The National Association of Realtors is considering a proposed policy amendment this week that would require multiple listing services to provide data feeds to brokers wishing to use the data to create automated valuations of properties for clients — and by extension, likely not allow listing brokers to opt out of including their data in such feeds.
NAR has released the text for the policy proposal, which has raised thorny questions and some criticism from industry players, including a letter from an MLS exec saying the vast majority of the brokers in her state disagree with the proposal.
Valuation image via Shutterstock.
The proposal was developed in part from input the trade group received from The Realty Alliance, a network of 60 or so large brokerages that says it represents more than 100,000 Realtors nationwide and counts heavyweights such as HomeServices of America, Long & Foster Real Estate and Crye-Leike Realtors as members.
In a January letter to NAR, The Realty Alliance CEO Craig Cheatham asked NAR’s MLS Issues and Policies Committee to amend NAR’s MLS policy to make clear that MLSs must provide participant brokers with a source of MLS data — either downloads or data feeds of active, sold and off-market data — that the brokers may use to generate automated valuation models using software licensed from a third party in order to sell those AVMs to financial institutions in return for a fee independent of a real estate sales commission.
The text of the proposed NAR policy amendment having to do with AVMs stipulates that MLS content currently available to brokers for brokerage purposes must also be available to them for valuation purposes, either through an existing data feed or a separate data feed. Here is the part of the amendment dealing with automated valuations:
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
an estimate of value valuations on a particular property properties for a particular clients. Any MLS content in data feeds available to participants for real estate brokerage purposes must also be available to participants for valuation purposes, including automated valuations. MLSs must either permit use of existing data feeds, or create a separate data feed, to satisfy this requirement. 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. However, only such iInformation that an association or association-owned multiple listing service has deemed to be nonconfidential and necessary to support the estimate of value may not be reproduced and attached to the report used as supporting documentation. Any other use of such information is unauthorized and prohibited by these rules and regulations.
Brian Larson, an attorney and consultant for MLSs and brokerages at Larson Skinner PLLC who has written a five-part series on the topic of broker-produced AVMs, noted that the proposed policy does not address certain issues, namely that the policy appears to treat comparative market analyses (CMAs), broker price opinions (BPOs), and AVMs as the same for policy purposes, which means listing brokers would not be able to opt out of having their data included in feeds for AVMs.
“Listing brokers have never been asked, in general, how comfortable they are with their listing data being used in valuations (like AVMs) where no professional judgment is involved; they are, of course, well-accustomed to valuations (like CMAs/BPOs and appraisals) where professional judgment is involved,” Larson wrote in a blog post.
“Should these be the same for policy purposes? The NAR staff and The Realty Alliance assume so.”
He proposed that the policy be clarified to explicitly note whether AVMs are considered to be the same as CMAs and BPOs and whether listing brokers will be able to opt out.
The Realty Alliance’s Cheatham told Inman News that brokers would see such wording as “unnecessary” because valuations are “such a core part of the function and benefit of what makes an MLS an MLS.”
“If we have to go to those lengths throughout our MLS policy document, that exposes a real rift in the agendas of MLSs and brokers, when MLSs’ agendas should be in line with supporting the needs of broker participants,” he said.
“Can you imagine brokers opting out when other MLS participants go to determine a reasonable listing price or using a CMA or calculating a BPO? Valuation is a core right and benefit, and opt out has no place in this area.”
Stephen Roney, owner and CEO of Prudential Utah Real Estate, agreed that listing brokers should not be able to opt out.
“I think you need the entire picture in order to provide an accurate answer for buyers, sellers and consumers,” he said.
Prudential Utah, which has about 400 agents, is a member of The Realty Alliance and posted $1.9 billion in sales volume last year, according to Real Trends.
But in a letter to NAR’s MLS Issues and Policies Committee, UtahRealEstate.com President and CEO Rebecca Jensen noted that more than 85 percent of the brokers in her MLS (which represents nearly all Utah Realtors) opposed the proposed AVM policy, citing concerns about client privacy, broker control of data, the unreliability of AVMs, and the subversion of MLS security protocols.
“An AVM is a product that does nothing more than strip out the knowledge and expertise of local Realtors in order to derive a questionable property valuation, which could threaten the very lifeblood of the industry: the successful real estate transaction,” Jensen wrote.
“This proposal undermines the right to privacy and the spirit of Utah’s nondisclosure status that we have worked so hard to maintain. The vast majority of URE’s brokers oppose this policy change. They own the data and should be allowed to decide what is a permitted use, and what is not. We ask that the MLS Policy Committee leave the adoption of this policy up to the local discretion of each MLS.”
In response to Jensen’s letter, Cheatham said there seemed to be a significant lack of information and understanding among those brokers Jensen quoted in the letter about how AVMs work.
“With broker AVMs, no data is being provided to any third/outside party. It is at all times under the control of the broker, just like a VOW [virtual office website] feed,” he said.
“No personal information is shared or displayed at any time in the process. There is no threat to Utah as a nondisclosure state, as the data is never made public and remains at all times under the broker’s control.”
For instance, The Realty Alliance has already created a program through which both member and nonmember brokers can license proprietary software from a third-party real estate analytics company, Collateral Analytics, to create AVMs and other real estate market analyses — but the MLS sends the necessary feed to a server controlled by the MLS participant and the software resides on that server and interacts with the data to produce the calculation.
