exactly do you get clients? Sure, when you do get an actual buyer, then you can use the MLS, and sell him a house, but in today’s tech-driven world, how exactly do you do that?

If you don’t have listings, you don’t have the bait with which to draw consumers. You can blog until your fingers bleed about the two listings you do have, but that can only take you so far.

The listing broker, in such a world, has enormous control… until the Loopnet Effect asserts itself (see above). Sure, Zillow might still be around as a resource, but any brokerage smart enough and bold enough to take the step of withdrawing from existing organizations is smart enough and bold enough to demand syndication terms from Zillow that prevents buyer brokers in its market from using its listings to pick up buyer clients. No, all of those buyer leads will be going back to the listing broker or agent, thank you very much.

In that world, buyer agency becomes a total legal fiction. (Some would argue that it is one today, so… who cares?) Brokerage-level dual agency becomes the rule, rather than the exception, since there is every financial incentive for listing brokers to ensure that buyer leads from one of their listings go to one of their agents on a very healthy split.

Companies like Redfin, in that world, are doomed for all intents and purposes. So are most of the small boutique brokerages. Jay Thompson once told me that without IDX, he would have no business. Well, that’s exactly right. If your current business model is premised upon taking the buy side of transactions, pray that the Schism does not happen.

3. Mass Extinction of Vendors

I don’t have any exact numbers, but if you walk through the average real estate trade show floor, the majority of the companies appear to be in the business of selling IDX-driven marketing solutions to brokers and agents. The number of companies offering a “mobile IDX” solution, for example, at NAR Anaheim was simply amazing. The number of solutions, template websites, even CRM systems, that rely upon IDX data is staggering. Even non-IDX vendors rely enormously on there being a single source for real estate information. Think about, for example, a company like Cloud CMA, whose product relies on having good comprehensive data to create CMA reports.

And now… imagine there is no source for all of that data.

Would the Old MLS and the Rebel MLS do deals with a Cloud CMA to allow for that kind of data sharing? Perhaps. Or perhaps not. Depends on whether they want to try coexisting, or want to put each other out of business, I suppose. But even with such an arrangement, the terms of data usage are likely to be dramatically different given the different core principles animating the standard MLS and the Rebel MLS.

Unintended consequence is that hundreds of companies that are currently active in the real estate industry would just throw in the towel. What’s the point? It’s hard enough to make money in a unified industry because of 900 different MLS’s, complicated rules from NAR on down, and lack of meaningful standards. Who wants to do it after the Schism?

4. The End of Associations As We Know Them

Finally, since this is getting way too long even for me, let me finish with the death of the Association as we know them today. It isn’t clear to me whether this would be an intended consequence or an unintended consequence of a “Rebel MLS”, but the effect of a schism is the end of the Association.

Ever since the Bubble burst, numerous Associations have been losing members simply through attrition. NAR, the State, and the local Associations can do a lot of things, but they can’t make new REALTORS(R). They can’t make people who can’t make a living in real estate stay in the business. As a result, I’ve heard from my Association and MLS contacts that the average Association/MLS is down anywhere from 30-50% in membership over the last few years. Many are dipping into reserves, figuring that if you have a rainy day fund, well, it’s raining now.

The systemic shock of losing 40-50% of their existing membership practically overnight would be, I’m afraid, fatal for most Associations and MLS’s. Perhaps there are a few very large organizations with substantial reserves who could slash whole departments, cut out numerous programs, or find alternative revenue sources to keep themselves afloat… but they are far and few in between. Mass layoffs are all but inevitable, and quite a few of the educational programs, the mediation, the Code of Ethics work (which may not be meaningful post-Schism anyhow), etc. have to go away.

With such a schism, the local Association may simply stop being anything more than a social networking club for interested brokers and agents, similar to the Lions or Rotary International. It isn’t clear to me that the Association of REALTORS could even do effective political advocacy, if it represents only a minority of licensed real estate agents and brokers in a given district. RPAC might continue, since those rely on direct donations from a small minority of REALTORS(R), but almost everything else the Association does would be at risk.

Plus, the psychological shock of the schism would be difficult to overcome as well. In Anaheim, I saw banners and posters from candidates running for NAR President… in 2016. Does that position mean very much if by 2016, NAR is 300,000 members and definitely cannot claim to be the voice of real estate in America? Do all the committees and the volunteer work matter much, if only half of the working and producing real estate agents are even members of the organization? Maybe. Then again, maybe not.

