by Brian Larson
Inman News Service
The National Association of Realtors last month released a new draft policy directed at virtual office Web sites or VOWs. The policy addresses a number of concerns raised about the practices of VOWs.
The new proposal, perhaps with some modifications, will be presented to NAR’s Multiple Listing Services policies committee at the trade group’s mid-year meetings in Washington, D.C., in May. If it is approved there, NAR’s board of directors will determine whether to make the policy mandatory for all NAR-affiliated MLSs with a January implementation deadline.
If adopted, the policy would standardize some of the practices of brokers operating VOWs and provide much-needed guidance for MLSs striving to regulate those practices reasonably.
During the next two months, however, intense debate is likely on the merits of the proposal and particular aspects of it.
The new proposal, if adopted, would settle a number of critical questions surrounding VOW practices. While it maintains the central elements of an October 2002 version, it also offers concessions to those who objected to certain specific characteristics of VOWs as they are currently operated. There are numerous areas, however, where uncertainty will still prevail.
Here are some of the specifics of the VOW proposal:
MLSs must allow VOW
The new proposal, like the October proposal, would require NAR-affiliated MLSs to permit VOWs. The new proposal would go further: it would require an MLS to permit each salesperson to have his or her own VOW, provided the broker consents to be held accountable for the salesperson’s site.
Local MLSs may not regulate more or less strictly than the policy permits. MLSs would not be able to “adopt rules or regulations that are more or less restrictive than” the policy. NAR Associate General Counsel Ralph Holmen confirmed that NAR would produce “model rules” before the end of the year that MLSs must adopt without substantial alteration.
Listing brokers
cannot opt out
The policy would not permit listing brokers to opt out of display of their listings by other brokers’ VOWs. But a new clause would expressly provide that listing broker permission may be required if state real estate regulators consider the VOW to be advertising. NAR’s Code of Ethics and most states’ real estate regulations require permission from the listing broker to advertise a listing.
Some state regulators have already made a formal distinction between the two practices. Others have suggested that they would regulate VOWs exactly as they would Internet Data Exchange or IDX Web sites. Some commentators have pointed out that much of what passes between a broker and a buyer might be considered “advertising” of listings on one level or another. The central question then is whether listing brokers imply a certain level of consent for other brokers to “advertise” their listings as necessary to make the sale (i.e., to the extent necessary to effect the purpose of the MLS) and whether VOWs fall into the range of permitted advertising.
Sellers can opt out
A very significant provision in the October proposal remains in the new version. “Listings or property addresses of sellers who have directed their listing brokers to withhold their listing or property address from display on the Internet...shall not be available” on VOWs. In other words, sellers could direct their listing broker to withhold their listings or addresses from VOWs.
The practical impact of this provision could be to allow listing brokers to hamstring VOWs in their markets through a “back-door.” Imagine a listing broker with significant market share advising its sellers: “Our firm recommends that you withhold your listing from the Web sites of other brokers for security purposes.” The result could be a rash of sellers who “direct” their listing broker to withhold their listings from VOWs, making the VOW a less appealing investment for the broker’s competitors. (This hypothetical is not at all far-fetched. One brokerage with significant market share in its market regularly advises its sellers not to put their listings in MLS. Most of that broker’s clients “decide” to withhold their listings from the MLS and “direct” their broker to do so. Sellers working with other brokers in the same market appear not to feel the same way.)
The new proposal seems even to expand this loophole: Notwithstanding the seller opt-out ability, “listing brokers may display on their VOWs...the listing...of a consenting seller.” Holmen confirmed that this provision allows the seller to direct his or her listing broker to withhold the listing from other brokers’ VOWs but still permit the listing broker to include it in its own VOW.
Holmen also confirmed that the policy would not prevent a broker from adopting a firm-wide policy of encouraging sellers to opt out of other brokers’ VOWs. He noted, however, that such advice to the seller would have to be consistent with the broker’s fiduciary duties.
Access to listings
Brokerage relationship is prerequisite for access to listings. A VOW could display listings “only to consumers with whom the (broker has) first established lawful consumer-broker relationships.” This requirement from the October proposal enshrines the claim by VOW-owning brokers that they are providing brokerage services, not advertising, on their VOWs. It requires them to live up to that claim by satisfying all formalities required under state law to establish the relationship. This might include, for example, making an agency disclosure.
The policy makes further requirements for executing any agreement under which the broker will either receive compensation from the consumer or enter into an agency relationship with the consumer.
