Notorious R.O.B.

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.

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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.

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So Zillow buys up IDX provider, Diverse Solutions.

First of all, congratulations to Justin LaJoie and the rest of the team at Diverse Solutions, as well as to Spencer Rascoff and the folks over at Zillow. I don’t know what the real motivations behind the acquisition were, but at a minimum, you can say that two great teams of real estate technology people are joining forces.

Second, I don’t have a whole lot of time to devote to deconstructing the Zillow acquisition of Diverse Solutions, but did want to present a quick reaction from three different perspectives: Friendly, Hostile, and Mine. I suspect most people’s response to the acquisition will fall into one of the first two buckets, while a very small minority (of one person perhaps) will fall into the third.

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I just got finished with the webex presentation put together by CMLS (Council of MLS), an altogether wonderful organization for those people who care about these arcane issues. I’m sure the recording and/or the transcript would be posted by CMLS soon enough. This is just a couple of first impression questions/thoughts.

There are three main takeaways for me from the call:

• The new IDX Policy represents the announcement of a new doctrine for treating listing data.
• The key need is to separate “transport” issues from “display” issues, and to restrict IDX Policy to the latter.
• The whole thing turns on the definition of “control”.

Based on what I’m hearing, I believe this policy will be one of the most important changes in quite some time. But I’m left rather dissatisfied because the central concept — “control” — is taken for granted by a lot of people. Leaving it undefined will result in having to revisit this issue time and again by each MLS over the next couple of years.

I also believe that vast numbers of NAR Directors who vote on the IDX Policy will likely be in breach of their fiduciary duty of care and subject to personal liability if a member should decide to sue. It points to a real weakness in the whole governance model at NAR, one that NAR should act to address quickly.

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As a blogger, rather than a “credentialed journalist” (whatever that means), I have the freedom to just pass on rumors, as long as I label them as such. Well, consider this one of those rumors I have not confirmed yet. [UPDATE] I just got a second person to confirm the rumor. Two people saying the same thing now moves this past the realm of rumor into a confirmed report. More detail below..

I’ve heard from a reliable source earlier this evening that there are some major changes afoot at NAR. The biggest upshot of the changes is that starting in 2012, portions of the dues from NAR members will go towards supporting RPR, REALTORS Federal Credit Union, and other so-called “Second Century” Initiatives. A few minutes of Googling suggests that the original Second Century Initiatives program — which included a line item for “The creation of a national gateway for real estate information, not a national MLS” – was funded by a $16 increase in dues in 2008.

But from the start, RPR was presented as a wholly-owned for-profit business unit of NAR that would be self-sustaining, after the initial investment of roughly $25 million to buy the Cyberhomes assets from LPS and a few million for LPS data. The idea was that the data generated by RPR would be very valuable when sold to financial institutions, government agencies, and the like, and the operation would throw off enough cash not only to continue providing the system to REALTORS at no charge, but also to generate enough profit to pay back NAR.

For reference, here’s a report of a Q&A session with Dale Ross, CEO of RPR, back in March of 2010:

Why should Second Century need to be paid back?

NAR’s Second Century fund is a venture capital fund which must paid back for its investments. However, that’s not the source of RPR’s funding. RPR money comes from an NAR technology fund set up with $100 million fund (from investments); NAR’s Finance Committee stipulated that monies must be paid back to replenish fund.

Since you’re providing RPR for free, where is money coming from? What happens if your revenue models are way off?

Three scenarios: app doesn’t work, we shut down; app works and rev model works, win-win; app works but rev model off. We project we’ll need $50 million/yr to run it… if it is valuable and not generating cash, we’ll figure up another funding source. If members want it and NAR Directors decide that is best way, that could be a member dues increase. I have never seen pro formas work; I have pushed the numbers around based on a 36-month breakeven. We’ll see. (Underline added for emphasis)

Well, if the rumors that member dues will start paying for RPR starting 2012 are true, then I’m gonna take a wild stab and suggest that the 36-month pro formas were way optimistic. Since we’re looking at a dues increase in two years (launch in 2009, dues funding decision in 2011 to take place in 2012) to support RPR.

A few questions arise. The first of which is, “So uh, is this true?” I’d love for anyone who can confirm or deny the rumor. Please feel free to contact me privately via email, twitter, Facebook, phone, whatever. My contact information is on the About page. More questions follow, all of which assume this rumor of dues funding for RPR and other Second Century Initiatives is indeed true.

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At first glance, the biggest change in the new IDX Policy to be proposed at NAR Anaheim is that it removes entirely the section allowing Franchise IDX. The entire section is struck.

There will be much rejoicing in the anti-Franchise IDX partisans, and much gnashing of teeth in parts of New Jersey, Texas, Colorado, and elsewhere. Except that both the rejoicing and the gnashing will be premature. Naturally, there will be differences of opinion on the subject, but I do believe that much like royal succession, the death of the old king results immediately in the new king taking power.