The World Without the MLS

There are, of course, other intended and unintended consequences that we can get into if we assume that such an Event Horizon occurs. For example, RPR becomes all but useless. Anti-trust issues re-emerge, since Rebel MLS is by definition not under the NAR-DOJ consent decree. Cooperation and compensation may end up meaning very different things post-schism. Local, State, and Federal regulators might start taking another look at this whole real estate data issue, especially if the impact on consumers is confusion and chaos. Who knows?

And it may be that the world without the MLS might be better than what we have today. It is entirely possible that I am overlooking huge gains in efficiency for the industry as a whole. Being in the industry, I confess my own potential myopia.

But I came out of the world without the MLS, into this one. I know which one I prefer as a consumer, as a strategist, and as an observer of businesses. It is not a world that anyone should want to voluntarily embrace, if it could be avoided.

Will such an extinction event happen? Will there really be a Schism? I don’t know. If you do, please feel free to comment, or to contact me directly. Is all this mere Chicken Little’ing? God, I hope so. As Mark Steyn, another doom-monger in a different area, wrote, one does not write about doom in the hopes that it will come to pass, but in the hopes that it could be avoided somehow.

But hope is not a strategy, and prayers are not analyses. This is my initial analysis of the scenario in which the real estate industry faces an extinction event horizon.

Click here to view the embedded video.

Related posts:

1. Seven Predictions for 2011, With Music Videos!
2. It’s All About “Control”: The New IDX Policy Proposal
3. The Giant Syndication Hole in IDX Policy

The Syndication Hole

One of the most fun things about coming to a NAR event — whether Mid-Year or Annual — is the ability to connect previously unconnected dots and have an A-HA! moment. I had one such moment yesterday in the legal seminar put on by NAR. I thought I’d jot down a few thoughts, as the MLS Policy Committee meeting is tomorrow, and this particular issue should be discussed and adjudicated there.

I’ve written about the current MLS IDX Policy language before, noting that the key term is “control”. I believe that the latest version adds some clarification along the lines of “control means that you can comply with the IDX policy”. It’s a bit circular, but I get the idea.

Then yesterday, I’m attending the legal seminar where Gregg Larson presents to the assembled legal counsels for hundreds of Associations and MLS’s on the topic of syndication. And I have an A-HA moment.

Seems to me that there is a giant hole in the IDX policy, and it’s called syndication. We’re gonna need a far tighter definition of “control” to plug that particular hole.

Syndication, In Brief

For anyone who isn’t marinated in that particular discussion over the past couple of years, here are a bunch of posts on the topic. But the best touchpoint is Clareity’s Syndication Bill of Rights. In brief, Clareity suggests — and a number of companies and people in the industry support — a “Bill of Rights” to protect the broker, who is the copyright owner:

1. The publisher will display the listing firm contact information, including phone number, in a prominent location on the listing detail page at no cost.
2. The publisher will provide a prominent link to the broker, agent, and/or MLS website, home page or property detail page if provided, and will not use “nofollow” tags that negatively affect the SEO benefit of such links.
3. If the publisher displays non-listing agent/firm information, then: (a) the full contact information for the listing agent/firm must be displayed at no charge, and these parties must be clearly identified as the listing agent/firm; (b) the listing/agent firm information must be displayed more prominently than the third-party agent/firm information; and (c) the site must not send leads to third party agents or firms if the consumer has not selected them as a contact recipient, and non-listing agents and firms will not be the default (pre-selected) choice for consumer contact.
4. The publisher has a process for ensuring data accuracy with the data provider(s); ensuring data is updated or removed as appropriate, at least every three days.
5. The publisher displays the date the listing data was last confirmed and updated, and the name of the data provider.
6. The publisher respects the intellectual property of brokers and MLSs. The terms and conditions do not require brokers and MLSs to give up rights (beyond display rights) or to grant rights in perpetuity. The terms and conditions allow the listings to be used only for the explicit purpose for which they were provided. An accuracy disclaimer and copyright notice is displayed, attributing the copyright holder of the information. The publisher must obtain explicit consent from the date
   provider f or any other uses or derivative works.
7. The publisher does not re-syndicate, sub-license, power, or display listings on other websites without informing the data provider and obtaining their consent.
8. The publisher will provide aggregate statistics regarding traffic, at no cost, to the data provider.
9. The publisher provides reasonable mechanisms for preventing screen scraping and misuse of the listing data, understanding that s ome listing information must be exposed to search engines.
10. The publisher does not re-syndicate to or “power” sites that fail to uphold the previously described rights.

