There are few entities in the real estate industry that loom larger than real estate giant Zillow Group and 1.3 million-member trade group the National Association of Realtors…
There are few entities in the real estate industry that loom larger than real estate giant Zillow Group and 1.3 million-member trade group the National Association of Realtors. And while they have sometimes been at odds over the years, when it comes to real estate competition they seem to agree on one thing: If it ain’t broke, don’t fix it.
In advance of an upcoming real estate competition workshop to be held by federal regulators on June 5, NAR last month released a report it commissioned from Dr. Frederick Flyer, an independent economist from economic consulting firm Compass Lexecon who has previously testified as an expert witness on behalf of NAR and NAR’s northern counterpart, the Canadian Real Estate Association.
NAR previously retained Flyer as an expert in a 2005 antitrust lawsuit the U.S. Department of Justice filed against NAR in which he argued that brokers offering listing data through Virtual Office Websites (VOWs) — websites without a physical storefront, such as Redfin, that display all MLS data fields except confidential information and sold data in non-disclosure states — were not a material source of competition in the brokerage market.
NAR had adopted a VOW policy that allowed brokers to opt-out of having their listings displayed on other brokers’ VOW sites, prohibited paid referrals from VOWs and forbidden VOWs from displaying an ad for a competing broker next to the listing of another broker.
The DOJ deemed those three aspects of the policy anticompetitive and filed a lawsuit against NAR that ended in a 2008 settlement in which NAR agreed to repeal its VOW policy and replace it with a modified policy that treats brokers offering services through the internet the same as brokers offering services through brick-and-mortar businesses.
That settlement expires this November and although NAR has said it “has no plans” to change how it treats listing display by online brokerages, the expiration has prompted scrutiny of competition overall in the real estate industry.
In his April report, “Procompetitive Benefits of Policies Limiting Access to Local Multiple Listing Service Data,” Flyer said that multiple listing services provide big pro-competitive benefits to the real estate market by helping brokers match buyers and sellers through the sharing of the vast majority of for-sale listings in a market.
He argues that forcing brokers to provide unrestricted access to MLS data would disincentive broker participation in the MLS, resulting in a less competitive market and therefore consumer harm. (Open access to listing data has been promoted by nonprofit, nonpartisan Washington D.C. think tank Information Technology & Innovation Foundation, which has received money from Zillow in the past). Online brokerage Redfin has made a similar argument.
Flyer maintains that brokers could attempt to “preserve the value of their listings” by withdrawing from the MLS, delaying posting of listings to the MLS, or ramping up their participation in private listing markets, such as Facebook groups for pocket listings.
“[P]olicies that interfere with broker determination of how they will use and profit from their efforts, or that allow others to benefit from broker efforts (without compensation), means that brokers will face distorted incentives when making decisions on investments, including their investments in obtaining and sharing property listing information,” Flyer’s report says.
“In the long run consumers will end up paying for the resulting misallocation of resources. Put simply, effective policies must be cognizant and protective of real estate brokers’ property rights.”
Inman reached out to Flyer to ask, among other things, what property rights he was referring to, why he did not consider the incentive of selling a home and receiving a commission enough of an incentive for brokers to participate in the MLS, and why the report did not address access to listing data for tech firms that would like to build tools that would help brokers compete with each other. After multiple emails and phone calls over the course of several days, Flyer did not respond to Inman.
NAR’s take: ‘Vibrant, healthy and vigorously competitive’
NAR paid for the report from its legal affairs budget, which includes funds totaling $225,200 “for all legal expenses related to defending and protecting NAR and our members,” NAR said. NAR directed questions regarding the report’s analysis to Flyer, but said brokers should not be required to allow third parties to display listing information in a context or light that could be unfavorable to the property or to the broker.
“The report notes that property listing data is already made widely available by the brokers who work hard to secure listings. But requiring brokers to make their listing data freely available to users other than those they to whom they choose to distribute that data, so that it may be used by third parties in ways inconsistent with the best interests of such brokers or their seller clients, may have adverse impacts on brokers to an extent that they may be less able or willing to engage in the investment and effort to secure those listings in the first place,” NAR General Counsel Katie Johnson told Inman via email.
Johnson also said making listing data freely available to anyone and everyone would not provide consumers with any additional information they don’t already have access to or enhance competition in the real estate brokerage market. Rather, she said, it would provide third parties such as listing aggregators “a free asset they can use in the wholly separate market in which they are engaged.”
