You will no doubt be pleased to hear that this post is the last of a five-part series on the question of whether and how brokers participating in MLS may use listing data of other brokers to power AVMs sold into the real estate vertical. See Part 1 for an intro and Part 2 for advice that NAR gave MLSs in 2013. I examined a letter from The Realty Alliance (TRA) on this subject in Part 3. The fourth post discussed the NAR policy proposal, at least as it stood as of May 7, 2014.
In this post, I’ll briefly discuss a report from Clareity Consulting, which came out on May 8. Then I’ll make some clarifying suggestions to the policy proposal going before NAR’s Multiple Listing Issues and Policies Committee this week.
The Clareity Consulting report
On May 8, Clareity Consulting released a report titled “Broker AVM: Exploring the Controversy.” I encourage folks to read it,, but it leaves some of the issues I’ve expressed the greatest concern about mostly unaddressed. I think the Clareity report makes an impassioned argument for why NAR should comply with TRA’s request. While I don’t necessarily agree that all those arguments are persuasive, that has not been my angle; instead, I’m interested in how the decision is made and how this works out in practice.
My main concern is that the Clareity report appears to assume that any broker AVM will be run as responsibly as I expect TRA’s Collateral Analytics partners will run things. For example, the report says:
- “To be clear, the financial institution never receives raw MLS data.” (p. 3)
- “Unlike the ‘paper brokers,’ or others who have misused the data, TRA wants to ensure brokers have a legitimate means of doing business, facilitated by the MLSs.” (p. 4).
I assume all these facts about the project supported by TRA are true, but that does not mean they will be true of those who come after TRA. The Clareity report raises the specter of antitrust liability for MLSs that license data for AVMs to the likes of CoreLogic and RPR while refusing to let TRA do AVMs, but it fails to note an essential difference: listing brokers get to opt out of MLS data licenses to CoreLogic and RPR. If TRA’s request is granted, listing brokers will probably NOT be able to opt out of this data use. And importantly, the antitrust sword cuts both ways: If NAR adopts the proposed policy to enable TRA and its member brokers, who are in most cases the most upstanding and admirable firms in our business, to do what they have requested, MLSs will not be able to refuse the same privilege to other participants. The antitrust laws make it tough to say you’ll open this door for your good friend, the incumbent industry player, but then slam it on the disruptive new-comer. In my mind, that means you should think carefully before opening the door to anyone.
In an email accompanying the report, Clareity’s founder, Gregg Larson (no relation, though we sometimes get checked into each others hotel rooms at conferences) noted that some folks have suggested that there be a listing broker opt out for this broker AVM data use. I’ve heard that, too, and it brings me to my suggestions for NAR’s policy committee.
Suggestions to make the policy workable
I don’t have a personal view about whether NAR should adopt the proposed policy or not. It seems to me there are at least three major routes the policy committee could take:
- Wait and think about it some more.
- Adopt what has been proposed to the committee.
- Amend the proposal and adopt that.
The first option has its virtues, but I expect TRA would like an answer so that it can move on, and many of our MLSs clients would like clearer guidance, too. The second option is less than satisfactory for the reasons I mentioned in my last post. So let’s think about what changes can be made to what has already been proposed to make it more workable. I suggest these:
- If it is the intention of the policy committee to say that AVMs are in the same category as CMAs and BPOs, then it should say so. Change the proposal to read this way: “None of the foregoing shall be construed to prevent any individual legitimately in possession of current listing information, sold information, comparables, or statistical information from utilizing such information to support valuations on particular properties for clients. For purposes of this policy, ‘valuations’ includes automated valuation models whether or not they incorporate the professional judgment of a participant.“
- If it is the intention of the policy committee to say that AVMs are in the same category as CMAs and BPOs, then it should clarify that there is no listing broker opt-out. I think the proposal as it stands makes that fairly clear, but I’ve talked to brokers who don’t understand that. They think the proposal I discussed in my last post includes a listing broker opt out. I’d add after the last sentence, “Data uses of the kind described in the previous sentence are part of the core purpose of MLS and do not require listing broker consent; nor may listing brokers participating in MLS opt out of such uses by other participants.” Normally, I don’t like adding language to state what I think is obvious, but clearly some brokers and MLSs will not interpret the policy as NAR staff intended unless this language is added to clarify.
- If the committee intends for MLSs to be required to support participants with data feeds for AVMs, then it should be clear that MLS can recover its costs not just for the data feed, but also for the enforcement activities. I’d add: “MLSs may require participants who will use such data feeds to pay the reasonably estimated costs incurred by the MLS in adding or enhancing its downloading capacity for this purpose and reasonably estimated costs for MLS to enforce its policies with regard to the data feeds and uses.”
- MLS should also be able to send just data and not photos (which are not necessary for valuation models in any event, and which some MLSs are trying to manage using transient downloads only). We could add this: “The data feeds referred to in the previous sentence shall be persistent if the participant requests a persistent data feed, except that MLS may restrict photographs to transient download.”
