“Paper brokerages” that publish shared listing data from multiple listing services in order to generate leads for other brokers have largely flown under the industry’s radar, an Inman News investigation has found.

But history shows that if the paper brokerage business model takes off, it could pose a threat to its own source of listings — the MLS.

Editor’s note: This is the final installment of a four-part series examining website operators who use brokerage licenses to obtain shared listing feeds from multiple listing services to generate leads for other brokerages. In this article, Inman News reporter Andrea V. Brambila looks at whether widespread adoption of the paper brokerage business model could undermine participation in IDX, and the MLS system itself. See Part 1 for an overview of Inman News’ findings, and Part 2, which looked at how MLSs are struggling to interpret whether their rules allow “paper brokerages” and fears that denying them listings could violate antitrust law. Part 3 examined whether website operators who obtain Internet Data Exchange (IDX) listings are complying with MLS rules governing their display.

“Paper brokerages” that publish shared listing data from multiple listing services in order to generate leads for other brokers have largely flown under the industry’s radar, an Inman News investigation has found.

But history shows that if the paper brokerage business model takes off, it could pose a threat to its own source of listings — the MLS.

The main mission of any listings portal — whether it’s operated by a brokerage or a “third-party” aggregator — is to attract consumers and convert them into “leads” for agents.

Real estate brokers and agents have largely come to accept third-party websites that aggregate listing data like Zillow, Trulia and realtor.com, because these and other reputable sites leave it up to brokers and agents whether to provide listing data to them.

But Internet Data Exchange (IDX) — the cooperative system that allows participating brokers in a given market to display each other’s listings — is generally an “all or nothing” proposition. Participating brokers must let other MLS members participating in IDX display their listings, and they must display those brokers’ listings in return.

If brokers decide they don’t like the way IDX listings are being used by others and can’t convince their MLS to address practices that concern them, their final recourse is to withdraw from the system altogether — or at least threaten to.

That happened when real estate franchisors — national companies like Century 21 and Re/Max that provide leads, technology and training for independently owned brokerages while helping them build brand awareness — briefly won the right to display IDX listing data on their websites.

There were few objections when NAR’s board of directors, meeting in New Orleans in November 2010, amended the trade group’s IDX policy to allow franchisors to aggregate their affiliated brokers’ IDX feeds for display on franchisors’ national sites.

But when the change went into effect the following January, a number of brokerages — including the nation’s second-largest, Minneapolis-based HomeServices of America — demanded that NAR revisit its decision. The debate that ensued exposed the fragile nature of broker cooperation.

Critics said that by giving franchisors the right to display not only the listings represented by their affiliated brokerages but all of the IDX listings in any market where they had an affiliate, NAR had created an unfair advantage for brokerages affiliated with big franchisors like Century 21, whose parent company, Realogy, was among those that had pushed for the change.

Characterizing the MLS as the “glue” that holds NAR together, HomeServices President and Chief Operating Officer Robert Moline hinted that if the rule change was not repealed, the Berkshire Hathaway affiliate was prepared to break away from NAR.

Many brokerages are NAR members only “because they have to be” to access the MLS, Moline told association leaders meeting in Washington, D.C., in the spring of 2011. HomeServices, he said, was “approached frequently about forming a national, private MLS.”

Although “we don’t want to go down that path,” Moline said, the day might come where “the economics will favor that, especially if we can’t keep control of our data.”

Joe Horning, chairman of the brokerage network Realty Alliance and owner of Wisconsin-based Shorewest Realtors, sounded similarly dire warnings.

“It’s ‘game over’ for the MLS when protection of brokerages stops,” Horning said. Unless NAR repealed the rule change, he said, the only way Shorewest could keep its listings off of franchisors’ websites was to withdraw from IDX altogether.

In an August 2011 report, a NAR presidential advisory group that was formed to study the issue concluded that allowing the rule change to stand would “inevitably” lead to the expansion of IDX display rights — not only to franchisors but to similar organizations such as real estate brokerage networks and “potentially others whose interests are not aligned with those of the Realtor organization, MLSs or MLS participants.”

MLSs, the NAR advisory report concluded, “would have little or no control” over those organizations with respect to “unanticipated and unauthorized repurposing” of listings.

Meeting in Anaheim, Calif., three months later, NAR’s board of directors repealed the rule change.

The reaction to NAR’s decision to allow franchisors to display IDX listings demonstrates the risks in expanding access to IDX feeds to anyone but “MLS participants” — brokers and agents.

But when Market Leader relaunched RealEstate.com a year later with IDX listings, there was little public outcry from brokers that their listings were appearing on the portal without their say.

Similarly, since launching its “Powered by Zip” referral service in 2011, Emeryville, Calif.-based ZipRealty has expanded it into 17 markets, where it publishes IDX listings even though it doesn’t provide brokerage services to consumers.

