Irked brokers slam forced MLS membership rule

Should real estate agents be forced to subscribe to an MLS because their broker does?

An advisory board of the National Association of Realtors (NAR) wants to know your thoughts on that question, preferably by July 1, at mls@realtors.org.

The NAR MLS policy up for debate allows Realtor-affiliated MLSs to require that all of the licensed salespersons affiliated with a broker’s office subscribe to the MLS — if a broker is a member of the MLS and that broker’s office lies within the territorial jurisdiction of the association that owns and operates the MLS.

According to the brokers pushing for change, the policy as-is hurts agent recruiting and retention; forces brokers or their agents to pay for MLS services they do not want or find valuable; and discriminates against newer, tech-enabled business models.

On the other hand, any changes to the policy may have to contend with some MLSs’ worries regarding “free riding” by agents who don’t pay for the MLS as well as impacts on MLS budgets if agents were no longer forced to join the MLS.

MLS and broker leaders debated whether and how the policy should be changed at last month’s NAR midyear conference in Washington, D.C. At that point no decision was made, but the leaders set the table for discussion in the next few months for possible changes to the policy at NAR’s annual conference in November.

In August, the trade group’s MLS Technology and Emerging Issues Advisory Board will consider the feedback and decide whether to propose a change.

“This has to do with who is required to buy service from an MLS,” Rick Harris, chair of the MLS advisory board, told MLS executives at the midyear conference.

“Really what it’s about is the relationship between the MLS and the brokers within its jurisdiction. [We’re] anticipating that perhaps by November there will be a policy for consideration. I encourage you not to wait to participate in the discussion. Be a part of the creative solution — if there is one to be had — rather than waiting to see [what happens].”

While the impetus to change the policy came from the owner of a small Florida brokerage, the debate has gained steam. Harris told Inman that a handful of brokerages of all sizes — including large virtual brokerage eXp Realty — have sent letters to the advisory board about the policy and he expects to receive more.

A ‘nimble’ service structure

The policy is a “local option,” meaning that NAR does not mandate that it be adopted, but allows local MLSs to adopt it in their marketplace. NAR has 1.2 million agent, broker and appraiser members and more than 700 MLSs under its aegis.

The “guiding principle” of the policy change discussion will be “to empower Realtor MLSs, brokers, and agents with a modern service structure that recognizes evolving business needs in the real estate industry, provides flexibility in light of emerging technology and workplace trends, and encourages value-driven competition among MLSs,” NAR said on its website.

While no definitive policy changes have been made, or specific language discussed, suggestions for amendments include establishing an “MLS of Choice” policy and requiring agents to subscribe to at least one MLS to which their broker subscribes.

“The idea is to empower brokers and agents with a nimble MLS service structure that allows for innovation and competition amongst MLSs. The new concept would allow agents a choice in subscribing to any MLS in which their broker is a participant, and it would require MLSs to only assess brokers a fee based on their affiliated licensees who chose to subscribe to the MLS,” according to NAR’s site.

“However, MLSs will have the discretion to assess fees to agents affiliated with a participating office jurisdiction, if those agents have not subscribed to another Realtor MLS.

“This would result in a value-driven service structure that encourages competition amongst MLSs, responds to the evolving business needs and varied structures of brokerage firms, and, therefore, is in the best interest of brokers and their affiliated agents.”

‘MLS of Choice’

The policy the MLS advisory board, which includes brokers and MLS executives, will consider is MLS Policy Statement 7.42, which reads, in part:

“MLS may, as a matter of local determination, require that each of a firm’s offices located within the jurisdiction of the association(s) that own and operate the MLS or that are parties to a multi-association or regional MLS service agreement participate in the MLS if any office of that firm participates in that MLS.”

Jim Weix, broker-owner of The Real Estate Company, Inc. in Stuart, Florida, would like to see this policy eliminated and replaced with an “MLS of Choice” policy akin to NAR’s Board of Choice policy, adopted in 1994. Before then, Realtors were required to join the local association in whose jurisdiction their office was located.

“Although this territorial jurisdiction policy may have made sense back in the days of MLS books, today it promotes restraint of trade, causes unnecessary expenses to brokers and agents, and hinders the recruitment of new agents,” Weix told Inman via email.

Per the Board of Choice policy, Realtors are allowed to “choose the board to which they want to belong on the basis of the factors they decide are most important rather than being limited by office location or jurisdictional boundaries” so long as their broker is also a member.

Weix would like NAR’s Multiple Listing Issues and Policies Committee, of which the advisory board is a part, to replace “board” with “MLS” and enact that policy.

EXp speaks up

In an April letter to the MLS committee, eXp Realty suggested that, while the committee might ultimately decide to put in a policy similar to Board of Choice, an immediate solution would be to mandate a rule “requiring MLSs to exempt from fees any licensee affiliated with a participant who, together with the participant, signs a certificate in a form approved by the MLS certifying that the licensee (1) neither has direct or indirect access to the MLS nor uses the MLS and (2) pays fees to another MLS. It is that simple.”

