Lockbox debate ignites larger feud over role of the MLS

What started out as a proposed rule change to allow multiple listing services and Realtor associations to charge members for providing lockboxes as a “basic” service — regardless of whether they used them or not — has morphed into a broader debate over the role of MLSs.

Should MLSs operate public-facing websites that allow not only member brokers and agents, but members of the public, to search for listings?

Should MLSs provide services to agents — like agent websites, comparative market analyses (CMAs) and “paperless” transaction management systems — that some brokers say they can provide to their agents themselves?

And if MLSs decide to provide such services, should they be allowed to require that all of their members pay for them — even those who choose not to use them, or are opposed to them being provided in the first place?

A number of MLSs already provide a range of services that some brokers say go beyond what the National Association of Realtors has defined as an MLS’ “core” function: to communicate information on active listings and offers of compensation to cooperating brokers between MLS members.

The questions being considered this week in Washington, D.C., by NAR’s Multiple Listing Issues and Policies Committee are:

• What services should MLSs be allowed to define as “basic” — requiring their members to pay for them, regardless of whether they use them or not?
• What services should be “optional” — allowing members who don’t want them to opt out of using and paying for them?

Brokers and MLS executives alike say that in attempting to update language defining “core,” “basic” and “optional” MLS services, NAR has opened up a can of worms.

A proposed policy amendment to NAR’s model MLS rules — drawn up in March by an advisory board to the Multiple Listing Issues and Policies Committee — has struck a nerve with some brokers.

As proposed, MLSs would not be allowed to require that members use or pay for agent or broker websites or advertising, including classified advertising or “homes” publications furnished by their MLS.

But the proposed language explicitly states that MLSs or Realtor associations would not be prohibited from using dues or fees to establish or maintain public-facing websites.

MLSs and associations would also be allowed to collect mandatory fees and dues for providing unspecified “basic services,” as long as they were “substantially related to the purpose and functions of the MLS.”

The amendment would do away with a list of “basic services” that MLSs can charge all members, such as tax records, mapping capabilities, and statistical information, which some MLSs have complained is too limiting.

Some MLSs, for example, would like to charge all of their members for providing lockbox services, saying that the more members they provide services to, the lower the cost per member. (The proposed amendment would specifically allow MLSs to make lockboxes a “basic” service, as long as they don’t generate a profit in providing it.)

But some brokers don’t like the idea of competing with MLS-run websites, or being forced to pay for MLS-provided services that they can provide to their agents themselves.

Like Zillow, Trulia and realtor.com, public-facing MLS sites draw consumer Web traffic from broker sites in the markets they operate, some brokers say.

HomeServices of America, the second-largest real estate brokerage company in the U.S., and The Realty Alliance, an association of 70 U.S. brokers, have sent letters to the NAR committee, expressing disapproval of the draft policy amendments.

Allowing MLSs and Realtor associations to use member fees and dues to market public-facing websites would “put them in competition with many of their broker-members, specifically their larger broker-members,” said Bob Moline, president and chief operating officer of HomeServices, in a letter to the committee posted on the industry blog vendoralley.com.

Craig Cheatham, president and CEO of The Realty Alliance, said he does not buy the argument that MLSs should be in the business of providing services to agents because their size allows them to develop tools internally, and gives them bargaining clout with vendors needed to provide services at reduced costs.

“There are many products and services for which an MLS might provide an economy of scale,” Cheatham said in a letter to the committee, “but that are not part of the core purpose of the MLS.”

As they take on responsibilities that are “far-afield of the original purpose and intent of MLSs,” Cheatham said, services tend to “take on lives of their own. MLSs end up with multiplying staff counts and budgets; each new program needs marketing and promotion; and over time many auxiliary programs dwarf the MLS’ core purposes.”

When MLSs become “independent-minded business entities rather than service providers to their participants,” he said, they can find themselves in conflicts of interest with their own members.

Cheatham said some MLSs are “currently failing or refusing to perform their vital and ‘core’ services to our member firms, and instead are offering ancillary services at the expense of their core mission.”

As an example, he said, MLSs may claim that part of their mission is to provide members with access to property data, which enables them to create valuations or analyze market conditions for their clients.

But when brokerages who are members of The Realty Alliance seek data feeds of MLS information to support the creation of valuations like broker price opinions (BPOs), comparative market analyses (CMAs) and home valuations that rely on automated valuation models (AVMs), “the MLSs too often deny these requests, despite the clear statements  contained in NAR’s MLS Policy that such uses of the MLS data are legitimate,” Cheatham said.

In some instances, he said, “we suspect the MLSs deny the participants their legitimate rights to use the MLS data for valuation purposes because the MLS itself is venturing with a third party to create such valuations as an ancillary revenue source for the MLS.”

Many, if not most, large MLSs already operate public-facing websites, and provide a range of services to agents that might be seen as competing with offerings brokerages and franchisors provide, often through third-party vendors.

MLSs and Realtor associations that don’t adopt NAR’s model rules — or adopt them, and break them — run the risk of being refused NAR-backed errors and omissions insurance coverage.

One of the nation’s biggest and best-known public-facing MLS sites, HAR.com, is operated by the Houston Association of Realtors, which has warned NAR that “some MLSs are in violation of the current policy, and some will continue to be in violation of the revised policy.”