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July 25, 2018

What Does Redfin Have That You Don't?

As a real estate agent you may ask the question, "What Does Redfin Have That I Don't?" The answer: Capital! AKA lots and lots of money! And a VOW (Virtual Office Website.) Do you understand the concept of a VOW? You should if you call yourself a Real estate pro.

VOWs are back in the news, after all these years, with the NAR/DOJ Consent Decree sunsetting in November.

It is time to attempt to bring everyone back up to speed after a ten-year hiatus. I first wrote this for REALTOR® Magazine and it pretty succinctly lays it out. If you understand this article, you understand the issues and you will be better equipped to compete in the what some view as a coming disruption in the real estate industry.

It seems the U.S. Department of Justice (DOJ) has found at least two aspects of the proposed (yes proposed, not implemented) National Association of REALTORS®(NAR) VOW Policy objectionable and DOJ has gone so far as to threaten legal action. DOJ has also recently voiced objections involving the states of Texas, Oklahoma and Kentucky.

Is this a DOJ conspiracy against the real estate industry or just poorly informed government employees with nothing better to do...or both?

The current proposed (and well thought out) NAR VOW Policy has been under review by DOJ for the past 18 months and DOJ has found the following objectionable:

1. Selective Opt out provision (there are two types of Opt Out provisions in the NAR proposal, Blanket and Selective Opt Out)

2. Restrictions or limitations on use of VOWs to generate referral business by companies not involved in the actual listing and selling of real estate.

Public display of other broker's listings via the Internet has created the potential for major change in the real estate industry and that is exactly why we must move forward with our eyes open, going back to the basics and understanding the fundamentals before we move forward. It is time to re-evaluate where we have been and then where we want to proceed...or someone else will do it for us.

Let's start by looking prior to the days of the Web (the graphical part of the Internet), which has been around since 1992 or so, popularized by the development and then commercialization of "browsers" (The Internet has been around in some form since 1969).

Things were pretty simple in pre-1992 real estate. The two major ways to make money in real estate sales were listing and selling.

If I took a listing, I could use that listing to help me generate both buyers and more listings. "For Sale" signs and "just listed" mailings increased my "presence" and the chance that other homeowners would recognize me as a real estate sales leader in the neighborhood (and that would, hopefully, help me get more listings). There was a recognized promotional value in the listing. Other brokers were not allowed to put their "For Sale" signs on my listings...they were not entitled to the promotional value I gained when I got that owner to sign my Exclusive Authorization and Right to Sell (listing agreement). It cost money to generate listings and as the listing broker, I was entitled to the benefits of my (or my agents) listings.

Listings and their promotional value helped me find buyer leads for any listings I might have, and because I was a member of the MLS (which was once a unilateral offer of sub-agency, and since the late 1980s a "unilateral offer of compensation"), buyers for listings of other broker members of the MLS.

If I had a listing, I could advertise the listing (when and where I deemed appropriate) and when calls came in (leads) I could begin to work with the caller by inviting them into my office to meet and discuss the listing they called on or perhaps other properties in which they might have an interest.

This might include other brokers' listings as well as my own. I had no obligation to give the name and phone number of the listing broker when I provided listing information to a prospective buyer who came into my office.

When I took a prospective buyer out to look at property, I had no obligation to give the prospect the name or phone number of the listing broker. I simply "showed" the property and provided information, answered questions, etc. If the buyer said, "This is great, now please give me the name of the listing broker so I can have another broker write an offer." I was under no obligation to provide that information to the buyer.

Once again, and this is an important concept, the listing itself has a promotional value that we all recognized and of which, only the listing broker could take advantage. Listing brokers had no obligation to let competitors benefit from the promotional value of the listings they worked to obtain. Listings are the property of the broker. Licensees learn this fundamental concept in pre-license classes and the Internet does not, because of its existence, change this very foundational aspect of the real estate business, regardless of what supposed consumer advocates, technology pundits, or other special interest groups might tell us. As a matter of fact, advertising another broker's listing without the listing broker's permission was and still is a violation of law and/or regulations in most jurisdictions. Some now say that not to promote listings on as many websites as possible could somehow be interpreted as a breach of fiduciary duty to the seller.

