“Franchisor IDX indexing”: Misnomer and mistake

Sorry for the quite long post, but there’s quite a lot to say about this topic!

There has been much discussion of a National Association of REALTORS^® policy, which NAR officially refers to as “display of IDX information by real estate franchise organizations” and which the NAR board of directors substantially altered at its May 2011 meetings. (See the details here.) I believe that NAR should revoke the policy in its entirety. Much of the debate about this policy centers on confusion arising from its informal name—“franchisor IDX indexing”—which is a misnomer coined to make the concept sound more palatable. When seen in the proper light, the policy is a mistake because it is inconsistent with the principles of IDX, and it amounts to an NAR mandate for MLSs to set up listing syndication to channels dictated by NAR.

Misnomer: Neither indexing, nor IDX

Some of the confusion (and misinformation, I fear) surrounding this issue stems from a November 2009 NAR policy revision relating to the indexing of IDX sites by “search engines.” I believe that some franchisors hoped to ride the coattails of that decision. The franchisors sought a “clarification” of the policy—a clarification they said would support “franchisor IDX indexing.” The resulting policy proposal, which NAR adopted in November 2010, did not permit franchisors to index IDX sites, but instead permitted them to aggregate and display the IDX data of MLSs. It is not consistent with the principles of IDX.

Some background will be helpful here. At its midyear meetings in 2009, NAR considered a revision to NAR policy that would prevent an MLS from requiring a broker to prevent search engines (like Google and Bing) from indexing the broker’s IDX site. In summer of 2009, I did a series of posts on this issue. I don’t expect anyone to re-read these, but here are the links and an outline of their contents:

• Background.
• Search engine scope and data sources.
• How indexing works and search engine audience and objectives.
• My concept of “IDX index fishing”.
• An analysis of whether search engine indexing violates copyright law.
• Purpose and history of IDX and listing broker expectations.
• A post with miscellaneous corrections and enhancements.
• A post discussing objectives for IDX and options for dealing with search engine indexing.
• A final, parting shot arguing that not all search engine indexing is benign.

In November 2009, NAR adopted the revision to its MLS Policy Statement 7.58, which, among other things, prevents brokers from using their MLSs’ IDX data feeds “for any purpose other than display on their websites.” The revision provided that the policy “does not require Participants to prevent indexing of IDX listings by recognized search engines.” The revision allowed Google and its competitors (the “recognized search engines”) to index brokers’ IDX sites. It even permitted brokers to encourage search engines to do so. NAR staff later clarified “recognized search engines” by saying that it means sites that consumers would recognize as general search engines.

Even before the policy revision became effective on January 1, 2010, NAR received a letter from Alex Periello, CEO of Realogy Franchise Group (which includes the Coldwell Banker and Century 21 brands, among others). Mr. Periello requested a “clarification” of the November 2009 policy, arguing that franchise brand websites should qualify as “recognized search engines.” At NAR’s midyear meeting in 2010, Mr. Periello presented to NAR’s Multiple Listing Issues and Policies Committee, arguing for the same position. His presentation was notable for effective rhetoric, if not for valid arguments. NAR appointed a work group, which considered a policy late that summer and published its recommendations in September or October 2010. (This was not an “open process” that went on for 18 months, as some proponents of the policy argued in May 2011—it was typical, “half-closed-door,” NAR policy-making. I will save my gripes about that until another post.)

It’s notable that the policy proposed by the working group was not a clarification of the existing IDX policy regarding indexing. Instead, the recommendation to the Policy Committee was a new provision titled, “Display of IDX Information by Real Estate Franchise Organizations.” The policy adopted makes no reference to indexing, though its proponents continue to use that term; I believe they do so to make the proposal sound more consistent with previous policy instead of being a radical departure from it. NAR’s board adopted that proposal (the “November 2010 policy”). The NAR board effectively suspended/amended the policy last month at its Midyear meeting (the “May 2011 policy” or “May 2011 amendment”).