This “waiver” approach has been taken by Heartland MLS in the Kansas City, Missouri area and to eXp’s knowledge, “works without problem,” the brokerage added.

EXp has more than 3,000 agents in 43 states and D.C., participates in more than 180 MLSs, and operates virtually.

“[T]he efficiencies of eXp’s operations have been significantly and adversely affected by the application of a nearly ubiquitous MLS rule that requires all licensees affiliated with a participant to be subscribers of an MLS, with fees paid to the MLS accordingly,” eXp counsel Christopher Osborn wrote in the letter.

He gave the example of an eXp designated broker residing in Seattle who also supports and supervises agents operating exclusively in Spokane, 300 miles away.

“Thus, using the same Washington example, a broker participating in the MLS serving Seattle must pay MLS fees for all agents licensed to the broker, including agents operating exclusively in Spokane and not availing themselves of the services of the Seattle MLS,” Osborn wrote.

“Moreover, assuming the Spokane MLS has the same rule (and, again, most MLSs do have the same rule), the participant and all licensees must also pay Spokane MLSs fees for the same reason. The result is, obviously, fundamentally unfair.”

The rule results in “unintended discrimination” against statewide brokers and their agents, according to eXp. This appears to be largely because of the unnecessary costs the rule entails and what that means for the brokerage’s efforts to compete.

“A licensee faced with the prospect of paying MLS fees for two MLSs, one of which the licensee will not use, is not inviting. The prospect of double MLS fees can often, if not more often than not, determine the licensee’s selection of a brokerage firm,” Osborn wrote.

“Thus, in order to stay on a level playing field with its competitors with geographically local operations, eXp must either absorb any superfluous MLS fees without passing them on to its licensees or, establish unnecessary ‘branch’ offices that are not required by state law and that result in additional cost and inconvenience to eXp.”

The “waiver” approach suggested by the brokerage would be “less draconian” than the current rule and “would protect against free riding without unjustly enriching the MLS at the expense of some Realtors because of their business model,” eXp said.

‘This is ridiculous’

EXp is not the only brokerage for whom this rule is incompatible with how its business operates. Jonathan Edmiston, a Carrington Real Estate Services area vice president and managing broker for all of North Carolina and South Carolina, also considers the MLS jurisdictional rule “discrimination” and an “unfair policy.”

“[T]his issue has greatly affected our business and recruiting,” Edmiston told Inman via email. Edmiston supervises about 25 agents.

“This policy with many of the smaller MLSs, along with some of [North Carolina’s] quirky real estate laws, have made it impossible for us to bring on agents in different markets. It doesn’t reflect the current structure of the business with the technological advances in the past 15 years.

“[M]y office is in Chapel Hill, [North Carolina], and all of my agents are registered with the state from my office and work from home. I wanted to bring on a couple of agents in the western portion of NC and even though the rest of our agents didn’t work or live in the area that their MLS covered, they still wanted ALL of my agents to join their MLS before allowing us to participate.

“We had to find an additional broker-in-charge and open up a branch office there so that only those agents there could sign up. This is ridiculous!”

The NAR MLS committee debates

Sam DeBord — a broker, Inman contributor and member of the MLS advisory board — started off the MLS committee’s powwow on the MLS jurisdictional rule with this example:

There’s a broker, Betty, with 100 agents. In the center of town, there’s MLS A and 50 of Betty’s agents are happy to join that MLS. In the west of town, 25 agents want to join MLS B. In the east of town, 25 agents want to join both MLC C and MLS A.

As the current rule stands, all of Betty’s agents could be forced to join all three MLSs, regardless of whether all three fit their needs.

“So Betty becomes a victim of her own success. It becomes more expensive with every agent she hires,” DeBord said.

He recognized that there was a reason the current rule was put in place — agents were sharing MLS books amongst themselves without paying for the privilege.

But the policy’s lack of flexibility could incentivize brokers to go elsewhere other than that MLS marketplace, he warned.

The policy could be changed to allow MLSs to charge brokers a fee for their agents who choose to participate in the MLS and for agents who don’t belong to another MLS, he noted. “Clearly, this is potentially transformative for some MLSs, so how do we address that?” DeBord asked the committee.

One committee member asked whether the change will mean that there will be cooperation and compensation between the agents of MLS A and MLS B.

An advisory board member responded that there was a form available that would cover that. Another pointed out that the broker would still belong to each MLS and compensation flows through the broker.

Chris Carrillo of Wisconsin’s Metro MLS said change was “a long time coming,” but that, practically-speaking, there was a need to avoid “rampant abuse of MLS services.”

“I think that’s everyone’s fear,” DeBord responded.

Conference attendee Laura Burns of Eastern New York MLS pointed out that there is technology available to thwart those who may want to share logins.

“Yes, there is technology. People cheat now. People will cheat in the future,” DeBord said, noting that this is part of the reason to make sure everyone is joining an MLS.

Still, he added, “we don’t want a policy that holds everybody back because there are some bad actors.”

Another MLS executive in the audience asked: As a small association, how do we go about paying for security products?

DeBord acknowledged that that issue needed to be discussed further because a lot of MLSs are not employing security features.