Under the radar

One reason for the subdued reaction may be that that unlike franchisor websites and third-party listing portals like Zillow, Trulia and realtor.com, brokers haven’t viewed RealEstate.com, ZipRealty.com and other similar sites as serious competition.

When Inman News contacted brokers in markets where RealEstate.com and Powered by Zip operate, most didn’t seem to know or care how the firms were accessing or using IDX data.

“Neither ZipRealty nor RealEstate.com are on the radar,” said Steve Storti, chief marketing officer at Prudential Fox & Roach Realtors in Philadelphia, where both Powered by Zip and RealEstate.com are active. The brokerage was recently acquired by HomeServices of America.

Web metrics data from Experian Marketing Services showed ZipRealty.com captured 1.03 percent of local traffic to real estate websites in April. RealEstate.com’s share of traffic was only 0.29 percent.

Both firms, Storti said, haven’t captured much market share in Philadelphia relative to Prudential Fox & Roach Realtors, the sixth-largest brokerage in the U.S. in 2012 according to data from Real Trends, so the firm doesn’t worry too much about what the other firms are doing.

HomeServices of America, which was very vocal about national franchisor sites surfacing IDX data from their local brokerages on their national sites, and other large brokers, aren’t taking up the “paper brokerage” issue.

“We haven’t been watching this closely,” Moline said. He said the firm has made a decision to delegate responses to this issue to its local brokerage offices and will not take action as an organization as a whole at this time.

However, Moline said, “I am a believer that you should have an operating broker on the street if you’re going to get an IDX feed.”

Tony Floyd, chief marketing officer for Prudential Georgia Realty in Atlanta, where both RealEstate.com and Powered by Zip operate, says he isn’t too worried about the firms because they aren’t capturing too much market share.

Prudential Georgia Realty, the No. 1 brokerage in Atlanta by closed transaction sides in 2012 with 9,900, gained market share on Powered by Zip-affiliated brokerage Better Homes and Gardens Real Estate Metro Brokers from 2011 to 2012, according to Real Trends statistics.

In 2011, Metro Brokers closed about 86 percent of the transactions that Prudential Georgia Realty did. In 2012, that share between the two brokerages dropped to about 78 percent.

“We have the ability to beat them to the punch,” Floyd said. “We feel like we can maintain our advantage.”

In Atlanta, no brokerage websites were among the top 10 most visited real estate sites from desktop computers in the market in April, according to Experian.

ZipRealty ranked No. 16 that month, capturing 1.13 percent of all real estate-related Web traffic from desktop computers, a comparable amount to Prudential Georgia Realty’s traffic that month, according to Experian.

Craig McClelland, director of strategic growth at Better Homes and Gardens Real Estate Metro Brokers, says the firm has gained market share since joining the Powered by Zip network in January 2011.

The 2 1/2-year relationship has been a good one, McClelland said. He called ZipRealty’s customer relationship management system, ZAP — which ZipRealty has touted as being as important a component of the “Powered by Zip” program as the leads it provides partner brokerages — “a great resource.”

ZAP, McClelland said, “does a revolutionary job of prioritizing clients by their readiness to purchase for the agent.”

If firms like Metro Brokers (through its relationship with ZipRealty) and RealEstate.com were to capture more relative market share, Floyd said he’d go to FMLS, the Atlanta-area MLS, which he says has strict membership policies.

“We would have some hard discussions,” Floyd said.

Other brokers think there’s an issue, but like MLSs, find it difficult to take action.

“I don’t think there’s anybody policing it,” said Dan Parmer, CEO of Harry Norman, Realtors in Atlanta.

“We’re trying to find out what’s happening in Atlanta,” Parmer said, “but it’s not easy.”

“If you are not in the MLS to list or sell a property, then I don’t believe you should have access to the IDX listing data,” he added.

Trulia’s recent acquisition of Market Leader may also have calmed any anxieties brokers may have about their listings ending up on RealEstate.com.

In announcing the Market Leader acquisition in May, CEO Pete Flint pledged that Trulia had “absolutely no intentions of becoming a brokerage,” and that the company did not plan to operate RealEstate.com “in the same way it’s being operated” by Market Leader.

Alon Chaver, Trulia’s vice president of industry services, told Inman News in May that the company recognizes that RealEstate.com has been “controversial,” and said Trulia is “exploring how we can use this asset in an industry-friendly way.”

Trulia has “deep respect” for industry policies, Chaver said, and is aware that IDX rules are designed to allow operating brokers to exchange MLS data. “We are not an operating broker, and thus do not intend to use IDX data on RealEstate.com after the acquisition closes.”