Asked about property listing ownership — namely, whether it’s NAR’s position that brokers ultimately own property listing data — Johnson said, “brokers don’t own the facts about a property, but they compile a collection of facts, photos and descriptive commentary that comprise the listing. They work hard to persuade sellers to choose them to list and market the home, and therefore they are entitled to protect the results of those efforts when they result in a listing agreement.”
She declined to comment on whether NAR believes the broker owns the “collection of facts, photos and descriptive commentary that comprise the listing.”
In recent years, many in the real estate industry have observed and opined that the value of agents and brokers lies not in their data, but in services that require a human touch. Asked whether NAR disagreed with that position or if the value of any of these personal services would be diminished if listing data were freely available, Johnson also declined to comment.
In a statement accompanying the release of Flyer’s report, Johnson asserted that “the real estate market is vibrant, healthy and vigorously competitive.”
“Technology innovation in the real estate industry is robust, and the notion that real estate isn’t highly competitive and listing data not readily available is unsubstantiated,” she said.
“To the contrary, a wealth of listing data is available to consumers and technology companies from a multitude of sources, and Realtors provide their clients and consumers with more real estate information today than has ever been available.
“Further, the notion that innovation is spurred by providing real estate data to technology companies without any restrictions is simply erroneous. In fact, in most cases MLSs do not restrict listing data from third-party websites but instead leave the determination of what third-party listing websites will receive and display to the individual MLS participants whose listings are included in the MLS.
“Having one national property database with free and unrestricted access as some envision may be unrealistic, as this could lead to a degradation of information, or a tragedy of the commons, and others in the industry agree.”
The report has attracted varied responses from others in and out of the industry, including Zillow, ITIF and former DOJ antitrust attorney David Kully. See where they agree and disagree below.
ITIF responds: ‘It is a nonsensical argument’
ITIF Vice President Daniel Castro was not complimentary in regards to the NAR-commissioned report.
“First, the obvious: The real estate broker’s national association has hired a freelance economist to defend its protectionist measures by claiming they are pro-competitive. It’s a bold move. It would be like if Westinghouse had argued that its price fixing on government contracts was good for taxpayers,” Castro told Inman via email.
Castro said the report’s main argument seemed to be that if everyone had listing data then nobody would have listing data. “It is a nonsensical argument,” he said, given that information is a “nonrival” good. “Most goods are rival, only one person can use it at one time (e.g. a shoe, a hamburger, a computer). A nonrival good is one where your use doesn’t diminish its value to someone else, e.g. watching a movie, [watching] fireworks, etc.” he added.
Moreover, the report argued that without protectionist measures, brokers would not exchange listing data with one another even though they would know that this action would hurt their customers, Castro said.
“I’m not sure why the author has such a low opinion of brokers. But if this is true, i.e. if the author has evidence that brokers in fact generally do not act in the best interest of consumers, then this is further reason for the [Federal Trade Commission] and DOJ to step in and provide relief,” he said.
Castro rejected the premise that if brokers were required to provide complete, freely available listing data through a common database that is not the MLS, fully open listings, so to speak, then the value of the MLS itself would be diminished and MLSs would no longer be able to fulfill their role in the marketplace.
“Whether or not a third-party has access to listing data should have no impact on the value brokers gain from participating in an MLS. The value of listing data does not decline with each additional view,” Castro said.
“The author seems to be suggesting that if MLSs did not restrict listing data the housing market would collapse because nobody could buy and sell houses anymore. That’s a tough sell. Buyers and sellers have strong incentives for correct information, and agents would certainly still have an obligation to their clients. If MLSs provide value then agents, and their clients, should be willing to pay for these services, ideally on a competitive basis.”
Castro believes NAR is using the idea of a government-run listing database as a “bogeyman.”
“Most people agree that government should step in to address market failures. In this case, the MLSs have a monopoly, and they are using their market power for anti-competitive actions. So the real question is: can a requirement that the MLSs free their data benefit consumers?” Castro said.
“I don’t think most people, including myself, want to see a government-run database of listing data. But requiring MLSs to open their data to encourage competition would create consumer benefits and be keeping in line with free market business practices.”