The result is not a policy that permits indexing as contemplated in the 2009 policy. As I noted in 2009, the reason that search engines can index websites without violating copyright law is primarily that their use is transformative. That is, the search engine is not a replacement for the sites it indexes. For example, when I search “123 Elm Street Minneapolis” on Google, Google sees its job as returning to me all the relevant pages on the web that refer to that address, not just real estate listing advertisements. When I search the same address on a national franchisor web site, the result is actually intended to replace local IDX sites. (Mr. Periello conceded as much in May 2010, when he argued this policy was necessary for the franchise sites to improve the consumers’ experiences there to compete with Zillow, Trulia, etc.)

The “recognized search engines” in the world (Google, Bing, etc.) generally do not seek to replace the function of the sites whose content they index. In fact, if they did so, they would likely be violating the underlying copyrights in the indexed sites. NAR implicitly acknowleges this fact, because the November 2010 makes no reference to “indexing” either in its title or its text. It’s all about franchisor “display of IDX data”.

The result of the November 2010 policy has nothing to do with traditional concepts of IDX. It is instead a mandate from NAR for MLSs to syndicate listings to third parties who are not MLS participants. I provided some history of the early days of IDX in a 2009 post on search engine indexing. My unofficial summary of the purpose behind IDX was this: “The best source for listing information on the web should be the web site of a broker participating in MLS.”

There was a lot of controversy about IDX in its early days, and one common question/comment was this: “Why should we let buyers’ brokers have IDX sites? They don’t contribute any listing data to the pool.” My response at the time (the same as now) was that buyer brokers contribute something else—a sales force that can sell the listings of other participants and collect interbroker compensation from them. In fact, a basic principle of IDX is that every broker who can display the listing of another participant is also capable of selling the listing and collecting compensation from the listing broker.

Franchisors (with some rare exceptions) are generally incapable of selling the listings of MLS participants and cannot accept offers of compensation from them, because the franchisors don’t participate in MLS. The franchisors are like “someone who comes to a potluck supper and brings only a knife and fork.” I chose this quote specially here, because it was attributed by RISMedia to RE/MAX founder Dave Liniger in 2003; in that case, the franchise founder was referring to VOW brokers. (Read the RISMedia post. Many of the quotes have an ironic resonance given the current situation.)

One of Mr. Periello’s stated goals for “franchisor IDX indexing” was to permit franchisors to compete with the likes of Zillow and Trulia. (I use these two merely as examples of national aggregators; I’m not suggesting there is anything wrong with them as such.) Like them, the franchisors can use this policy to compete with the websites of local brokers, the MLS participants. This is not consistent with any previous statement of the principles behind IDX.

Under the November 2010 policy before the May 2011 amendment, the only way a listing broker could opt out of this transmission of her listings was to opt out of IDX altogether. That is a bitter pill for the most innovative of our brokers, who have worked hard to develop excellent IDX sites. As of the May 2011 NAR meetings, the transmission of IDX listings to franchisors is subject to a listing broker opt-in (i.e., Broker A’s listings go to Franchisor B only if Broker A affirmatively selects Franchisor B as a recipient). This approach is also totally inconsistent with IDX, under which everyone gets the same set of data (almost all listings of all brokers participating in MLS and IDX). Instead, both the pre and post May 2011 rules look like a form of forced syndication: NAR is telling MLSs that they have to open syndication channels to the franchisors.

Mistake

Both the November 2010 policy, and its temporary alteration in the May 2011 amendment, are mistakes. Brokers should not be forced, as they would be under the November 2010 policy, to send their listings to franchisors (or anyone who is not a participant in the MLS) as a condition of receiving an IDX data feed. IDX has always been for brokers participating in the MLS. Replacing the November 2011 policy with some kind of listing broker opt-in or opt-out is also a mistake. Because each MLS has to set up a data feed to each franchisor to which even one participating broker decides to send its listings, MLSs must incur costs without advancing the interests of the broad base of their participants. This constitutes an unprecedented effort by NAR to force MLSs to syndicate listings to particular channels. The policy is untenable if it addresses only real estate franchisors, but if it is open to any group or association of brokers, nothing prevents Trulia and Zillow from becoming “IDX indexers”.

