The storyline has become cliche in TV circles: a couple is on the verge of marriage when one partner shocks the other by asking for a pre-nup. Drama ensues.
But pre-nups can be serious business. Merger talks between the two largest multiple listing services (MLSs) in Colorado collapsed this week after one of the MLSs asked that a withdrawal provision be included in the deal. The talks fell apart after more than a year of negotiations, disappointing real estate brokers in the state’s Front Range region.
REcolorado and Information and Real Estate Services (IRES) began “complex and highly charged” merger talks in March 2017 on the heels of a declined acquisition proposal and a terminated data share. REcolorado has about 20,000 agent, broker and appraiser subscribers while IRES has about 6,000.
By November 2017, the two MLSs announced they had signed a binding merger deal, pending votes of the boards of directors of their shareholder Realtor associations.
Those votes never happened. On May 21, REcolorado ended merger negotiations with IRES. In an emailed statement, REcolorado said IRES’s board of managers had “proposed new terms that diverged from the shareholder-requested terms and, in REcolorado’s view, were not in the best interest of its shareholders and the future success of the merged entity.”
Reached by phone, the CEOs of both MLSs said the sticking point was a withdrawal provision IRES introduced sometime in the past two months.
According to IRES CEO Lauren Hansen, IRES’s legal counsel — Mitch Skinner of real estate law firm Larson Skinner — suggested including the provision as soon as he was hired after seeing long and expensive litigation play out with regional MLSs in San Diego and New York.
Skinner has previously advocated for regional MLSs to consider an “exit procedure” (or “pre-nup”) to avoid costly future litigation, including determining the process by which a stakeholder steps away from a regional MLS, spelling out stakeholders’ financial obligations, and specifying what the exiting stakeholder can take with it.
“A withdrawal provision is considered best practice. It lets everybody know, if things go south here’s how it’s handled,” Hansen said. “It wasn’t that we were trying to sabotage anything, we’re just trying to protect our owners.”
Hansen later said via email that the attorneys for the respective MLSs had not yet drawn up the exact language of the provision “because IRES was simply looking to have a conversation about remedies if, as has happened in other MLSs, one of the shareholder organizations elects to leave REColorado.”
IRES’s own operating agreement does not have a similar provision, Hansen said, “but many older MLS governing documents do not because they were developed prior to the industry events that have caused consolidating organizations at least to consider them.”
‘A temporary deal’?
The suggested withdrawal provision would have allowed shareholders to leave the merged MLS a minimum of one year after the MLSs merged.
In a phone interview, REcolorado CEO Kirby Slunaker likened the provision to making the merger deal a “lease option” and said REcolorado was “really surprised” by the introduction of such a provision “so late in the game.”
The provision “would have provided the option of taking the deal apart and really made it much more likely that it would be a temporary deal and that’s not really what agents and brokers in this market want,” he said.
Slunaker said he didn’t see the need for the provision since “any shareholder in the future can always sell their interest,” which is “much more standard” in the real estate industry.
“If IRES would drop the withdrawal provision, we would gladly re-engage, and we think that’s in the best interests of brokers and agents,” Slunaker added.
Asked why allowing shareholders to sell their interest in the merged MLS was not enough, IRES’s Hansen said, “We don’t know one way or the other as we had not gotten that far in the negotiations. Other organizations recently have decided that a defined exit strategy (albeit not a simple or painless one) is better than the potential for drawn out, expensive litigation. This is not a new concept. Withdrawal provisions exist in a host of corporate structures.”
Merger talks between the two MLSs began after 20-plus large brokerages in Colorado sent a letter to IRES, REcolorado and a neighboring MLS. The letter asked the three MLSs to create a single database “no later than Jan. 1, 2018 to enable us to do our jobs, serve our clients and remain relevant and valuable to the people who pay us.” The letter also asked the three MLSs to share data until that single database was available.
“Frankly, I am totally disgusted with both sides for not reaching an agreement after so long. At this point I don’t care who is blaming who anymore,” wrote Jeff Stewart, a managing broker-owner in Erie, Colorado, in response to IRES’s blog post announcing the end of the talks.
“The lawyers are the only ones making out on this, and we the Realtors have to double the work load to take care of our clients. If it was up to me I would get rid of both MLSs and start new, with new people. These entities are for us, and we are the ones paying the ultimate price. We deserve so much better! Increased fees and these two continue to squabble like schoolyard children. Enough is enough!!”
“This is ridiculous! Both boards should probably be fired and we start anew. We are not serving our members and certainly not our clients!” wrote Andy Carter, a broker from Westminister, Colorado, in response to REcolorado’s blog post announcing the end of talks.
According to Hansen, some comments from IRES subscribers have expressed relief that IRES’s system will continue for the foreseeable future. Others have been very frustrated, she said, but added that she heard the complaints and our “immediate focus will be back on providing the best services that we can to our customers.”
Several brokers and appraisers asked for data sharing to be reinstated. REcolorado and IRES have not discussed data sharing since merger talks ended, but the two MLSs have different views on it.
“We are not considering data sharing at this time, and the primary reason for that is that we view that at best as a stopgap,” Slunaker said. “It does not meet the needs of the broker and agents. Really what they want is one system and no boundaries for all the data.”
IRES has always been open to data sharing while agreeing with REcolorado that it’s not a long-term solution, Hansen said.
“However, it is a pain point for the brokers that we can solve. It is not a technical issue, it is an organizational decision,” she said.
Neither Hansen nor Slunaker ruled out the idea of consolidation at some point in the future.
“I do not think [the merger] is dead. I think that consolidation is inevitable. How long that will be and what shape it will take is yet to be seen. Too soon,” Hansen said.
Slunaker said REcolorado was still committed to one MLS for the Front Range. “There’s a lot of different ways to do that, and we need to find a path for that. Stay tuned.”