MLS Systems Need Some Clear Cooperation From Appraisers

November 13, 2024
  • NAR Is Toxic Entity Per DOJ Actions So The MLS Industry Is On Their Own
  • Local Appraisers Need To Convey To Their MLS The Fields Needed To Fairly Value
  • Purchase Prices Recorded Will Vary Significantly Based On How Commissions Are Handled

Since the Sitzer-Burnett decision in 2023 and the NAR Settlement in 2024, the real estate brokerage world has been largely devoid of leadership. Multiple Listing Systems (MLS), Realtor Associations, and Real Estate Brokerage companies are reluctant to speak out because of Department of Justice (DOJ) scrutiny. NAR can’t lead the industry because they continue to attract DOJ attention after years of ignoring the industry’s legal exposure. Although one could argue there will be less DOJ pressure on NAR in the next administration. The latest hot potato legal topic is NAR’s Clear Cooperation Policy (CCP but I nicknamed it CCCP, ha).

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Two Big Opponents Of CCP

At the NAR conference in Boston last week, NAR punted on the topic of CCP by not deciding anything. Back in 2019, my colleagues and I were pitching VCs in San Francisco to raise funds for our startup (which was interrupted by the pandemic but recently launched – more on that soon) and everyone was talking about the proposed NAR rules for CCP. We were running across the streets over and over again to make endless meetings. Even in my flurry of activity, I was quite aware of the CCP discussion that was being tackled. It was an all-consuming topic at that conference and was assumed by many to be settled afterward. Instead, it is a continuing source of industry strife today as the world changes.

Two big U.S. real estate brokerage firms have come out against CCP: Compass and Howard Hanna:

Compass CEO Robert Reffkin has been very outspoken about CCP – throwing his weight behind a national MLS powered by Zillow. “He complimented Zillow’s “brilliant” strategy and placed the company’s success at the feet of organized real estate.” This confused most industry insiders at NAR as Compass has always presented its strategy as being the “hub” of real estate. Compass dominates in a few markets like San Francisco where they have a greater possibility of being on both sides of the sale. Perhaps that’s Reffkin’s motivation. During the heyday of real estate “blockchain” fever 5-7 years ago, Compass was the anti-christ of blockchain by wanting to be the central source for everything instead of decentralization. Why would Reffkin now be championing Zillow? Is he pining for an acquisition by them? His comment is wildly inconsistent with all previous messaging which left most executives at the conference quite confused. I would think that such a move by Zillow would prevent them from selling their leads which is the vast majority of their revenue. Reffkin comes across like he doesn’t fully understand the industry.

Howard Hanna is a dominant and rapidly expanding midwestern-based brokerage firm. I know their CEO Hoby Hanna, who is one of the sharpest executives in the real estate brokerage space. He is against CCP and wants it eliminated. He made the point at a recent conference “that plaintiffs in commission suits have specifically cited Clear Cooperation as an example of industry collusion.” Like Reffkin, Hanna dominates many markets in the midwest and its elimination probably improves his firm’s probability of receiving two sides of a given sale in many of his markets.

More broadly, most brokerage firms within the industry rely on help from other firms to sell their listings and CCP standardizes that cooperation. RE/MAX recently came out adamantly for CCP because it “believes in prioritizing consumer interest over practices that benefit a few at the expense of many.” The bulk of the industry is generally for CCP but everyone seemingly has different thoughts on how to tweak it.

No industry leadership is available from NAR on CCP because of their lost credibility in handling legal exposure to the industry and their ability to attract DOJ attention.

MLS Doesn’t Know The Next Steps – Appraisers Might Hold The Answers

There are roughly 530 multiple listing systems (MLS) in the US right now. We just saw the realtor association ColoradoRE sell its MLS to a VC to remove MLS liability lingering from the NAR settlement. There have been other regions poised to go through further detachment such as Detroit metro but it’s not clear if this will be a full-fledged industry trend. NAR is not going to develop a blanket MLS policy out of fear they will bring toxicity to this subset of the industry. They want the MLS world to figure out its position in the post-Sitzer-Bernett world. Standardization is needed (I’m not referring to the technical RETS or RESO which already exist). The industry has to know what data (fields) to capture in this new world of commission structure (more on this later). I have an appraiser friend in Oklahoma who would describe the MLS world today as inspecting a house with 530 feral cats. I’m not criticizing the MLS industry and I know it has a trade group, but it is a tough way to move forward. They fear taking action in adding fields to their systems because it will lead to DOJ scrutiny.

There are three types of sale transactions regarding commission structure that I can come up with. I’m sure there are many additional variations. Let’s use $1 million with a 5% total buy/sell commission in the following examples:

ONE) The old way – the buyer offers $1 million and the seller pays the commission for both parties and the agents split it up somehow with the commission rolled into the sales price. The seller nets out $950,000 and the agents split the 5% commission or whatever the market rate is. The sale is recorded as $1 million.