- It should be clear that MLSs supplying data under this policy statement may impose data license agreements (just as they may with VOW and IDX data feeds) and that they may impose reasonable restrictions on the data uses that are similar to those in the VOW policy, which is the most analogous of NAR’s existing policies. I’d do that by adding this sentence after the last one I discussed: “MLS may require that a participant enter a license agreement to use a data feed for valuation purposes, and the license agreement may include restrictions on the broker’s conduct analogous to those in the VOW policy where necessary to protect the interests of the service or the other participants.” Candidly, this is a little vague, but I’m not prepared to try to spell out all the restrictions that should or should not be included without more public discussion.
- Finally, the effective date for this policy should be the default, January 2015. Most MLSs will need to revise their license agreements and data feed facilities to accommodate this new approach. If NAR or TRA wants the effective date to be sooner, there should be at least three our four months for MLSs to comply.
Well, that’s an imperfect start, but it gets on the table changes I think the committee should consider if it wants to adopt the policy proposed in its agenda. But what about the question of listing broker opt-out that Gregg raised?
Listing broker opt outs
I don’t really have an opinion about whether listing broker opt-outs are a good idea. I feel that if broker AVMs are going to be a success, they will need all the listing data. Having a listing broker opt out is like saying, “We’ll permit broker AVMs, but we want them to fail.” If, however, the committee wants to permit a listing broker opt-out, I strongly recommend that this new policy get a home in a different part of NAR’s MLS policies. In other words, saying the listing brokers can opt out of participant-run AVMs is saying that AVMs are not the same as CMAs and BPOs for policy purposes. In that case, NAR should adopt a new statement of multiple listing policy defining what AVMs are, including the suggestions I’ve made above, and saying that listing brokers may opt out.
Just tacking an opt-out provision onto NAR’s proposed policy will cause much confusion. Would it mean that listing brokers can opt out of having their listings used in other valuations–CMAs, BPOs, appraisals? That sounds crazy. If you want an opt out, what you really want is a separate AVM policy.
Should NAR adopt the proposed policy with the amendments I suggested above, should it adopt a separate AVM policy with an opt-out, or should it do nothing? Thankfully, that’s not my call. But the brokers and industry leaders making the call next week should think it through carefully and make the best decision they can. I’ll be crossing my fingers for a good outcome.
P.S. See the end of the first post for disclosures/disclaimers, etc.
Matt Cohen says
Brian – this has been a great analysis. A few points: First, NAR has had plenty of time to consider this issue. While this issue bears careful consideration, I don’t think it makes sense to leave MLSs waiting and brokers stewing for another six months for clarification on this issue. Second, are CoreLogic and RPR broker opt-outs really common among MLSs? Even if so, that’s opt out for distribution to a third party, not for broker use (as for CMA and BPOs) – I don’t think it is a relevant comparison. Third, the idea that this opens the door to others not acting as above-board as TRA & Collateral Analytics is a concern, but one that seems possible to address. That’s why we went into some depth in the paper regarding use by actual participants, what made up a legitimate customer, and other factors as you pointed out (i.e. not giving raw data to lender). In doing so, we were hinting pretty strongly at the “how” this would be limited to meet brokers’ needs and expectations, even if we didn’t propose specific additions to the NAR proposed policy changes. Yes, Clareity’s paper may have seemed like an “impassioned argument”, but that doesn’t make it less valid. Yes, we passionately hope that NAR can address policy issues in a timely way, and though not all of our MLS clients will agree with our conclusions, sometimes it’s important to get off the fence and take a position – to call it like we see it. See you in D.C.!
Brian Larson says
Thanks for commenting!
I don’t know whether listing broker opt-outs for CoreLogic or RPR licensing by MLSs are common or not, but they are required by NAR policy in any event. (Neither RPR nor InfoNet (or whatever it’s called now) is part of MLS’s core purposes.) But you reinforce my point: those relationships involve third-parties, not MLS participants, and listing brokers get to opt out of them. MLSs could probably continue to do those types of deals and still refuse to let participants build AVMs without implicating some kind of antitrust liability. I’m not saying they SHOULD do that, just that it seems unlikely to raise antitrust issues.
You noted: “…the idea that this opens the door to others not acting as above-board as TRA & Collateral Analytics is a concern, but one that seems possible to address.” We agree here, too, but NAR should consider those concerns BEFORE adopting the policy, not after. If later adjustments to the policy appear to make it work only for the incumbent brokerage firms, then I suspect you’d have some antitrust concerns. To avoid opening that door, it would be reasonable for leaders to distinguish AVMs from other valuations that require professional judgment, like CMAs, BPOs, and appraisals, and say AVMs are not permissible under policy. (The VOW policy already allows sellers to opt out of them.) Again, I’m not saying they SHOULD do that, just that it’s one of their options.
I DO, however, think the policy committee should address some of the recommendations I’ve made here.
(BTW, this is not legal advice for anyone–want legal advice? hire a lawyer!)
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Matt Cohen says
Brian – I think we’re in violent agreement that it’s best to write policy right the first time, addressing issues prior to policy adoption. But hopefully the committees have had long enough to consider the details and get things done this week. See you in DC!
Brian Larson says
I like “violent agreement”! I’ll steal that and use it somewhere else!
Jeff Gellman says
Thanks to you both for the highly educational analysis.
I can just imagine the impending headline:
“Impassioned Argument Leads to Violent Agreement”
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