At the Legal Seminar, what was brought forth was a set of checklists and guidelines for legal counsels of MLS and Associations to use in reviewing the syndication agreements that the publisher website would enter into with the broker-members. From a syndication standpoint, this sort of a standard for proper syndication is a huge step forward.

Strong Syndication Agreement = Control

Here’s where things get fun. Let us suppose for the moment that the MLS/Association promulgates a syndication standard that protects the broker’s rights fully, and a publisher website agrees to each and every term of such a syndication agreement. In fact, let’s suppose that in a one-on-one negotiation, Big Portal agrees with Big Broker to sign a syndication agreement that goes above and beyond the Bill of Rights. Let’s assume that the resulting syndication agreement is a “platinum” standard that would score a perfect 10 on the Clareity Scorecard.

This syndication agreement would be so strong that I see no way in which it would not rise to the level of “control” as per the IDX Policy document.

That is, suppose that Big Portal specifically agrees in the syndication agreement that it would implement whatever display rule the Big Broker demands of it; that could/would include all of the provisions for following the IDX display policy.

Under that scenario, I see no way in which a strong syndication agreement wouldn’t be “displays controlled by participants on other websites”.

And if that’s true, Big Broker can send all of the IDX listings in his MLS to the Big Portal as syndication, with lead flow going back to Big Broker.

Whoa. Whoa. Really?

Yeah, really.

Franchise IDX? How About Franchise Syndication… of IDX?

Since the critical controversy du jour is the Franchise IDX rule, consider what the above means.

It may seem unreasonable for a big portal, such as Trulia or Realtor.com to sign such an onerous syndication agreement. It isn’t at all unreasonable for, let’s say, coldwellbanker.com to sign that exact platinum-grade syndication agreement with one of its franchisee brokers.

And upon signing that syndication agreement, I see no mechanism at all that would prevent the Coldwell Banker franchisee to package up all of the IDX listings in its MLS and syndicate it up to coldwellbanker.com to be displayed. The whole point of IDX is to allow participants to display the listings of other participants, such that they would get the buyer leads, even while preserving the listing broker’s ownership over the listing.

And of course, syndication’s whole purpose is to advertise listings on third party websites, with leads flowing back to the advertising broker. Granted, the intent behind syndication was always to allow a broker to send his own listings to the publisher, not the listings of other brokers in the MLS. But unless I’m missing something huge, or unless the “control” language is tightened up, I don’t see what would prevent the syndication of IDX data under a strong syndication agreement.

Forget the Search Engine exception; forget the Franchise IDX policy. This is the mother of all exceptions.

Of Course, This Won’t Actually Happen, But…

I seriously doubt, of course, that the syndication of IDX thing would actually happen… for long. That is, the minute that some broker pulls that move, I’d imagine all of the listing brokers in the market would instantly pull out of IDX. At a minimum, the MLS legal staff would have a ton of complaints asking for an adjudication on the issue.

Furthermore, if you’re a major web portal, you’re in the tricky position of potentially having multiple IDX syndication feeds from multiple brokers in a given market, but all of them with the same actual data (except for the email where the consumer lead should go) resulting in all kinds of dupes.

So as the MLS Policy Committee gears up to meet tomorrow to consider and pass the new MLS IDX Policy, I’m hoping to see a real in-depth discussion of that troublesome term: “control”. It has to be defined. It has to be made tighter than it currently is.

Otherwise, all we’re signing up for is a Winter and Spring of Confusion.

-rsh

Related posts:

1. Move, ListHub, and Syndication Quality Assurance
2. Franchise IDX Is Dead! Long Live Franchise IDX!
3. It’s All About “Control”: The New IDX Policy Proposal

Yesterday, your faithful correspondent was part of an interesting session held by the Council of MLS (CMLS) here in Anaheim on branding or certifying MLS data. The basic premise with which the meeting began was something like the following:

• The MLS has a strong brand for trustworthiness and accuracy in the consumer’s mind
• Consumers assume that all real estate data is MLS data
• Third party data is crap
• Therefore, the MLS should brand and/or certify MLS data

Various speakers presented various pieces of evidence supporting the above. And if you accept the premise above, then branding the MLS data in some way is a no-brainer. The two methods proposed are (a) brand the destination as “MLS Trusted”, and (b) certify the listing data itself as “MLS Certified”.