Prior to the Web, when you took a listing, did you advertise it in every newspaper, every magazine? If you did not advertise a listing in every known publication were you (and are you today) breaching your fiduciary duty to the seller? When a broker takes a listing, the seller usually agrees to allow the broker to determine the method and means of marketing. If a breach of fiduciary duty occurs, sellers have the right to sue. 

Not advertising everywhere has never been considered a breach of fiduciary duty. Brokers choose where and how to effectively market a listing. That is how the business works. Advertising a listing so 1,000,000 people in India see it does not mean that the seller will receive more for the property because more people saw the property offered for sale. This argument does not work.

How many properties, in a hot market, have sold before the listing gets into the MLS or is advertised in the local newspaper? If you take a listing today, and price the property based on all available data...and as soon as the For Sale sign goes in the ground, you have 5 offers for full price or you advise the seller to wait and not accept the offers because the ads have not hit the paper yet? Most brokers and licensees would not
advise a seller to wait, but to act on the offers on the table.

Now roll forward to today:

Today, there are at least 3 identifiable ways to make money in real estate sales: listing, selling and lead generating and referring (assisted greatly today by the Internet and the promotional value of listings).

While referring existed prior to 1992, it was not a major part of most real estate businesses (except for maybe relocation, which was usually done within the confines of particular companies).

Listing information is content and it still has that promotional value. So who is entitled to the benefit of the promotional value created by listings?

Many are saying all brokers (and even their agents, without their broker's permission) have the right to display on their Web site as information, all the MLS listings without obtaining the permission of the listing broker.

While IDX requires permission of listing brokers, VOWs do not. This is a major distinction and critical to any discussion on VOWs. Should listing brokers have the right to "opt out" (either blanket opt-out or selective opt-out) and not permit their listings and the corresponding promotional value of their listings to flow to all their competitors. The Department of Justice is saying brokers should not have this right to control the benefits developed by their labor and capital. And this prohibition and business restraint will benefit the consumer. The Department of Justice does not "get it" and/or the DOJ has some other agenda (maybe DOJ is frustrated by actions in Texas, Oklahoma, and Kentucky). 

The new DOJ position makes no sense when carefully examined and yet the DOJ will intimidate and threaten legal action...antitrust legal action, which strikes fear into the hearts of REALTORS®. It is nothing more than bullying, but is anyone willing to stand up to the biggest bully in the schoolyard? That is the current 64 Billion Dollar Question.

As stated, listings generate leads for the listing broker and the real estate business has always been about leads. What is one of the biggest time-consumers in a REALTOR'S® day? Prospecting, and working on the development of leads, from cold calls to door hangers to direct mail, to signs on listings to classified ads, to open houses, all designed to make the phone ring or get prospects to show up. The question now is who is entitled to the leads generated by listings?

What are you paying for your leads right now in your time and marketing how can you generate leads from the Internet? What will you (do you) pay for leads, in time, effort and cash? Are you paying online referral companies such as Homegain, Housevalues, Lending Tree and others? If so, is what you are paying less or more than you are paying for "conventional" leads (when you consider all your marketing, advertising, referral fees, prospecting, cold calling, door knocking, etc)? It is your job to find out what is right for you and how you fit into a changing real estate industry.

Referral models are proving to be a third major area of revenue in the real estate sales business. Listings, Sales, Referrals. How do many of these third-party referral companies acquire the leads? Using listing data as content on their Web sites? Is this inherently good or bad for the industry?

The government is now trying to push the peanut down a particular road, for a yet to be determined reason, cloaked in the veil of "consumer protection," tampering with the engine that has helped create such a good economy. The brightest spot in the economy for a number of years now has been real estate. Why the government hostility? Is anyone willing to stand up to the bully? It is time to study the issues and "Take Back Your Future."

As someone who has observed closely the evolution of listings and consumers on the Internet since 1993, from the inside and the outside (I was instrumental, as an evangelist and then as part of a sales force of four (Carl DeMusz, Roy Rainey, Derry Davison, and myself) in first bringing those listings to the Internet). I want to stress that VOWs are an important piece of a much bigger puzzle...who will put the puzzle together first is the question we are all looking to answer.

It makes no sense to compel brokers to share listing data if it would be detrimental to their survival as a business. If they want to, that is fine, but to force it by government mandate or threat is wrong.

Knowledge is Power, and knowledge is a differentiator in a business where success continually requires differentiation.

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