Could these questions help avoid regional MLS dysfunction?

The real estate data industry is changing at an accelerated rate.

Change can be tough. Change can breed conflict.

Context

A dispute over regional MLS management in the Albany, New York, region just resolved, there’s a kerfuffle in the San Diego area regarding regional MLS control and use of regional MLS data by shareholders, and there are lesser-known disputes arising from MLS decision-making, control and listing-content use.

The issues underlying these disputes often present themselves after shareholder merger activity or when a regional MLS organization’s governing documents (for example, bylaws) inhibit such activity, but they can arise in other contexts, too.

And while these growing pains may be inevitable, there are steps organizations can take to potentially avoid costly, debilitating disputes.

Disclaimer: This is not legal advice. This is practical business advice.

Opportunities to avoid sticky disputes often arise when the regional MLS steps back and reviews its business model and internal decision-making processes.

For example, during the creation of a new regional MLS or MLS entity reformation, questions about decision-making are opened up and reexamined. But it may also be prudent for established regional organizations with no prospect of expansion or total reconstruction to also keep these questions in mind.

Heavy lifting

It’s about planning. It’s not necessarily fun work.

You think about worst-case scenarios, make tough decisions and need to compromise.

But it’s smart work. It protects your regional organization from internal dysfunction, sets the framework to grow and provides a sense of certainty and calm, so your organization may focus on strategic direction, products and services and constituents.

Brass tacks

So, stepping away from the lofty theoretical and strategic, what are some tactical issues to consider?

The following is a partial list of questions a regional can use to potentially avoid costly conflict. I have framed them here as questions relating to the regional MLS organization and its “stakeholders” — usually Realtor associations or other local entities that are shareholders in a regional MLS corporation or members in a regional MLS limited liability company.

• Generally, what is the regional MLS required and permitted to do or what is its scope?
  • What products and services does it provide? Can stakeholders provide services that compete with the regional’s?
  • Into what contracts does it enter? Are there limits on value, type and so on?
  • What powers does the regional have? Does it create, set and enforce rules?
  • What may the regional not do? Does the organization advertise about local market conditions?
• Who makes decisions about matters within the scope of the regional MLS?
  • How is the regional’s leadership group comprised?
  • Is decision making (representation) amongst stakeholders equal, or is it based on the size of the stakeholder organization? A hybrid?
  • Which decisions are made by the regional board, and which require ratification of the stakeholders?
  • What decisions require a majority, super-majority or unanimous vote?
  • How can the regional organization remain nimble, given these decision-making constraints?
  • What about when stakeholders merge with each other? How does that impact decision-making?
• What about data use?
  • Are all uses of the full database reserved to the regional MLS? What exceptions are there, if any?
  • Under what circumstances may a stakeholder use part or all of the database, if any?
  • Are some data sets available to stakeholder for use? In what circumstances and for what uses will the regional MLS provide those data to a stakeholder?
• What about the exit procedure? (Also known as the “pre-nup”)
  • Functionally, how does a stakeholder step away from a regional MLS? What is the notice and procedure for doing so?
  • What financial obligations flow to an exiting stakeholder? Are those obligations incurred before withdrawal? What about between notice and withdrawal? What about after withdrawal?
  • What does the exiting stakeholder get to take with it? A copy of the database? Off-market and on-market listing records?
  • What is the risk allocation amongst the parties? For example, what if a withdrawn stakeholder has a license to content and is subsequently sued for copyright infringement in the content?

Documentation

Different organizations implement the answers to the above questions (and more) in different ways. Common places to memorialize decisions are in the governing documents (for example, the bylaws or operating agreement, depending on the legal entity selected), intellectual property agreements and MLS participant and subscriber agreements.

The horizon

These questions and decisions are about looking forward.

The plans organizations make will require refreshing. Change is accelerating, and the type of change is likely to mutate. The industry has a default of cooperation and consensus, but change may begin to occur in more aggressive and hostile ways.

Generally speaking, I believe a combative approach to change might yield less desirable results at higher cost — but the stakes are changing. Perhaps doing some of the heavy lifting and weed-wading is worth the short-term pain in an attempt to be more future-proof.

Mitchell A. Skinner is an attorney and managing member at Larson Skinner based in Minneapolis, Minnesota.

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