The acquisition closed on Aug. 20. RealEstate.com does not appear to have changed, and the site’s home page currently informs visitors that listings on RealEstate.com “are from multiple listing services (MLSs) nationwide — the same listings services that real estate agents and brokers use.” At least one broker of record for Market Leader subsidiary FastStart Real Estate Services, Philip Eric Simons in California, has renewed his broker license for FastStart, which was scheduled to expire on Aug. 30 — after the acquisition closed.

“With the recent close of the Market Leader acquisition, the combined teams are excited about and currently focused on the integration. As you may know, there are many local brokers who use the platform and we want to be sure not to disrupt their businesses with any sudden changes,” Chaver told Inman News Wednesday.

“Trulia is focused on serving and partnering with the real estate industry and has no plans to operate as a real estate brokerage, so the company is proactively engaging in a dialogue with agents, brokers, franchises and MLSs across the industry to determine the right course forward with RealEstate.com. As Trulia finalizes its plans for the RealEstate.com platform, we will share them.”

Agent matchmaking sites

While the question of IDX listings on RealEstate.com may be moot, a number of “agent matchmaking” sites that do not provide brokerage services have cropped up, slicing and dicing transaction data to help consumers get a handle on agent performance. When that data is obtained from MLSs, agent matching sites have run into roadblocks.

Agent matchmaking site NeighborCity.com is currently litigating copyright lawsuits filed against it by two MLSs in Maryland and Minnesota. When the lawsuits were filed, NeighborCity.com operator American Home Realty Network, which is based in San Francisco, was licensed as a brokerage in California but no other states.

At least two other agent matchmaking sites, Google-backed HomeLight and Agent Ace, obtain data from MLSs by joining them as a brokerage.

Although HomeLight has come under fire for obtaining listings data this way, Agent Ace founder Mazen Fawaz says his site has been diligent about getting MLSs on board.

“Some of the administrators have wanted more information on what we’re doing. Some of them have sort of gotten it off the bat,” Fawaz told Inman News this summer. “We want to make sure in our chain of business that everyone is very happy.”

Critical role of MLSs

For all their faults, MLSs play an often overlooked critical role: They enable most real estate software innovation, Brian Boero, partner and co-founder of real estate marketing, design and consulting firm 1000watt, said in a blog post.

To Boero, the MLS “is the socket into which innovators plug to power their products — products that are used by all kinds of real estate brokers and agents.”

If brokers were to start defecting from the MLS en masse, agents and brokers of all stripes and sizes would lose access to meaningful market analytics, comparative market analyses, and property search for agent websites, among other tech tools, Boero said.

And who would take up the slack? Zillow, he said.

“Sure, they’d have a mess on their hands if the MLS went up in smoke. But if you think they couldn’t figure out a way to get the 100,000 agents who create most of the listings to routinely post them to a site with 50 million monthly uniques, you’re kidding yourself,” Boero said.

Brian Larson — an attorney and consultant who was the chief staff executive for Minneapolis-based NorthstarMLS when it helped pioneer IDX in the late 1990s — disagrees with the idea that any brokers, big or small, would pull out of IDX — let alone the MLS entirely.

Instead, Larson thinks they would demand that MLSs enforce the MLS participant policy requiring that brokers “offer or accept cooperation and compensation to and from other participants.”

“It’s hard to think of a broker who has dropped out of IDX for any issue. Even the big firms who are dropping out of syndication continue to use IDX,” Larson said.

Gregg Larson, president and CEO of real estate consulting firm Clareity Consulting (no relation to Brian Larson), believes many MLSs are either unaware of models like ZipRealty’s and RealEstate.com’s, are afraid of the legal ramifications of taking action, or don’t see a problem with the models.

“Some people are not looking at this as a big crime,” Gregg Larson said.

“The MLS industry as a whole is complacent on national websites (with) IDX data,” he added.

It won’t be long, Gregg Larson said, before other companies start to ask themselves why they aren’t following in the footsteps of RealEstate.com and ZipRealty.

“I think a lot of others could follow this if (MLSs) let it go,” he said. “I don’t know why it wouldn’t proliferate.”

“Why wouldn’t Zillow or Trulia or anybody else do this?” he added.

But Gregg Larson said giving these business models free rein might weaken broker and MLS copyright claims on listing data.

“It’s part of copyright law. If you let (infringement) go for years, and you know about it, you lose your copyright,” he said.

He noted that IDX display is only one visible way that data could be used.

“We don’t know what they’re doing with it. Once a company (is built) around inappropriately sourced data, it makes you wonder how they’re possibly monetizing the data,” he said.

Typically, other uses of listing data would require a separate licensing agreement.

MLSs “don’t have the chutzpah and the funding” needed to deal with companies sourcing listing data inappropriately, he said.

For that reason, Gregg Larson has helped put together an organization dedicated to protecting the intellectual property rights of brokerages and MLSs.

