Boomer’s Blog

A three-year standoff between the U.S. Justice Department (DOJ) and the National Association of Realtors (NAR) over the association’s attempts to virtually monopolize its multiple listing service (MLS) data is one legal hurdle away from resolution. Both litigants have consented to a settlement agreement just weeks before the case was slated for the Federal docket in Chicago.

DOJ launched its anti-trust suit against NAR in 2005, over anti-competitive policies revolving around NAR’s proprietary MLS database listings of real estate properties for sale. Keeping the listings under wraps, the Fed said, keeps consumers’ costs artificially high and inhibits competition among traditional and online brokers for home and condominium sales.

WWW Infoscape Changed while NAR Battled DOJ Anti-Trust Charges
In its lawsuit, DOJ aimed to open access to the data beyond NAR’s broker network to include consumers, data aggregators and property discounters who don’t meet state-mandated minimum requirements for providing real estate services to sellers.

While DOJ and NAR have been fighting it out, Web 2.0 technologies offering free on-line property information have transformed the real estate business and quietly built a mighty market presence that imperils the relevance of the traditional real estate business model. They also bring into question the future of the 6 percent broker commission.

Innovation, Free Online Data Jeopardize NAR’s Proprietary Model
By democratizing real estate data, Web sites such as Redfin, Trulia and Zillow have shattered NAR’s MLS-intrinsic business model and showed online real estate shoppers a new and easier way to do business: A way that doesn’t require buyers to sit in the back seat of a broker’s car, or sellers to trust that their broker always has their best interests at heart.

Online Brokers Win Right to Distribute Electronic Tear Sheets
NAR has been widely criticized for allowing brokers to block their listings from being displayed on Web sites that offer discounted commissions or standard broker fees on real estate transactions. In the settlement with DOJ, NAR agreed to adopt policies that don’t discriminate against on-line real estate brokers. Specifically, the agreement requires that online brokers be able to provide the same information online that traditional brokers offer to folks who visit their offices.

Pending final court approval, a process likely to take three months or more, the settlement agreement could provide consumers with easier access to MLS data, which could enhance their market research and help them save money on real estate purchases. It also could alter some current trends in how MLS data are obtained and used in the virtual real estate marketplace.

The changes NAR agreed to likely won’t have a dramatic impact on the real estate marketplace as a whole, but it might affect those who have capitalized on NAR’s ongoing stabs at keeping MLS data secret.

Realty Times predicts that the following practices are likely to change dramatically when the settlement agreement is finalized:

• Lead generation services such as Lending Tree may have to stop filtering MLS data through broker shell companies.
• Data mining companies such as Home Buyers Marketing (HBM2.com) may have to stop reselling MLS data for profit.
• More open access to MLS data could detract from the credibility of values attached to property listings in real estate communities such as Zillow.

Registration Requirement Reinstated for MLS Data
Also as a result of the settlement agreement, NAR says it will reinstate an updated version of its virtual office Web (VOW) policy, and resume requiring customers to register before they can search MLS home listings online. NAR says it rescinded that policy in 2005, when its provisions were first challenged by DOJ.

Technologies offering free on-line property information are changing the real estate business and quietly building a mighty force that is poised to obliterate the National Association of Realtors‘ (NAR) virtual monopoly on property information and decimate the concept of the 6 percent agent commission.

Until recently, it was challenging to operate in the residential real estate market without access to the NAR’s multiple-listing service (MLS) because only realtors really knew what homes in any given area were selling for. Realtors who shared the information generally expected a return for their data sharing and professional services, usually in the form of a 6 percent commission on subsequent property transactions. But times are rapidly changing.

The Holy Grail: Data Accuracy
Soon, an estimate for just about any home’s value will be available online from sources such as Zillow.com. Many already are. But are the data accurate? A 2007 Wall Street Journal analysis of 1,000 home sales shows that Zillow’s “Zestimates” often are accurate, often within a few percentage points of the actual price paid. But when Zillow is off, the disparity can be dramatic.

Zillow.com officials say that constant refinements to their system make the data more accurate today than ever. Changes to the back-end of the system and enhancements like adding a process whereby owners can update their property information in Zillow.com’s system all work to maximize on-target data reporting.

Objectivity Fuels Credibility
Still, services such as those offered by Zillow.com are not yet perfect. Zillow’s valuation protocol is most accurate for mid-price homes in areas where there is high property turnover; it is less effective in neighborhoods where people seldom move. But the time may come when Zillow is seen as more reliable than human brokers, Money magazine reports.

Often, brokers and owners have an incentive to inflate estimates to win prospective clients and are not always tuned in to market changes. Data from sources such as Zillow.com are far more objective and are becoming more widely used by consumers, brokers and by major media media outlets to establish important benchmarks in the real estate market.

In other words, if everyone uses the data, the provider can become a significant force in the market. For example, financial news giant Bloomberg recently reported that U.S. home values dropped 7.7 percent in the first quarter to the lowest in almost three years, based on estimates by Zillow.com. The article says this is the largest decline in 12 years of data compiled by the Seattle-based online data provider. When the media major players cite a particular data provider as a source, it lends great credibility to the quality of the information outfits like Zillow.com provide.

All Aboard the Gravy Train
Zillow.com launched its Web site in 2006 to provide homeowners, real estate agents and potential buyers with value assessments called “zestimates” for single-family homes, co- operative apartments and condominiums. The company has since become a real estate powerhouse, recently expanding its operation to provide mortgage market information services. In the past couple of years, competitors have sprung up for a taste of the gravy snatched from the plates of brokers and others working from the tradtional MLS system data model.

According to Online Media Daily, in December 2007, San Francisco-based Trulia.com managed to edge out Zillow.com, AOL Real Estate and HouseValues in terms of unique visitors. The site nearly tripled its audience from the previous year, growing from 579,000 unique visitors to 1.6 million. Trulia recently sweetened the user experience by offering not only listing info and photos, but access to view the property via Google’s popular Street View Map option. Google Street View where it’s available, gives users an interactive, mobile, street-level view of properties and neighborhoods.

John Vogel, who teaches economics and real estate at Dartmouth, says that the democratization of real estate data imperils the future off the 6 percent real estate commission. Real estate brokers will retain a role as marketers, especially in tough markets. But, Money magazine says, like stock brokers before them, they’ll find that as they lose their traditional monopoly on information, they just can’t command their traditional price.

Below is a list of five top real estate valuation Web sites (My personal favorites are Trulia and Zillow).

• AOL Real Estate
• HomeGain.com
• RealEstateABC.com
• Trulia.com
• Zillow.com