Government entities frequently approach MLSs looking for listing data for various purposes. Perhaps the most common is the local property authority seeking property information in order to value properties more accurately for taxation. They like MLS data because (a) it’s more up-to-date than their own; (b) it usually has more property characteristic details; and (c) it usually includes more recent pictures. But other types of government entity also seek access. For example, one of our MLS clients provides data to the real estate commission in its state; the commission uses the MLS data to investigate claims of broker and mortgage bank misconduct. I also posted on the Geek Estate blog about inquiries from Fannie Mae looking for access to MLS data in order to help it do a better job of predicting property values. (Fannie is not a government entity but a sort of quasi-governmental entity.) I’m interested if your MLS has been approached for other reasons; comment with your experiences.

This post provides some information about why MLSs do and do not cooperate by providing data to government entities; a discussion of a couple legal risks; some things MLS should consider before granting access; and provisions MLS may want to put into the written agreement with a government entity.

Reasons MLSs cooperate with government entities

Many MLSs cooperate with government entities because the MLSs or their REALTOR® associations hope to receive something in return. Sometimes the MLS will use the access as a relationship-building tool with taxing authorities and regulators. Sometimes the MLS will have to provide data anyway, so doing it on MLS’s terms looks attractive.

In terms of the quid pro quo possibilities, perhaps the MLS can provide MLS data in return for free access for its members to a service for which a county normally charges. MLSs that use public records in their systems sometimes trade with government entities: MLS data in return for public records data. This may prove very valuable because of the cost of public records in some areas. Most states have “freedom of information acts” or FOIAs (see discussion below) but some government entities overcharge for the data they are required to provide under those acts. MLS can use the MLS data as leverage to get the public record prices down.

MLSs and the associations with which they are affiliated often provide data access to government entities as a means of building relationships. In those cases, you may want the association government affairs director to be the point of contact for the government entity – giving him/her a chance to enhance the relationship that is valuable for the organization.

Lastly, MLSs may have to provide certain data anyway. For example, the client I mentioned above that provided data to the real estate commission previously supplied data if the commission subpoenaed it. The commission would subpoena data relating to a few listings at a time; the MLS would have to run the request by MLS legal counsel, listing brokers, and others; and the MLS would then reproduce the records in paper form. The process was cumbersome and expensive for MLS and the commission. The MLS instead decided to license the data to the commission, but obtained the commission’s promise not to use MLS data to initiate complaints or to go on “fishing expeditions.”

Reasons MLSs do not cooperate with government entities

MLSs may avoid providing data to government entities because they fear the government entities will be able to take adverse actions against brokers or homeowners that would not be possible without the MLS data. At least some MLSs have withdrawn data access to punish uncooperative government entities.

The common fear is that something in the MLS property record will result in the property being reassessed with a higher value. Some brokers have complained that this is “the MLS doing the assessor’s job for free” or handing the assessor “higher property taxes on a silver platter.” I think it’s reasonable for brokers to be concerned that MLS data may directly cause the higher assessment of a property.

Others argue that MLS data can help assessors get values right, and that’s a good thing. Take the example of a home where the owner has completely upgraded all the interior finishes, adding value to the property. In fairness, the owner’s taxes should be higher if the real value of her property is higher than previously assessed. In theory at least, all homeowners benefit if every home is assessed properly.

At least one of our MLS clients cut off data to a county when the county hiked its public record fees. This sort of retribution might not be the best idea in every circumstance, but it gave the MLS quite a lot of leverage in negotiating a bulk price in return for turning the data-tap back on.

Legal risks

If the MLS structures its agreement with the government entity properly, it should be able to minimize legal risk to the MLS. As for brokers’ legal risks, it is unclear what theory anyone could use to attack the broker. Consider the following facts in the context of an assessor using MLS data: First, the seller does not own the property after the sale and is unlikely to be ‘harmed’ by a later reassessment. Second, the buyer usually does not supply the information the listing broker has provided to MLS and is thus unlikely to be able to claim any invasion of privacy or breach of confidentiality.

Some MLSs deal with vestigial legal risks by putting legends/disclaimers on their listing input forms alerting the consumer that property in MLS may be shared with government entities and that the consumer should not disclose confidential information in the MLS. There are other steps the MLS and brokers can take as well.

Questions to address before licensing to the government

Before providing MLS data access to a government entity, be sure that you have checked your governing documents to see whether it is permitted. NAR policy does not prohibit sharing MLS data with government entities, but the NAR model documents may not expressly authorize it, so you might need a bylaws amendment or change to another governing document.

Things to address in agreements with government entities

As always, if you give access to MLS systems or data to anyone who is not an MLS participant (and thus subject to your rules), you should have a written agreement setting out rights and responsibilities. A written agreement is the only way to protect the confidentiality of factual information; even if you also register the copyrights in your database.

Many of our clients use a standard third-party access agreement based on our firm’s model agreement when they license access to a government entity; it takes a “fill-in-the-blank” approach to licensing of this kind. (We’re happy to customize that agreement for folks who need one.) If you will have your own counsel draft an agreement, we recommend you address the following matters in it.

  1. Purpose of access. Define the purpose of the access very narrowly. Make sure the government entity acknowledges that it may not re-purpose any data you provide.
  2. Identify users. If the government user will access your system, require that individuals accessing it be identified, and that each have a distinct user ID and password. Remind the government user that your system tracks all use and associates it with the user ID. (In other words, you will know if users abuse your system.)
  3. Freedom of information laws. Most states have “freedom of information acts” or “FOIAs” that require that the government disclose records it uses in making government decisions to anyone who requests them. (These laws go by many names; e.g., “Freedom of Information Law,” “Government Data Practices Act,” etc.) If MLS provides data in certain ways to a government entity, and the government entity uses the data for certain purposes, the state law may require that the government entity provide a copy of the data to a requesting party under the FOIA. MLS will want to structure its relationship with the government entity to minimize this risk.
  4. IP hygiene. Your agreement should include the “magic words” that clarify that MLS is offering only a non-exclusive license and that MLS retains all rights not expressly granted in the agreement. It should clarify MLS’s (or MLS’s and brokers’) title to the data and obtain the government entity’s promise not to challenge that title.
  5. Short fuse. MLS may want to be able to cancel the agreement on short notice in case a big problem erupts around the issue of government access. Many of our agreements can terminate on 30 days’ notice.
  6. What MLS gets. If MLS expects something in return for the government entity’s access, the agreement should express it very clearly.
  7. Disclaimers. MLS should consider disclaiming warranties, including any warranty of accuracy or non-infringement.
  8. Audit rights. Consider including audit rights in the agreement, so that MLS can demand to see how the government entity is using the data internally.

Just a reminder about legal advice. This isn’t it. You should not rely on this general discussion in making decisions about your own organization. If you need legal advice, get a lawyer. We’re happy to provide strategic and legal advice to clients on this issue.

-Brian

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