Editor’s note: Real estate brokers are feeling pressure on profits from all sides. Business and insurance costs are up, top-producers want higher commission splits and new technology, and new competition in the brokerage space is lowering the average commission on a home sale. In this three-part series, we dive into the economics of real estate brokerage, find out what brokers are thinking and what they’re doing to protect their stake.

Editor’s note: Real estate brokers are feeling pressure on profits from all sides. Business and insurance costs are up, top-producers want higher commission splits and new technology, and new competition in the brokerage space is lowering the average commission on a home sale. In this three-part series, we dive into the economics of real estate brokerage, find out what brokers are thinking and what they’re doing to protect their stake. (See Part 1: Profit margins up for brokers; worries remain and Part 2: Liability costs, technology, discounted commissions.)

The Cleveland Area Board of Realtors is suing the Northern Ohio Regional Multiple Listing Service over the payment of fees to real estate brokers from MLS revenues. The dispute is over data ownership and who should profit from MLS data licensing deals.

After pressure from big brokers, the NORMLS board previously voted to give 90 percent of profits from data mining contracts with the Real Estate Business Information Group to broker members. The board, which includes brokers with the largest market share in the region, has taken the position that the data being licensed out for profit belongs to the brokers.

“Negotiation had been done with the brokers to get approval to use the data,” said Carl DeMusz, CEO of NORMLS. “Without that approval, the MLS can’t use the data, and without the data there is no REBIG. So there’s nothing to talk about.”

Nationwide, brokers are up in arms, using their political clout, their legal rights and their market power to exert control over and protect their position in the market. Listings are just one skirmish in the larger war over broker profitability.

Brokers are under pressure on several fronts. Competing brokerages that offer discounted services seem to be making headway in the market. Top-producing agents who demand higher commission splits take a bigger piece from brokers’ end profits. And with added technology expenses and climbing franchise fees, the overall costs of operating a brokerage are up.

But brokers aren’t taking the challenge lying down. They’re fighting back by offering discount brokerages lower-than-normal commission splits, in some cases blackballing discount brokers’ listings, and they’re making demands on their associations and MLSs with regards to data protection.

What is the greatest source of pressure on broker profits? Take a survey.

DeMusz in Ohio said NORMLS considers the 90-10 profit split for brokers in the data licensing deal fair because the brokers were considering forming their own licensing deals that would’ve excluded the MLS altogether.

The brokers in Northern Ohio have “made it clear that they own and control the listing data and that they should make the decisions on disbursement of funds,” DeMusz said.

“Their intentions were to share the money with the agents and they don’t want the board or the MLS dictating how they should divvy up their income,” he added.

But the Cleveland Association disagrees with the assertion that brokers own the listings. The group believes that NORMLS owns the compilation of listings since it is the entity that aggregates the data into a saleable form, according to Sharon Sweda, chairman of the Cleveland Board.

Any money the MLS earns should be used to reduce fees for members, Sweda said.

The suit seeks a permanent injunction to restrain NORMLS and its directors from “directly or indirectly paying out revenues” to any person other than NORMLS.

The suit comes a few years after a group of brokers in Northern Ohio made attempts to purchase NORMLS from the shareholder associations. The offers ultimately were refused, according to Sweda.

Brokers fighting back against discount or flat-fee brokerages in some markets use malicious tactics like scheduling fake showings to waste agents’ time. In Wauwatosa, Wis., a group of anonymous Realtors left flyers on the doorsteps of home sellers using the flat-rate brokerage services of BuyHomes.com. The flyer read: “Congratulations! You just through [sic] away $555.00 by listing your home with a Limited Representation Broker! Good luck trying to sell your home.” It was signed “Lots of Realtors” in curvy script.

In Texas, brokers tried to quash competitors who provide an MLS listing without additional services for a flat fee through a state regulation that would’ve required brokers to provide assistance with purchase offers and counter-offers. Aaron Farmer, broker/owner of Austin-based Texas Discount Realty, successfully filed a motion to block the regulation, but the Texas Real Estate Commission has discussed similarly-worded rules and could try to reinstate.