The valuable lesson that the Franchises will have learned from this whole affair is not to ask NAR for permission before spending millions of dollars on a new approach to listing data. That does, of course, concern me, but let’s delve into the analysis first.

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There was a time when I thought 40 was the end. I was probably 19 or so, drunk on the peculiar poetry of youth, philosophical in the way that only the semi-mature can be, and caught in the strange shadowlands between the unbounded world-is-your-oyster optimism and the soul-killing despair at the evils of the world.

40? Might as well be dead.

All young men, perhaps, wish to be Achilles: heroic, strong, beautiful, foolhardy, passionate, burning like a flame, and passing on in the flower of their youth. The smarter and luckier of us perhaps find our way to becoming Odysseus: canny, wise, old, and finding happiness in the simple joys of hearth and home.

So here I am at the magical age. The day doesn’t feel any different from any other day. The heavens did not open up with significant signs. The earth did not move, since I don’t live in California. Or Washington DC. But I can’t help but reflect on a few things, especially with literally dozens of people on Facebook wishing me a happy birthday. Consider this my heartfelt thanks to all of you.

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Business and travel have really kept me away from the blog, but… since I have a few days at home, I did want to write about the new IDX Policy that will be proposed at NAR Anaheim next month. I’ve managed to obtain a copy of the proposal through my sources (thank you guys, you know who you are!) and… there be some interesting things in it.

The big news, as many have already heard, is that the Franchise IDX policy will be repealed in its entirety. The overall thrust of the proposal appears to be one aimed at restoring the status quo ante. But the way the proposal goes about it is… interesting. Let’s dive in.

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I’ve been traveling more or less nonstop for a couple of weeks, and busy as hell in any event, so I kind of missed the controversy around Redfin’s Scouting Report. I’d suggest heading over to Jay Thompson’s blog to get his thoughts on the product, and the various responses from the real estate industry to it. I don’t have a whole lot to add to the controversy.

But there are at least a few things that most of the commenters are missing on this controversy. I’m far more concerned, actually, about the responses to Scouting Report and what they say about the industry than about the Scouting Report itself.

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Any excuse to post this pic is a good one...

A curious phenomenon of human nature is the tendency to overvalue what we own. Case in point: fantasy football.

I’m in multiple leagues this year as well, and for whatever reason, I really enjoy the trading aspect of fantasy football. And over the years, I’ve definitely noticed a tendency among people to overvalue their own players (for the record, I’m not immune from this tendency either). You make an offer for a backup quarterback, and I could sit there are claim that he’s the best thing since sliced bread, despite the fact that he threw as many interceptions and touchdowns so far this year. It’s a funny thing, this overvaluing of what we own.

Of course, this phenomenon is extremely well-known in the real estate world. Listing agents tell story after story of trying to break the bad news to the homeowner that as it turns out, the market just doesn’t think his house is worth $600,000 anymore. Yes, yes, your gorgeous Zen backyard is the pride and joy of your life… but the buyers don’t care that much. Yes, I know how much time and money you’ve put into that mural in the dining room; unfortunately, the market just doesn’t share your taste for Elvis paintings.

Seems to me that when you have unique objects for sale, the preferred method of dealing with that is an auction. Things like artwork, antique cars, sports memorabilia, and other things are extremely difficult to price. If you’re talking about a brand new Mercedes Benz, the manufacturer spent a certain amount of money to design, produce, and market the thing, so they set the price and let the dealers figure it out. But there is a price, since there are thousands of the same identical vehicle in the market. When you’re talking about a 1955 Mercedes Benz 300 SL… it’s impossible to stick a price tag on something like that.

So… when someone wants to part with a 300 SL, he puts it up for auction. And the results are sometimes surprising, and yet, if that’s what the market will pay for a unique item, then that’s what that unique item is worth, period, end of story. You and all of the experts might think the 300 SL is worth $600K – $700K, but apparently at least one buyer thought it was worth $1.375 million.

Given that real estate is dealing with unique items (for the most part… yes, exceptions exist), why do we see so few auctions of properties? The seller and the agent can set a reserve price below which there is no sale, and then all of the buyer agents simply attend the auction on behalf of their clients. Whichever client walks away with the winning bid gets the house.

The complications I see have mostly to do with financing. Contingent offers wouldn’t work in an auction setting for obvious reasons. But maybe this isn’t a bad thing?

If banks were lending strictly on the basis of the borrower’s ability to repay, instead of relying so much on the underlying property as security, maybe we wouldn’t have a repeat of the foreclosure crisis we’re having now? Thinking further about it, we’d likely need a new kind of debt instrument that blends the unsecured nature of personal loans to the borrower with the security element of a mortgage; perhaps the rates are set as they are now, depending on the underlying asset (the house), while the credit risk is evaluated on the borrower’s personal profile? With banks realizing that they really don’t want to be stuck foreclosing on a house, that may be the reality of the lending environment today anyhow.

So if every buyer is walking in with a pre-approval that is rock solid, prohibited from contingent offers, would this work or not in real estate?

What am I missing about auctions and why we see so few of them in the sale of homes?

-rsh