But I have my reasons for wondering about the assumptions.

Survey Bias vs. Gut Feeling

The biggest reason for doubt about the assumption is that the evidence presented came mostly from two sources.

The first is a study conducted by… somebody… (WAV Group?) of brokers, asking them about their opinions of what consumers want and/or believe about real estate data. The survey bias is… well, obvious in this case. It may be the case that brokers are right on the money as far as what consumers want/believe. But one can’t help shake the feeling that opinions of brokers and agents may be influenced by the fact that they sell real estate for a living.

The second source was a consumer survey conducted by somebody (I don’t have the slides used, so don’t recall who did the survey; sorry) that showed that consumers trust MLS data, prefer the MLS website, etc. etc.

Trouble is, it became evident that these consumers were solicited online, on the MLS website itself. Meaning, Joe Public is on MLSWebsite.com looking for a house, and some sort of “Hey, take this here survey” thing pops up. Well, that’s a pretty self-selected group of respondents. They’re already on the MLS website; they already know what the MLS is; they already use the MLS data. It should be shocking if any of those respondents say negative things about MLS data.

See, my gut feeling based on nothing but the state of my tummy is that most consumers actually don’t know what the MLS is, nevermind the quality of its data. Even if they’ve heard the term, their understanding is vague at best. They have no idea about the difference between MLS data and syndicated data and so on and so forth.

Why This Might Be Relevant

So what? Why does source selection bias matter at all?

Well, the issue for me as a marketer is that what is being proposed — whether branding the destination or certifying the listing — is neither free nor easy. Many of the speakers brought up other successful branding efforts like “Intel Inside” as what the MLS should do in terms of its branding effort. Well, that campaign cost $4 billion from 1991 to 1997. Of course, the payoff of the ingredient branding campaign was domination by Intel for years.

What professional marketers understand is that branding is a hugely expensive, time consuming, but potentially valuable initiative. The key to thinking about it, of course, is whether the expected benefits outweigh the costs involved: you know, that old chestnut, “Return On Investment”.

So thinking about branding the MLS data turns on whether that branding would actually result in some sort of benefit that justifies the investment of time and money.

Therefore, the selection bias in the studies supporting the proposition that the MLS has a strong brand in the consumer’s mind is troubling. If that assumption is wrong, then spending time and money on branding or certifying data as “MLS Trusted” or “MLS Certified” is a giant sinkhole.

Proposing An Experiment

I have a suggestion. Before the industry invests significant time and resources into branding the data, why not run a short-term test to make sure that branded data has an impact in the marketplace?

Site Branding Experiment

Launch two IDX websites, identical in every way: same design, same data, same everything. IDX sites are cheap and easy to setup, so it can be done in a matter of days. Put a “MLS Trusted” tag on one site, and no tag on the other site. Monitor traffic, SEO ranking, clickthru rates, lead generation from the site, etc. See if there’s a meaningful difference between the two sites. If there is, then we know that the “MLS Trusted” brand is meaningful; if there isn’t, then we know that the brand isn’t.

Certification Experiment

Allow a website to commingle listings that are “MLS Certified” with listings that are not. Ideally, this would be the same IDX feed; tag every other listing as “MLS Certified” so as to randomize which listings are tagged and which ones are not.

Monitor clickthru rates and lead generation on a listing-by-listing basis. See if there’s a meaningful difference between certified listings and uncertified listings. Again, if there is a meaningful difference, then one can try to calculate the expected ROI from a branding/certification campaign. If there is no difference, then… well… y’know…

Testing & Data = Soul of Marketing

I think running those two experiments for 90, 120 or 180 days should provide enough actual data from actual market performance to determine whether a branding/certification campaign is worth doing. Marketing isn’t actually about creativity and design and pretty words: it’s about numbers, data, and analysis.

CMLS would be a wonderful organization to coordinate these experiments; there are any number of companies with a long track record of market research who could conduct the experiment for CMLS. And the resulting data and analysis would be wonderful to have.

Of course there are a number of other factors you want to consider about ingredient branding. But without proving the basic assumption about how consumers actually view the MLS in the marketplace, nothing else really matters.

Your thoughts/questions/hollerin’ are, as always, welcome.

-rsh

No related posts.