Meg White is the former managing editor of REALTOR® Magazine.
BPOs, CMAs, USPAP: Real estate valuation is an alphabet soup of acronyms, easy to ignore until you need solid numbers to support a transaction. However, a change to how one major valuation product is created and sold could forever shift the way brokerages and multiple listing services operate.
AVMs, or automatic valuation models, have been around for decades. Zillow brought the AVM to the public, forcing real estate professionals across the country to contend with the company’s often-inaccurate Zestimates.
But there’s another behind-the-scenes world where AVMs using MLS data can be sources of significant revenue streams. These AVMs don’t appear on public websites; instead, they work in the back room, helping banks evaluate real estate portfolios or determine refinancing calculations. Even Fannie Mae and Freddie Mac have relied on AVMs to analyze the market.
The banks are willing to pay for access to valuations based on MLS data. But who owns the data? And who should profit from it? In January, The Realty Alliance, a group of larger brokerages from across the country, sent a letter to the National Association of REALTORS®’ MLS Technology and Emerging Issues Advisory Board insisting that brokers get a slice of the AVM pie. They said existing policy permits participants to use MLS data to create AVMs but noted some MLSs refused to distribute data so it could be used in this way.
Jon Coile, CRB, CEO of Berkshire Hathaway Affiliate Champion Realty Inc., based in Severna Park, Md., has helped lead the push for greater MLS cooperation. As a member of The Realty Alliance’s board, he told NAR’s Multiple Listings Issues & Policies Committee in May it was well past time that brokers get the tools necessary to compete with Zillow and other third-party websites.
“They’re eating our lunch,” Coile said. “We’re all in this together, and we need to circle the wagons.”
NAR’s Board of Directors subsequently approved a proposal to require MLSs to provide listing data in a way that makes the development of fully automated valuation models possible.
Some industry watchers say NAR moved too quickly. Minneapolis-based real estate consultant and attorney Brian Larson says The Realty Alliance’s request was “reasonable” but fears unintended consequences of the wider policy change.
“We’re making a policy change that shifts the way MLSs do business,” Larson says. The Realty Alliance is above board, he says, and it’s working with reputable technology company Collateral Analytics, based in Honolulu. “My concern is not about them; it’s about the people who come after them. Will every such provider behave appropriately?”
Collateral Analytics is hardly the first to forge such data-sharing relationships. CoreLogic has a program allowing MLSs to license their data to the company in exchange for royalties and branded valuation tools. There are more than a dozen other companies operating in this space.
The REALTORS Property Resource® has also gotten into the AVM business. In addition to the data it provides to members, RPR also sells valuation models to financial institutions.
Of course, RPR’s main goal is to support members. It uses data licensed from around 600 MLSs to fuel the REALTOR Valuation Model®, which is free for members, associations, and MLSs to use.
“The idea is to create a sort of virtuous circle, where fully authorized data can be used to support members’ transactions,” says RPR President Marty Frame. RPR also has just begun providing a consumer-facing AVM for brokers to use as a widget on their sites. RPR’s product won’t be in competition with brokers who choose to develop an AVM solution, because RPR isn’t licensed to use MLS data for such purposes.
For some MLS members, the fact that other companies are using MLS data to create valuation tools is enough reason to allow brokers to participate.
“RPR makes money off of MLS data. Some MLSs make money off of MLS data. Are we really going to say that brokers are the only ones who cannot make money off of MLS data?” Henry Brandis, senior vice president of corporate services at Edina Realty in Minneapolis, asked at the MLS committee meeting in May.
Larson says that argument doesn’t necessarily apply, because brokers have the option to prevent their listings from appearing on sites where their MLS has a licensing agreement. He says this new policy doesn’t allow them to opt out of the AVM use of their listings.
Greg Moore Jr., co-owner of Informed Solutions Realty in Milan, Mich., a brokerage that specializes in BPOs, says he doesn’t mind if participating brokers use his data to value and sell properties in the area. But he draws the line at companies that sell MLS data to banks.
“There are instances in which data needs to be shared so we can sell homes, but it needs to be done responsibly,” Moore says. “If you’re taking my data and selling it to someone, you’re not performing a real estate function.”
Clareity Consulting CEO and cofounder Gregg Larson, who supports the policy change, says AVMs are functionally the same thing as BPOs.
“One of the main purposes of the MLS is to be able to use the data to do valuations,” he says. “This makes total sense; this is technology moving forward.”
Gregg Larson has been encouraging brokers to create their own AVMs since 2002, regardless of size or affiliation. “You don’t need to be a big broker; one guy can have access to the database. All you have to do is be a participant,” he says. “You could call CoreLogic and say ‘I want to be your guy in Amarillo, Texas.’”
Gregg Larson says brokers can use consumer-facing AVMs to attract clients. He says brokers can use their own local knowledge to tweak AVMs and create a powerful machine, helping agents estimate home values almost instantly and attracting more consumers to their website. “It can be used as a real-time tool and a differentiator,” he says.
For every reputable company like RPR and CoreLogic, there are plenty of others selling MLS information inappropriately. Sometimes they steal access to the data through scams. Or they’ll be granted limited access to MLS data, but they’ll resell it or use it in ways that violate MLS agreements.
“We run into these guys all the time,” says Gregg Larson. His contacts at Bank of America tell him they reject around one solicitation a week from illegitimate resellers of MLS data. “They don’t have booths at trade shows, but they’re out there.”
Frame says this fact highlights one of the benefits of using RPR, as it’s committed to only using up-to-date MLS data in a way that has been expressly authorized. Frame adds that MLSs are generally vigilant about protecting data, but that their resources are often thin: “They do good work, but sometimes they could use more tools.”
Brian Larson worries the new policy might strain resources further. He says MLSs rely on members policing each other’s VOW and IDX feeds, but AVMs are different. When an AVM is used in the back room of a brokerage—to monitor a bank’s portfolio, for example—it isn’t operating in a public place where others can scrutinize it. “Many MLSs rely on that sort of tattle-tale enforcement,” Brian Larson says. The backroom AVMs present “a more opaque barrier. How does an MLS staff even get into an AVM?” He says brokerages may have to submit to technology audits to make sure they are in compliance with MLS agreements. “Because of the cost of technology audits, most MLSs don’t do them. Now maybe that will change.”
Back in May, Coile noted an element of déjà vu in the opposition to the policy change. “Two years before Zillow came out with its AVM, realtor.com® was ready to go with something similar,” he said. “But we shot them down. We were afraid of that.”
The change won’t be in effect until the next edition of the Handbook on Multiple Listing Policy is published next January. But the debate over listing data will rage on, as a testament to the power of data—and who gets access to it.