On the data protection front, the Ohio brokers aren’t isolated in their fight to protect their data. A group of Chicago brokers recently made demands on their Realtor association and MLS, including shutting down the public listing Web site ChicagoMetroRealEstate.com. The site enabled consumers to browse for-sale listings directly from the Multiple Listing Service of Northern Illinois, the region’s more than 37,000-member MLS. Some brokers felt the Web site directly competed with their own sites.

MLSNI also agreed to add more broker seats to its board of directors. When the MLS implements its next board change at the end of this month, the number of brokers on the board will increase from five to 12, giving brokers a majority position over the 10 association shareholders, which each hold a single seat.

Reinforcing the stance that brokers control listings, three large brokers in the Chicago area this year took listings from some of their offices out of MLSNI and instead put them exclusively into a smaller, broker-owned MLS known as MAP. Those brokerages included Coldwell Banker, Koenig & Strey, and Baird & Warner.

In June, after the brokers had pulled certain listings from MLSNI, the MLS announced it would enforce an all-in or all-out policy regarding brokerage firms’ participation in the MLS. The decision would’ve prohibited member brokers from putting listings from some offices, but not others in the MLSNI database. MLSNI executives said the decision stemmed from complaints they had received, saying that agents from some of the offices where listings had been pulled had continued to use the MLSNI system.

The motion fell flat less than a month later when the Chicago Association of Realtors reversed its decision on the policy. The association sent a memo to members announcing its action. The memo didn’t outline why CAR had reversed course on the policy, except to say that “CAR directors did not feel it was in the best interest of its membership, who are MLSNI users, to implement the policy at this time.”

In addition to aggressive steps taken at the local level, large brokers in 1997 gained a special spot in the National Association of Realtors with the formation of the Large Brokers Advisory Council.

Around that same time, a group of large brokers also formed an independent group called the Realty Alliance to recognize the needs of independent brokers. “We simply don’t believe that our needs are currently being served well by the Realtor association,” Joe Aveni, CEO of Realty One in Cleveland said during a presentation at the 1997 Association Executives Institute in Century City, Calif.

“The national, state and local associations are partly responsible for the declining profitability of the industry. You’ve interfered with the normal market differentiation of our business,” Aveni said during the “Real Estate Industry Leaders on the Future” presentation at that event. His remarks were part of an explanation of why the Realty Alliance was formed.

The formation of the Large Brokers Advisory Council formalized a relationship between NAR officers and owners of large real estate brokerage companies that started in 1996. The group now meets regularly and provides input to the NAR leadership team on association issues.

At NAR’s midyear meetings in May, the group outlined considerations to NAR’s Multiple Listing Issues and Policy Committee on the ownership and licensing of MLS content to third parties. On ownership, the group reaffirmed NAR’s stance that “brokers own the intellectual property rights associated with the listings taken by its agents,” according to a memo read at the meeting.

With regards to data licensing, the broker group asked that brokers not be required to allow their data to be licensed to third parties as a condition of MLS participation. They also asked that MLSs obtain a broker’s written consent to use listings and sales information for any purpose other than for members to serve clients. 

Real Living CEO Harley Rouda, Jr. is active in the Large Brokers Advisory Council and the Realty Alliance. Rouda believes data protection is critical to brokerage business.

“That data, if not protected by the broker and the agent, or if it is protected yet freely disseminated could have long-term negative consequences on agent and broker profitability,” he said.

Rouda said data licensing can impact broker profitability when nontraditional players who use the aggregated data to attract consumers charge agents a referral fee to pass those consumers back to them. He suggested that MLSs need to steer away from trying to generate profits from data licensing at the long-term expense of the membership.

“MLSs need to recognize that their customers are the brokers and agents. They need to protect that data on their behalf,” he said.

***

Send tips or a Letter to the Editor to jessica@inman.com or call (510) 658-9252, ext. 133.

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