“If there is any other arrangement, it is because of the MLS’ request, and the third party has no right, under any arrangement, to use or display or share the data — the same as any back office or accounting or website or marketing or other vendor,” Cheatham said.
In regards to concerns about real estate deals falling apart due to AVMs, he said lenders have strict rules about their methods for making decisions on loans and don’t use AVMs to deny loans.
“AVMs are taken for what they are by those that buy them and thus AVMs do not carry the expectation that a BPO or an appraisal would and are used for purposes for which quick, automated valuations are appropriate,” he said.
No matter what NAR decides, AVMs will continue to be calculated and sold on Utah properties now and in the future, Cheatham said. “The only difference would be who is allowed to sell them.”
Larson noted that the proposed policy covers an MLS’ download costs to provide data feeds, but does not account for an MLS’ enforcement costs when the data in those feeds is provided to a third-party technology provider that partners with a broker to generate AVMs.
“MLSs that want to ensure the data feeds provided under this policy are being used in a way consistent with MLS rules will need to expend resources to do so; can they charge the brokers receiving the feed for those resource costs?” he wrote.
“What about a license agreement? Can [an] MLS impose a license agreement of the kind it is allowed to impose under the VOW and IDX policies?” he added.
Cheatham said brokers would not oppose a “reasonable” amendment to the policy proposal to assure MLSs they could require a “reasonable” license agreement that did not inhibit the ability of the MLS participant to create and use valuations.
But he said MLS enforcement should be an administrative expense paid from MLS participation fees paid by all MLS participants.
“Enforcement of reasonable MLS rules and policies on permitted data use is in the interests of all MLS participants, just like all residents of a community pay for fire and police protection and local public schools without regard to how often they use these services,” he said.
Cheatham also objected to Larson’s suggestion that photos are not necessary for valuations and therefore do not need to be included in data feeds for AVMs.
“Photos are necessary in the feed for the same reason they are necessary for BPOs and appraisals. They offer [the] recipient of the report a fuller description of the subject property and the comps that were used,” he said.
Larson pointed out that, under the proposed policy, every MLS will be required to provide data feeds to every MLS participant that requests it for the purpose of AVMs.
“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 newcomer. In my mind, that means you should think carefully before opening the door to anyone,” he wrote.
For that reason, Larson cautions that the policy change could have unintended consequences, such as the establishment of “paper appraiser firms” in which appraisers (who often qualify as MLS participants) could go around joining MLSs to get data feeds to build AVMS.
“Appraisal participants in MLS are not required to meet even the basic requirement that brokers must to be actively engaged in brokerage. Such an appraisal firm might never actually do appraisals, it would just sell AVMs. Could MLSs deny participation to such appraisal firms?” Larson wrote.
Cheatham noted that appraisers can already create AVMs using MLS data and there is nothing in regulations preventing them from providing AVMs to lender clients as an additional product offering, though he couldn’t imagine why an appraiser wouldn’t offer full appraisals as well.
“Bottom line, there is not any equivalent in the appraisal industry to the ‘paper brokerage’ in the real estate industry,” he said.
“‘Paper brokerages’ in real estate exist only to make referrals to other brokers. AVMs are not ‘referrals’ of ‘leads.’ They are a recognized form of property valuations that serve functions that are essential to the integrity of the housing finance industry.”
In a comment to Larson’s post, Russ Bergeron, president and CEO of Midwest Real Estate Data LLC (MRED), asked, “[Is] it acceptable, or even permissible, for one broker within an MLS to receive the full data feed of every brokers’ listings, load it on a [third] party server with which to calculate the AVMs, use that [third] party as a sales agent to vend these AVMs to lenders and services, and for that [third] party to pay that sole broker for their involvement?
“I have seen the argument that any broker could do the same. But that argument doesn’t float, because once the [third] party has the data from that single broker, they don’t need another source from that same MLS.”
In response, Cheatham told Inman News that MLSs should “focus on delivering what is within the right of their participants to have, not looking out to the marketplace and trying to intervene in the free market.”
MLSs should not be in the business of ensuring that all participants benefit equally from their use of the MLS data, he said, but rather ensure that all participants have equal rights to use the MLS data for permitted purposes.
“MLSs do not have any right to restrict or interfere with MLS participants’ permitted use of MLS data to generate nonbrokerage income,” he said.
“Any MLS participant is free to acquire the means necessary to create various valuations for delivery to “customers and clients,” including licensing the necessary technology systems.
“If some participants are not willing or may appear unable to offer CMAs or BPOs or AVMs or whatever other permissible uses, it is not appropriate for MLSs to suggest the manipulation of MLS rules and policies to prevent other participants from doing so.”
Moreover, an MLS may itself have an agreement to provide data for AVMs to other providers, such as CoreLogic Partner InfoNet, but that does not mean the MLS can then refuse to supply a broker with a data feed for a similar purpose, according to a white paper from Clareity Consulting written in support of the proposed policy.
“An MLS restraining its members in this way may face questions from antitrust regulators, who already have a watchful eye on the real estate data and AVM markets — witness the FTC’s scrutiny of the recent acquisition of Dataquick by CoreLogic,” the paper said.
“Brokers have a right to contract with AVM providers irrespective of whether their MLS does or regardless of any exclusive relationships those MLSs may have entered into.”