A Washington, D.C.-based think tank is calling for federal regulators to investigate multiple listing services that restrict data from listing websites for possible antitrust violations.
The nonprofit, nonpartisan think tank, Information Technology & Innovation Foundation (ITIF), is also asking for state lawmakers to require brokers to provide free, unrestricted access to real estate listings.
ITIF presented its recommendations in a report published earlier this month: “Blocked: Why Some Companies Restrict Data Access to Reduce Competition and How Open APIs Can Help.”
In the report, ITIF’s Center for Data Innovation examined three industries — real estate, financial services and air travel — that have taken steps to limit third-party access to their data in ways the think tank believes restrict competition, reduce market transparency and harm consumers.
“For example, MLSs will often prevent [internet-based companies] from using property data by creating strict data-use policies, denying access to nonbrokers, or by keeping the data fragmented and unstandardized,” the report said.
“These restrictions have no legitimate business justification, but do undercut the business models of online services that allow consumers to be less reliant on brokers for buying a home and to gain better insights into the homebuying process.”
Daniel Castro
Report co-author and ITIF Vice President Daniel Castro told Inman “an enormous amount of innovation” is happening from the widespread availability of data in different industries.
“Some of this innovation creates new competitive pressures. When incumbents have exclusive control of certain data, they sometimes use that control to limit data sharing and thereby limit competition. These restrictions are ultimately bad for consumers which is why policymakers should intervene,” he said via email.
If the report is taken seriously by lawmakers, its recommendations could mark a paradigm shift in an industry that believes listing data belongs to brokers and should be theirs to control.
It could also invite scrutiny of both industry initiatives such as Upstream and MLS moves such as the Greater Las Vegas Association of Realtors’ recent decision to cut off listing data to realtor.com.
History of data restriction from MLSs and NAR
The report’s authors offered several examples of MLSs, brokers, and the National Association of Realtors restricting third-party access to listing data:
- MLSs have taken legal action in the past against third parties who have accessed or used MLS data without their authorization (a power MLSs are currently at risk of losing)
- MLS data has not been fully standardized, representing a barrier for potential innovators wishing to use the data
- Tech companies such as Zillow, Trulia, Open Listings and Homesnap have tried to disrupt the real estate industry by providing consumers direct access to listings, information about real estate professionals, rebates on the commissions paid by sellers to brokers, information about for-sale-by-owner (FSBO) properties, and/or additional information, such as walkability scores, crime data, quality of nearby schools and ownership history of the home. But companies that aren’t brokerages must negotiate with MLSs to obtain listing data and MLSs may not agree to share that data.
- Even online brokerages such as Redfin still face the challenge of scaling up when they must have licensed brokers in every state in which they want access to the data, apply for and maintain membership in every single MLS within these states and integrate with different MLS databases. The report cited the CEO of online brokerage Open Listings who said the cost of adding each MLS amounts to about $20,000 in upfront costs, plus another $10,000 annually to maintain, not including the membership fees and dues owed for every agent. If that were extrapolated to all 750 or so MLSs in the U.S. (not just Realtor-affiliated ones), the total cost nationally would be $15 million in startup costs and $7.5 million in recurring costs, the report said.
- Multiple real estate brokerages of all sizes have restricted Zillow, Trulia or realtor.com from displaying their listing data both in the past and currently, including Edina Realty in Minnesota, Crye-Leike Realtors in Tennessee, Sibcy Cline Realtors in Ohio and Allen Tate Realtors in North Carolina. Such firms “accuse these sites of having inaccurate information, missing the irony that by not providing access to their listings, they are perpetuating the very problem they say they want to solve,” the report said.
- Large real estate brokerages, with help from NAR, have formed a company called Upstream that hopes to provide brokers and agents with a single portal to input real estate information. Brokers then determine which vendors get access to the data, how much of it they get access to and how often. “In short, Upstream is building a platform that will allow individual brokers and agents to easily block their listings from third-party websites that increase competition among real estate brokers and agents, including competition from online discount brokers,” the report said.
- In the 1990s, the Department of Justice’s Antitrust Division began pursuing multiple cases against NAR and MLSs for alleged anti-competitive actions that discriminated against innovative business models, including NAR’s creation of rules that inhibited competition from Internet brokers, local MLSs’ requirements for brokers to have a physical office within the MLS area, and states that passed laws prohibiting brokers from offering rebates to consumers.