Castro posited at least three different options for accomplishing this:
- Create a single, master database. “It could be government-run or privately run. This could be accomplished with a requirement on brokers (i.e. through state licensing laws) or a requirement on MLSs and other sites like Zillow (i.e. regulating the platforms),” he said.
- Create a federated system of databases. “This would be similar to how hospitals search electronic health records from other providers,” he said.
- Cequire brokers to put their listings in an open access data repository (of which there could be more than one available). “Data aggregators could then pool this data from various repositories,” he said.
Castro believes the third option is the most feasible, but said others could work. Asked whether brokers would enter their listings into both a required database and the MLS under either of these options, he said the other databases could contain the original data, copies of the data or pointers to the original data stored in an MLS database, a broker’s own system or some other listing database.
“It is unlikely that brokers would enter their listings manually more than once — the idea would be to automate the process regardless of which direction the data is flowing,” he said.
Former DOJ attorney weighs in: NAR made the same argument 15 years ago
The DOJ and FTC recognize that MLSs are “very special” and “very important” and that brokers can’t meaningfully compete in any local area without being a member of the area’s MLS, David Kully, an antitrust partner at Holland & Knight LLP and the former chief for the DOJ’s antitrust division focusing on real estate, said at Zillow’s MLS Forum in Dana Point, California at the end of April.
That means MLSs can restrict access where necessary to have the MLS operate more efficiently, but the DOJ and FTC frown on restricting access to inhibit “disfavored” forms of brokerage competition, according to Kully. This was precisely why the DOJ sued NAR back in 2005, because of its stance that MLSs were putting limits on data access by brokers using VOWs. The DOJ and the FTC are going to be skeptical that blocking access to listing data is necessary to preserve the MLS, he said.
“Listings data seems to be in a lot of places now, and I don’t think people think that the MLSs are about to fall apart,” Kully said.
“Now, it’s notable to me that the NAR 15 years ago, during the virtual office website debate, made exactly the same argument. They said if MLSs are required to give full access to listings to brokers to operate websites through which they’ll interact with clients, the brokers are going to pull out of the MLS and the MLS system is going to fall apart. I think the 10 years since the settlement of the DOJ-NAR case have proven that that really wasn’t correct.”
NAR and Zillow: Where they agree and disagree
NAR’s Johnson made clear to Inman that its commissioned report was a response to actions the trade group said Zillow had taken.
“When NAR learned that a national aggregator [Zillow] was lobbying Congress for an investigation of competition in real estate, we set out to inform members of Congress, regulatory agencies and the public about the reality of competition in the real estate industry,” she said.
“As the leading advocate in real estate markets for our members and their clients, we believe it’s important that rules or regulations affecting the industry be based upon objective facts and well-researched analysis, and not unsubstantiated and anecdotal assertions that have made headlines in recent months.”
Asked how NAR had learned Zillow was lobbying Congress for an investigation of competition in real estate, the trade group declined to comment. As previously mentioned, Zillow has funded ITIF in the past, which has given some in the industry the impression that Zillow agrees with the think tank’s recommendations.
But Zillow spokesperson Kate Downen told Inman the ITIF paper was written independently of Zillow and is not the company’s position.
Zillow talks with government officials all the time, she said, but “[w]e didn’t ask for a DOJ/FTC workshop. We believe the current system works well by allowing MLSs and brokers to share their listings as they see fit, with their sellers’ best interests in mind,” she said.
At Zillow’s MLS Forum, Zillow Vice President of Government Relations and Public Relations Racquel Russell said, “I personally am a believer in if it’s not broken, don’t fix it. And the current ecosystem in organized real estate does work from a competition standpoint.”
That’s not to say that Zillow agrees with Flyer’s analysis.
“We believe a fair, open market that is transparent and encourages innovation benefits everyone — from homebuyers and sellers, to real estate professionals. The idea that it helps consumers to keep information from them doesn’t make sense, and we believe, instead, that giving access to data empowers consumers and spurs competition and innovation,” Downen said.
“We know consumers use lots of different resources when they’re looking for a home – including Zillow Group sites and working directly with local agents and brokerages who belong to the MLS. All of these sources should have access to listings data, secured under appropriate content licenses.
“We disagree with the author of the paper that allowing non-broker sites to have listing data will discourage use of the MLS. This would be akin to saying that prior to the advent of the web, listings shouldn’t have been advertised in newspapers. On the contrary, it benefits consumers and agents to put listings on the sites where people are shopping for homes.”