Big brokers would like to use multiple listing service data to create automated property valuations to sell to financial institutions, and they want the National Association of Realtors to require MLSs to help them do it.
That’s according to a letter from The Realty Alliance, a network of 60 or so large real estate 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.
NAR is set to grapple with a policy proposal stemming from that letter at its midyear conference in May in Washington, D.C..
“MLS participants are already entitled to use MLS information to broker and value real property,” NAR spokeswoman Sara Wiskerchen told Inman News. “So the issue isn’t whether participants can develop AVMs for clients or customers, but rather how MLSs deliver the information to participants to do the AVMs.”
NAR operates a money-losing subsidiary, Realtors Property Resource, whose business model depends on selling analytics based on MLS data including automated valuations to third parties such as lenders, government agencies and secondary mortgage market investors.
Although RPR has made strides in signing up new MLSs in the past year, many have opted not to partner with company and therefore do not feed sold listing data to the company’s database, creating coverage gaps that limit the usefulness of its products to potential analytics customers. The Realty Alliance’s program may or may not have similar issues.
NAR declined to provide the text of the policy proposal to be considered next month, saying it does not share policy language externally before it goes to committee.
In a blog post, Brian Larson, an attorney at Larson Skinner PLLC (formerly Larson/Sobotka PLLC), said he plans four other blog posts over the next couple of weeks discussing the issue, including an examination of the proposed policy language when it becomes available.
“Some of our MLS clients believe that they should not provide data feeds for these broker-owned AVMs [automated valuation models],” Larson said. “Others are fine with it, provided the broker signs a license agreement that protects the MLS and other brokers. Still others have said (while aiming a data hose in the general direction of requesting broker), ‘You want data? Here it is!'”
The Realty Alliance got the industry’s attention in October when it issued an ominous-sounding warning to MLSs concerning members’ grievances with a long list of MLS practices.
One of the items included in the list was: “Claiming that broker participants somehow do not have the right to produce and sell valuation products, when creating valuations using all MLS data is and has been a core benefit of MLS participation.”
In the 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 AVMs 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.
Cheatham makes the case that NAR’s MLS policy already permits brokers to use MLS data to create AVMs and sell AVMs in this way and, therefore, MLSs subject to the policy can’t “effectively deny” brokers the ability to use MLS data this way by refusing to allow brokers and their technology vendors to use the MLS’s virtual office website (VOW) feed to create the AVMs.
“Nevertheless, certain MLSs have taken the position that the only uses that MLS participants may make of MLS data downloaded or accessible through MLS data feeds are (1) to support the participant’s IDX and VOW sites, or (2) for the participant’s use in marketing the property included in the MLS’ database compilation,” he said.
Because creating and providing AVMs to financial institutions is not “strictly speaking” an IDX or VOW use of the MLS data and the AVMs are not usually being delivered to financial institutions as part of marketing a subject property, NAR’s current MLS policy does not require MLSs to provide brokers with MLS data, resulting in varying policies across MLSs, according to Cheatham.
He noted that The Realty Alliance has already created a program through which both member and nonmember brokers can license a third-party real estate analytics company’s proprietary software, which creates AVMs and other real estate market analyses. That third-party company is Collateral Analytics, according to its CEO, Michael Sklarz.
“The core of the program is similar to what vendors have been providing brokers for many years — tools which help real estate practitioners slice and dice their local data so that they will be more accurate in company budgeting, forecasting and even arriving at realistic asking prices for their sellers,” Sklarz told Inman News.
Collateral Analytics’ software interacts with the broker’s server and data to produce the valuations or analyses, which are branded to the brokers, according to Sklarz. He also noted that not all TRA members have chosen to participate in the program and that some participants are not TRA members.
Brokers participating in the program use the software for two permitted uses, according to Cheatham: (1) to create property valuation and market analytics reports resembling traditional comparative market analyses (or CMAs) for use in the the marketing of real estate to potential buyers and sellers; and (2) to provide financial institutions with AVM reports on properties located in the brokers’ market areas.
The institutions subsequently pay fees divided between the participating broker; the third-party software company; and The Realty Alliance for administration of the participant network. It is unclear whether brokers belonging to the same MLS may participate in the program and, if they may, how fees are distributed.
The Realty Alliance likens AVMs to CMAs and broker price opinions (BPOs), which, though not the same as AVMs, are “estimates of value” that may be created by brokers using MLS data, and in the case of BPOs, may be sold to mortgage lenders even if the lenders have no intention of listing the subject property for sale with the broker producing the BPO.
“The banks need [valuations] to make mortgages. The real estate business needs mortgages to function. That’s how brokers make their commissions,” Sklarz told a roomful of MLS executives at an industry conference in early March.
Lenders may use AVMs for reasons other than the valuation of property as collateral for a mortgage loan, including checking the quality of appraisals or BPOs performed for the institution and to monitor the value of properties included as collateral in a pool of mortgage-backed securities, Cheatham said.
The Realty Alliance also claims that MLSs run the risk of attracting the Department of Justice’s attention for antitrust violations if they allow brokers to use MLS data to create BPOs as part of valuation company networks such as those of CoreLogic and LPS, but not AVMs through an online clearinghouse.
“This type of discrimination that disadvantages an MLS participant’s use of automated methods of delivering services to a customer or client is same type of conduct that the DoJ attacked when it challenged NAR’s prior VOW Policy as a violation of the federal antitrust laws,” Cheatham said.
Cheatham also noted that MLSs can require brokers and their AVM software vendors to enter into license agreements limiting the use of MLS data to authorized uses.
“We’re total stewards of the data. We treat it as it needs to be based on [MLS] rules and regulations,” Sklarz said.