There is no justification for tying this policy to IDX. As I noted above, display of IDX data by franchisors is not consistent with the principles of IDX, which was designed to make brokers participating in MLSs the best source of listing information. Those who have argued that the November 2010 policy addresses shortcomings in the IDX policy by permitting franchisors to innovate are wrong—the policy would have empowered franchisors (who already have a lot of market power) but would have done nothing to improve common problems with IDX at the local level.

Telling a listing broker she has to let someone who is not an MLS participant display her listings on a national web site is simply not consistent with the principles underlying IDX. But perhaps some will argue that the solution is to provide a separate feed to franchisors, to which listing brokers must opt in or from which they may opt out. This, too, is a mistake.

Requiring a feed to franchisors (or any third party) is an unprecedented intrusion by NAR. To my knowledge, NAR has never required MLSs to set up a syndication channel for delivering listing information to anyone who is not an MLS participant. IDX and VOW data feeds are only for MLS participants. NAR never required MLSs to send listings to Realtor.com. It does not require them to send listings to RPR. NAR does not even require MLSs to provide statistical data so that NAR can prepare its national reports on home sales for the media. Now, with the November 2010 policy, and even with the peculiar May 2011 amendment, NAR requires MLSs to set up syndication channels to national real estate franchisors, folks whose connection to MLS’s core purposes is more tenuous than any of these other examples.

What’s more, NAR’s imposition of a requirement to syndicate to national franchisors takes away the MLS’s ability to negotiate better terms for its brokers. Many MLSs (large ones particularly) have negotiated favorable terms with national aggregator websites to limit their uses of listing data in return for the MLSs providing syndication channels to the aggregators. With NAR dictating who will be syndication channels, what ability will MLSs have to limit aggregators to uses of listing data acceptable to the listing brokers?

This forced syndication is an unprecedented intrusion by NAR into the affairs and decision-making of the local MLS board of directors, and NAR has embarked on it with hardly a hint of justification. Where will NAR next require MLSs to send listings? Realtor.com, RPR, NAR itself? Homeservices of America, Leading Real Estate Companies of the World? I don’t believe giving the listing broker an option makes a bit of difference here; the fact remains that every MLS has to set up a data feed to any franchisor that asks.

The policy is indefensible if directed only at franchisors, and will have unintended consequences otherwise. I noted in a post last fall that it’s difficult to justify conferring this new NAR benefit only on franchisors. They are, after all, merely a kind of group or association of brokers who participate in MLS. The franchisors acknowledged as much this spring. In response to complaints about the November 2010 policy from The Realty Alliance and Homeservices of America, among others, the franchisors generously offered to share the listings of local MLS participants with other groups. In other words, a group of brokers like The Realty Alliance could operate a national portal, as could Leading Real Estate Companies of the World, etc. (Again, I’m not knocking any of these companies, just using them as examples.) If the November 2010 policy is fully reinstated, it will almost certainly have to include other groups or associations of brokers.

But if this is allowed, national aggregators will be the real winners. Nothing prevents them creating the “Zulia Association of Real Estate Brokers.” Under a revised version of the November 2010 policy, this national association of brokers could “index” the IDX sites of member brokers (one in each real estate market, please) and then display the results on their national “association” web site. Getting an IDX feed from each and every MLS would certainly solve the number one problem of national aggregators: complete, consistent, reliable, and fully up-to-date data feeds. Consumers will definitely appreciate the much-improved experience they will have on aggregator websites; but MLS participants will no longer be the best source of listing information on the web….

Conclusion

I have been sympathetic to franchisor desires to obtain MLS data feeds since the late 1990s, when RE/MAX’s chief technology officer sat down with a group of MLS execs and asked how he could get such a feed. The desire of the franchisors to have listing data feeds from MLSs is perfectly natural; but NAR and local MLSs to not exist to gratify every desire of the franchisors, no matter how natural. No rationale so far offered justifies tying a listing broker’s participation in IDX to her willingness to send her listings to a franchisor (even if she is affiliated with that franchisor) to be displayed on a national aggregator website. And no rationale so far offered justifies NAR imposing a requirement on MLSs to syndicate brokers’ listings to non-participants. NAR should revoke and abandon this policy and any similar proposals.

I’d welcome your thoughts.
-Brian