Real Estate Data Protection Legal Association Nonprofit, or REDPLAN, launched in June to serve as a “legal clearinghouse” to coordinate efforts against data piracy with Gregg Larson serving as one of five founding board members. The others are John Mosey, CEO of St. Paul, Minn.-based NorthstarMLS; Martin Scrocchi, CEO of paperless transaction management firm Instanet Solutions; Jay Gaskill, CEO of real estate technology company Real Estate Digital; and Claude Szyfer, an antitrust lawyer and partner at Stroock & Stroock & Lavan LLP.

Historically, it’s been up to individual MLSs to enforce their own rules with whatever resources they have available. An MLS in one part of the country may not know that another MLS in another part of the country is dealing with the same problem.

Before REDPLAN launched, there was no mechanism for collective action.

Risky way to build a business

Victor Lund, founding partner of consulting firm WAV Group, thinks third-party listing portals could learn from what paper brokerages are doing — and that perhaps they should.

What ZipRealty is doing is “something that can be embraced” as no different from how some brokerages with relocation businesses operate in some local markets, he said — exclusively providing referrals rather than doing deals.

Technology companies like ZipRealty and Market Leader are trying to monetize consumer engagement using the structure created for brokers, Lund said.

“And I don’t know that there’s anything wrong with that. There are only a few (technology) companies that are operating within that structure and I think it could be a new business model,” he said.

“Why aren’t MLSs trying to encourage more of this activity? If Zip is not in your community, why aren’t you trying to get them in your MLS? (It’s) a different way to charge for a marketing service,” Lund added.

“It seems like Market Leader is doing something that (Zillow and Trulia) could take a page out of. It’s smart,” he said.

Indeed, Zillow seems to employ a version of the paper brokerage model in at least one state: Texas.

When Zillow launched in 2006, the company obtained brokerage licenses in most states not because it intended to broker property transactions, but as a legal precaution to protect its ability to publish real estate-related information, Zillow said.

In November 2008, the company announced that it felt its business model was established and accepted enough to get rid of most of its brokerage licenses, except for those in Washington and Texas. The company let its license in Washington expire in June 2011.

Zillow said it maintained its brokerage license in Texas because home sale prices in that state are not available through public records. As a licensed broker, Zillow can obtain sold data for its property valuation “Zestimates” through its membership in MLSs. But the company has always insisted that it does not operate and does not intend to provide real estate brokerage services to consumers.

Anyone embracing the paper brokerage business model does so at their own peril, attorney Brian Larson said.

The MLS participant policy (see Part 2) is “blessed by the DOJ” and companies shouldn’t build themselves on the fact that MLSs are not enforcing the law, he said.

Should a bevy of paper brokerages crop up and be perceived as a threat, NAR could mandate enforcement of the policy or MLSs themselves could decide to enforce it more aggressively, he added.

“It’s a shaky model. I wouldn’t invest in (paper brokerages),” he said, noting his comments did not refer to any company in particular.

“It’s a tough way to build a business because you can get shut down,” agreed Gregg Larson.

When asked why real estate powerhouses like Zillow and Trulia wouldn’t want to employ a similar model, given that it would give them access to accurate, comprehensive listings data, Brian Larson gave two reasons.

“First, they’d have to comply with the IDX rules. And if the ZipRealty solution does not pass muster with some MLSs, it wouldn’t work for (Trulia or Zillow) either,” he said.

Secondly, he added, perhaps Zillow and Trulia “are worried that this type of end run would make enemies of MLSs and big brokers, who are the sources of listing syndication” for the companies.

Boero noted that if Zillow were to employ models similar to those of Market Leader or ZipRealty, “brokers would be out with pitchforks.”

But, he added, Zillow would likely never display IDX listings because following IDX display rules would compromise user experience.

It’s hard for brokers to care about new business models unless they represent a clear threat, Lund said. If RealEstate.com were to start showing up as one of the top most-visited real estate sites on the Web, brokers might do something then, he added — but then maybe not.

“ZipRealty is eating their lunch online, but they’re not in every market,” Lund said.

Boero agreed. “I think a lot of brokers aren’t dealing with this issue now because these sorts of operations haven’t achieved a significant presence in their marketplace or they just don’t want to deal with it or they’re worried about the DOJ taking a disapproving look into the industry again,” he said.

MLSs are punting on the issue of paper brokerages because “it’s not worth getting into the thorny issue” of antitrust, he added. He pointed to Mid-Atlantic MLS MRIS’ ongoing legal battle with listing portal NeighborCity.com. “Who wants to deal with that?”

Lund said he did not think paper brokerages were going away, but that it’s hard to discern what the consequences of that will be.

Any brokerage has the right not to accept a lead from Market Leader or a referral from ZipRealty, (but) few brokerages will turn down a living, breathing” potential client, he said.

Inman News reporter Paul Hagey contributed reporting to this series.

What do you think brokers and MLSs should do, if anything, about paper brokerages? Let us know in the comments below.

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