TWO) The new way – the buyer offers $1 million plus a $25,000 concession for commissions for a total offer of $1.025 million. The buyer’s agent commission is 2.5% commission ($25,000) and the seller’s agent commission is 2.5% ($25,000). The seller nets $975,000 but the recorded sale is $1.025 million.

THREE) The new, new way – The buyer pays $1 million to net out $975 thousand with a 2.5% commission ($25,625) paid to the listing agent by the seller. The buyer pays a 2.5% commission to the buyer’s agent and the recorded sale is $974,375.

With the above three scenarios just the tip of the data iceberg, this is where the appraiser comes in. Without MLS industry leadership, the appraisal industry needs to convey what fields they need in each MLS record to compare properties. Several new fields for price and concessions should be added to MLS systems. It’s clear that over the next year or two, appraisers are going to have to make adjustments for commissions in some manner since their application will vary from transaction to transaction depending on how commissions were paid and how the price was recorded.

With a few new data fields needed in the above scenarios, it is more likely that the MLS industry won’t get extracurricular DOJ attention for simply providing the new information appraisers need to come up with a clear understanding of the actual purchase price. Otherwise, the MLS industry will remain rudderless, terrified to include any data that is commission-related.

While I believe appraisers can be the obvious solution to this anticipated lack of data going forward, my industry is constantly paralyzed by bad behavior and its own self-dealing on a national level. Many MLS systems have appraisal advisory boards such as Stellar MLS and Bright MLS. For MLS systems that don’t have an appraisal feedback mechanism, I suggest such a relationship is set up sooner rather than later. Getting those fields and capturing that data in this new world is critical to enable appraisers to complete fair and proper valuations.

National Appraisal Industry Leadership Remains Wildly Incompetent So The Solution Is Local

Two key entities represent the appraisal industry and both are self-dealing and have shown disdain for residential appraisers for at least two decades. I only bring this up because local appraisal groups should not wait for national organizations to take charge. They have a track record of not being responsive to new challenges in the industry, especially for residential appraisers. A local response to this MLS data challenge is needed.

The Appraisal Foundation is a non-profit that manages the language of appraisal licensing and certification created by Congress. They are quite incompetent but excel as experts in bureaucratic self-preservation and making appraisers jump through unnecessary hoops as if they are rocket scientists. Their effort to preserve their self-dealing was reflected in their former president’s actual lies in front of the Appraisal Subcommittee in Washington DC. LOL! I’ve written about this in the past. The appraisal industry doesn’t trust them.

The Appraisal Institute is the industry’s largest trade group and is patently corrupt, self-dealing, politically charged, and incompetent. I had hope for the future until they got rid of its recent superstar CEO Cindy Chance because she was exposing their bad behavior and dared to focus on the needs of its appraiser membership (where is the Illinois federal prosecutor’s office when we need them?). After eight years of exposing the self-dealing of the Appraisal Institute, I had already stopped my weekly blogging on Appraiserville last summer to focus on my new format here on Housing Notes and spend more time on my startup. But today I found out that a RAC Appraiser (I used to be the national president of RAC) whose identity is unknown to me, was summoned to AI Headquarters in Chicago to sit before their ethics committee (a deep analysis of their vindictive hypocrisy will be shown the light in a future post). The RAC/AI member’s transgression? The ethics board is accusing this member of feeding me (Jonathan Miller) information that helped topple the former JA administration. Well, the “ethics” panel needs to call forward hundreds of AI members and the majority of the BOD if they want to be thorough. This bad behavior is enough motivation to reopen my other blog Appraiserville. I will be paying close attention to their actions in the coming weeks and months. When will AI ever decide to serve the needs of its membership? AI members don’t trust their leadership but are scared to speak out because of a pattern of personal retribution. Hence, the local strategy for appraisers and MLS systems to solve the new data problem.

Final Thoughts

In the aftermath of the NAR settlement, the MLS industry has been told that NAR wants them to “figure it out” on their own. The appraisal industry has the potential to get the MLS industry to standardize some additional fields needed to better understand the consideration paid for a home and be able to make adjustments to a competing home. The national appraisal industry has been unable to show leadership over recent decades because of all its self-dealing and other bad behavior. Bad behavior is easily given oxygen because appraisers are generally an industry of “lone wolves” barely able to have a voice in the national conversation.

With the pivot in how commissions are paid post-NAR settlement, the appraisal industry now has the opportunity to speak up about the specific fields they will need from the MLS industry to fairly value the housing market. It’s really up to local appraiser groups to connect and advise the MLS systems they rely on. Take action now.

Our October NYC rental report is coming out on Thursday. Here’s something for tenants to think about (NSFW).

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