IDX “indexing”: What’s so special about franchisors?

NAR’s board of directors adopted a policy at its meeting in New Orleans in November regarding “Display of IDX Information by Real Estate Franchise Organizations.” This post looks at the policy from a high level. We might be able to talk about some details in a future post. It first presents the policy and a little of its background; then it describes what “franchisors” are; finally, it questions the rationale for singling out franchisors in the new policy.

The new policy

Realogy Franchise Group President and CEO Alex Perriello gave an impassioned speech to the MLS policy committee at NAR’s Washington meetings in May. My cynical summary goes like this: “We are one of you. Letting us do this is good for all of us. If you don’t let us do it, there will be dire consequences.” Of course, that would be an effective paraphrase of pretty much any request made for MLS data. Mr. Perriello characterized his request as permitting franchisors to “index” franchisee web sites, but some folks might resist that terminology as a device to make his proposal seem more palatable. They might argue this is really a limited form of aggregation, in light of the fact that franchisors do not meet NAR’s definition for “recognized search engines.”

A policy working group at NAR developed the final proposal late this summer and early this fall. Here is the text of the policy adopted last month, which becomes effective with the publication of the NAR Handbook on Multiple Listing Policy in January 2011:

Participants may provide IDX information to their real estate franchise organizations (“franchisors”) to be indexed for display on franchisors’ websites. For purposes of this policy, “real estate franchisor” is defined as a company granting real estate brokerage franchises under the franchisor’s trademarks pursuant to a franchise disclosure document meeting applicable Federal Trade Commission rules. Display of IDX information by franchisors is subject to the following requirements and limitations. Failure of a franchisor to comply with the following requirements and limitations can, at the discretion of the MLS, result in suspension or termination of the participant(s)’ authority to provide IDX information to the franchisor:

1. Initial search results that provide minimal information (e.g. “thumbnails”) are exempt from MLS-required disclosures (e.g. listing firm, listing agent, source of information, notice that information is deemed reliable but is not guaranteed accurate) provided that a direct link to a detailed (“full view”) display that includes all required disclosures is provided.

2. Consumers can link directly to the detailed (“full view”) display that complies with MLS disclosure/display rules of the source MLS.

3. IDX information is not used for any unauthorized purpose.

4. Inaccurate or incomplete information related to any listing is promptly corrected by the franchisor at the request of the source MLS.

5. No advertising may appear on pages displaying IDX information.

6. IDX listing information will not be modified, manipulated or permanently retained.

The NAR multiple listing policy committee offered the following rationale to the board of directors: “This proposed expansion of the IDX policy would authorize real estate franchise organizations, with their franchisees’ consent, to index those franchisees’ IDX displays, with the results being displayed on franchisors’ websites, subject to appropriate qualifications and limitations.”

The action item going before the board of directors purported not to have a “financial impact on board or state associations.”

What franchisors are

The International Franchise Association defines “franchising” as:

“a method of distributing… services. At least two levels of people are involved in a franchise system: (1) the franchisor, who lends his trademark or trade name and a business system; and (2) the franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor’s name and system. Technically, the contract binding the two parties is the “franchise,” but that term is often used to mean the actual business that the franchisee operates.”

In other words, the franchisor and franchisee have a contractual relationship under which the franchisee gets certain rights to materials, trademarks, and assistance from the franchisor. In return, the franchisee sells the franchisor’s services (though this picture is a bit more complicated in real estate) and pays the franchisor a fee. In real estate, franchises function a little like associations: A local broker affiliate/franchisee pays a fee for certain services from the franchisor and the right to identify itself with the franchisor’s brand (e.g., “ERA” or “REALTOR®”; I know there are differences between franchises and associations, but this just helps my discussion along a little). The local brokerage affiliate/franchisee exists as a separate company, independent of the franchisor and other franchisees. (This discussion excludes, for the moment, the case of franchisor-owned offices.)

Why franchisors, particularly?

So, my high level question about this policy is “What’s so special about franchisors?” After all, as I noted above, a franchise is really just a kind of association of brokers who receive trademark rights and services in return for a fee. Why could independent brokers not form consortia to do the same thing? Why can’t multi-regional real estate firms with local operating companies do it?

In the case of consortia, consider the Leading Real Estate Companies of the World, an association/network of real estate brokers that claims more than 600 firms as its affiliates. It offers some of the services that franchisors offer, including lead generation, relocation referrals, and the right to use the “LeadingRE logo of excellence.” In the case of multi-regional firms, consider HomeServices of America, which owns local brokerage firms in 15-20 states. Each local operating company is managed on its own, but all are owned by HSA (which is itself owned by Berkshire-Hathaway).

As far as I know, no one at NAR has offered any rationale for why franchisors to have this special treatment. It seems to me that on most dimensions of analysis, franchisors fit somewhere between associations like Leading Real Estate Companies and multi-regional superfirms like HomeServices. So, I’m hoping readers of this blog can enlighten me why NAR would make this new service available only to franchisors and not to the others.

I have some other specific questions, too, and I’d love to hear your feedback on them.

• Does the approach of providing this benefit only to franchisors favor traditional brokers? (I’m just suspecting that franchisors are more likely to be working with traditional brokers—is that wrong?)
• What is the MLS’s interest in saying that a franchisor must have a franchise disclosure document on file with the FTC? What’s in that document that addresses the interests of the MLS, the other brokers, or NAR?

By the way, I have nothing against franchisors. I’m not necessarily knocking the idea of franchisors being able to “index” IDX sites in this way (though I hope to discuss issues with that later). Right now, I’m just focused on why NAR singled out franchisors.

-Brian

P.S. If you want more reading on what search engines are, whether they are good for IDX, etc., check out the following previous posts:

• Are search engines necessarily benign? 
• Series on search engines and IDX. This link is to the capstone post. The series predated NAR’s policy change to permit indexing of IDX sites by “recognized search engines,” whatever that means. 

Updated: P.P.S. I wanted to include links to some other posts discussing this issue and forgot… Here are some. Let me know if you have posted on this issue somewhere else.

• AgentGenius, November 10