- Most significantly, the DOJ pursued a case against NAR for unfairly discriminating against online brokers, who were undercutting the traditional brokers’ standard 6 percent commission and lowering costs for consumers, the report said. “The investigation resulted in NAR entering into a 10-year agreement in which the association agreed to rescind its anti-competitive policies … Unfortunately, this agreement expire[s] in 2018 and there are no mechanisms in place to prevent real estate agents and brokers from pursuing these anti-competitive practices again,” the report added.
Resistance to competition
The ITIF report credited real estate brokerages’ restrictions of listing data to a desire to handicap third-party listing sites that feature competing agents.
“Third-party sites display ads for local real estate brokers and agents to prospective home buyers, often with useful consumer reviews of their experiences,” the report said.
“Since prospective buyers may not have an agent when they begin looking at homes, brokers fear they will lose out on potential clients, including the opportunity to act as both a buyer’s agent and seller’s agent for their listed properties.
“By cutting off third-party sites from listings, the brokerages hope to drive more search traffic to their own sites where they do not show ads for competitors. These restrictions hurt buyers and sellers, including their own clients, since there is less information available about their properties.”
Brokerages themselves often cite concerns about inaccuracies on some third-party listing websites when they announce they will no longer distribute their listings to them. Brokers say they have a fiduciary duty to their seller clients to represent homes accurately and that if they don’t they could be sued by a potential homebuyer or the seller client. Meanwhile, listing sites themselves can hand that liability off to the agents, brokers or MLSs that provide the information.
In response to that concern, Castro said, “Open access creates a level playing field for access to data, and in doing so, this creates competitive pressure for sites to improve their data quality. Or put differently, I don’t know of many sites that prefer inaccurate data.
“Some of these problems can also be resolved through better technology. For example, different data standards could allow a third-party to show in real-time whether a broker attests that a listing is active.”
The recommendations
To ITIF, withholding thousands of listings from third-party sites or making access to them dependent on premium placement for agents means “regulators and policymakers should take a new look at how they can increase competition in the real estate sector so as to benefit consumers.”
The think tank recommended two actions:
1. “The DOJ [Department of Justice], the Federal Trade Commission (FTC), and state attorney general should investigate the activities of NAR, the MLSs, and even emerging players, such as Upstream, to ensure that these organizations do not use their control of real estate listing data to unfairly restrict competition among real estate services.” These agencies should probe whether any MLSs’ or brokerages’ actions to block data from online listing companies are “collusive and exclusionary,” the report added.
2. “[S]tate policymakers should require brokers to provide open access to their real estate listings.” Open access means “free, immediate, and unrestricted access to published real estate listings,” Castro said.
“There are generally two ways open access policies can be implemented. The entity that owns the data either can self-host the information in its own repository or it can have a third party host the data. Third parties would then be able to access the information from one of these sources,” he said.
“Providing third parties with access to this information serves consumers by increasing market transparency and by allowing them to make more informed choices,” the report said.
In regards to the scalability problems noted in the report, Castro said open access to listings “should go hand-in-hand with implementation of consistent data standards and open APIs [application programming interfaces]. [T]he policies giving the right to access the data create the most value when the data is provided in a consistent format using standardized methods.”
When asked what kind of real estate listing data should be open, Castro said, “At a minimum, this should include all public information (e.g. same fields that would be included in IDX [internet data exchange] listings) for active listings. Since the data would be unrestricted, third parties could archive listing data and make historical data available. Ideally, all pricing information, such as upgrade incentives, upgrade allowances, repair allowances, and commissions, should be included as well.”
In regards to unrestricted display of interior photos of homes, he said he did not have a “definitive position” and “would expect some of these details to be worked out jointly between various stakeholders if policymakers forced them to the table.”
Why government intervention?
Why not leave it up to sellers to decide to go with a real estate broker and agent that will disperse the seller’s listing wherever the seller desires?
“The simple reason is because the market is not working. And consumers bear the cost of this market failure,” Castro said.
“There are different reasons for the market failure. One is that there are misaligned incentives, so the best interests of the broker and agent are not necessarily the same as the seller’s. Another is a lack of transparency in the market, so sellers do not always have complete information to make decisions.
“And of course most sellers are less concerned (or even aware) about the means than the ends, so they are unlikely to exert pressure on brokers and agents to reform practices that have a negative aggregate effect.”
According to ITIF, none of its current corporate supporters are in the real estate industry, though Zillow was a supporter last year and its term of support ran out a couple of months ago. The nonprofit said the company had no input into this report or recommendations and ITIF’s editorial practice is to operate free from external influence.
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