Committee member Claire Wallace, president of the New England Real Estate Network (NEREN) said the policy change would have a “big impact” on her MLS because of the many “border offices” that are members. She was concerned about the timeline of implementing the policy, given the MLS’s strategic plans for the year and the contracts the MLS is subject to.

“Whether it’s a fair question of implementing it or not, that is the good or bad,” she said.

Local market examples

Some MLS execs offered lessons from their own markets as food for thought.

Cameron Paine of SmartMLS in Connecticut noted that MLSs have mandatory listing policies that require brokers to list properties in the MLS unless directed not to by the seller. What if the broker belongs to the MLS, but the listing agent doesn’t?

“In Connecticut, we came up with policies that may work on a national scale. We’re happy to share,” Paine told the committee.

Terry Tolman, chief staff executive of the Realtors Association of Maui, which operates Hawaii’s second-largest MLS, said his association had instituted a policy about a decade ago, also called “MLS of Choice,” through an agreement with two other Hawaiian MLSs, HiCentral MLS and Hawaii Information Service.

Under the agreement, brokers and all of their agents must join their primary MLS on the island where their office is located. If the broker wishes to join a secondary MLS, the requirement for all agent membership in that additional MLS is optional.

Even if an agent is not part of the secondary MLS, all three MLSs have agreed that whatever cooperative commission is offered in the MLS will be honored if the non-member agent does a deal with a member agent.

To address any security issues, Maui MLS, which has 1,500-plus subscribers, has deployed login authentication software to identify possible illicit sharing of MLS login information.

The policy has “worked out pretty well in our unique geography — miles of water separating each island market area from the next,” Tolman later told Inman.

“The big deal is taking away the roadblock for brokers and agents reaching out to markets on other islands without enrolling all their agents working back in their primary home market.”

There are some differences between this policy and the proposed changes to the MLS jurisdiction rule. As the current rule allows, the three Hawaiian MLSs require that if an office is located on a particular island within the jurisdiction of the association that owns the MLS and the broker chooses to join the MLS that primarily covers that island, all of his or her agents that belong to that office must also join that MLS.

So if a broker’s office is on Oahu and he or she chooses to join HiCentral MLS, which is owned by the Honolulu Board of Realtors, all of his or her agents that belong to that Oahu office must also join, regardless of whether the bulk of their business is in that jurisdiction.

Reactions from brokers

The MLS committee’s discussion generated mixed reactions from the brokers pushing for change. Weix thought the committee “did a good job of researching the issue and presenting it to those of us in attendance. I was also pleased, but not surprised, that most of those in attendance were in favor of it.”

But eXp President and General Counsel Russ Cofano thought the committee missed an opportunity to immediately ease broker frustrations.

“While we were pleased to listen to the discussion … and the clear recognition of the inequities that can result from the categorical enforcement of anti-free riding rules, it appears that the Committee may have missed the opportunity of a simple interim solution (as outlined in our letter) while striving for a more perfect permanent solution,” Cofano told Inman via email.

“To the best of our knowledge, there have been no reports of Realtors availing themselves of an exemption from MLS fees after signing a pledge of no access or use of the MLS and then ‘free riding’ those same services. Thus, it was a bit disheartening to hear comments about the potential cost to MLSs to catch the ‘free-riders’ as any potential justification for the status quo.

“Of course, there are instances of Realtors sharing passwords or otherwise not properly paying for MLS services, but those circumstances are far less likely when the individual Realtor practices outside of the jurisdiction of the MLS from which she sought an exemption from fees. We as a company would never tolerate free riding under any circumstances by any of our agents.

“The unfortunate fact remains that the existing policies are causing us to operate less efficiently than our model would otherwise allow and forcing us to pay for MLS services we do not use nor have any intention of using. Ironically, we wonder if it is those MLSs who indiscriminately enforce these rules and policies that are perhaps the real ‘free riders.’

Next steps

The MLS committee urged agents, brokers and association and MLS executives to send their feedback on this issue to mls@realtors.org.

“After hearing all of that information and feedback, emails will be put together and in August we’ll have a serious discussion about what could that policy look like if it’s determined it’s needed,” Harris told Inman.

He cautioned that he couldn’t be sure there would be a policy for the committee to vote on in November. “It’s a big deal. [With more than 700 MLSs] that’s not the kind of adjustment that you make overnight,” he said.

The Council of Multiple Listing Services (CMLS) will create a white paper about MLS Policy Statement 7.42 and deliver it to the committee by early July, according to CMLS President Lauren Hansen.

“We will outline the impacts of the policy for the committee to consider, but will not take a position on the issue at this time. Our purpose is to provide a deep dive into the policy and potential ripple effects,” she told Inman via email.

“There was quite a bit of discussion during the NAR meetings about the policy and I took notes about the various issues we may address, including verification of MLS participation with another MLS, ‘secondary’ MLS participation, listing submissions based on jurisdiction, and an implementation timeline to allow MLSs and associations to plan accordingly.

“Our hope is that the CMLS white paper will add thoughtful facets to the committee’s discussion and decision-making process.”

Email Andrea V. Brambila.

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