“An agreement entered into at any time between the (broker) and (consumer) imposing a financial obligation on the (consumer) or creating representation of the (consumer) by the (broker) must… be prominently labeled and may not be accepted solely by mouse click. The (consumer) must also receive a subsequent confirmation of the terms of the agreement and the agreement may not become effective until the (consumer) acknowledges acceptance of those terms, by mouse click or otherwise. Prior to entering into a representation agreement, the (broker) must ask the (consumer) whether the (consumer) is a party to an existing exclusive representation agreement.”
The provision requiring something more than a mouse click for the agreement is just that: Any step beyond a mouse click that would satisfy state law and by which the consumer assents to the agreement would satisfy the policy, according to Holmen. The rest of this provision would essentially require a double assent from the consumer: the consumer must accept it by something more than a mouse click and must subsequently confirm the terms.
Referrals
Brokers focused on referrals may not use VOWs to generate them. A new addition to the proposal would provide that a “(broker) may not provide the identity of a Registrant (on its VOW) to any other entity for compensation.” So, for example, a broker that signed consumers up on its VOW could not then sell them as referrals to another broker.
Perhaps a loophole exists here in that it appears that the VOW-owning broker could provide the identity of some other entity to the registrant. For example, a link to the third party’s Web site might identify the consumer as arriving from the VOW, but not actually identify the consumer. Under agreement between the VOW-owner and third party, the VOW-owner could receive compensation for the link.
Importantly, this restriction extends to non-brokerage referrals as well. For example, a broker could not sell its list of registrants to a landscaping company, even if the broker’s VOW privacy policy would permit it. There is no time expiration on this provision, so that even if the consumer were to become a client of the VOW-owning broker, it could not at any time in the future receive compensation for referring the client out to other service providers. This restriction may cramp the style of some traditional brokers, who are building “concierge” and “customer life-cycle” business models at least in part on post-settlement referrals for fees.
A significant exception to this provision recognizes longstanding brokerage practices: The policy would provide that “a (broker) may provide the identity of a (consumer) to another broker for compensation if (1) the (referring broker’s) residential real estate brokerage activities principally consist of listing or selling the types of properties required to be filed with the MLS (2) the (consumer) is seeking property of a type, in a price range, or in a location for which the (referring broker) does not ordinarily provide real estate brokerage services and (3) the number of (consumer) identities provided or the corresponding revenue generated is an insubstantial portion of the (referring broker’s) real estate brokerage activities.”
Traditionally, it is not uncommon for a broker to begin representing a consumer only to find that she is interested in properties in a geography or class in which the broker does not work. Even with statewide licensure and large regional MLSs the norm, for the convenience of all parties involved the broker may still want to refer the buyer to another broker rather than attempt to serve her. Presumably, such referrals would make up only a small portion of the referring broker’s consumer contacts. Such referrals appear to comply with the exception for which the policy provides.
The exception would not help with the concierge or customer life-cycle issue, however, since it would apply only to referrals to “another broker for compensation.”
Interestingly, the new policy is likely to do nothing to prevent the referral approaches of a company like Homegain. The author is not aware how the bulk of consumers get to Homegain; its prominent placement on any Google search including “real estate” might be as good a place as any to begin speculation. In any event, the consumer visiting Homegain.com who wishes to see listings must register. She is then turned over to the VOW of one of Homegain’s local affiliate brokers. (Never mind that Homegain operates that VOW on behalf of the local affiliate; it is nevertheless offered and branded as belonging to the local brokerage.) If the referral results in a transaction, Homegain gets a referral fee. This is what is sometimes called “success-based advertising.”
In this scenario, however, the VOW-operating broker is not the referring broker but the referred-to broker. It seems that the policy proposal’s ban on referral fees to referring brokers would have no impact on this practice.
Advertising and VOW listings do not mix. A VOW-owning broker would not be able to place advertising on its Web site on those pages where listing data of other brokers appears. An exception is made for “the name, address, phone number, and company logo of the (VOW operator), and any other information required by state law.”
— Brian Larson is an attorney in private practice in Minneapolis. He is also a principal at St. Paul-based Tendal/Larson, LLC, a consultancy serving the real estate industry. He can be reached at [email protected] or [email protected]. In preparing this report, the author reviewed the proposal himself and interviewed NAR Associate General Counsel Ralph Holmen, who was among the NAR staff who took part in preparing the proposal. Holmen agreed to interpret provisions of the proposal, but noted that his own interpretation is not binding on NAR.