There are some considerations with the virtual office Website (VOW) issue that make the VOW policy as proposed by the NAR to be voted upon in May far from a done deal. Demand for broker opt-out is increasing.

According to Laurie Janik, general counsel to the NAR, the policy as is was designed to address the concerns of all members. But, meetings among attorneys from a variety of organizations from large brokerage franchises to state associations indicate that policy makers are considering additional input and possibly looking at anti-trust issues, and that the proposed VOW policy may still be a work in progress.

In short, they want to look at the what-ifs associated with a broker opt-out provision. Here are a few considerations.

Opting out

Leaders from almost every large real estate franchise organization from the Cendant Real Estate Division to RE/MAX International to Realty Executives International have publicly stated that they would like to see an opt-out provision in the new VOW policy.

At issue is whether or not brokers, who own the listings, have the right to control how they are displayed and whether some types of displays constitute advertising. If so, most state laws already prohibit the advertising of listings without the broker's permission. Yet some VOW providers, successful in out-of-court settlements or through the threat of going to court, have cowed some local MLSs into allowing them to use the valuable MLS database of listings as a lead generation tool in advertising arrangements, hence the request by large firms for a broker opt-out provision. These opponents, many who would like to capitalize on decades-old MLS rules, have based their business models precisely on the advertising of other brokers' listings in order to gain traction on the Internet.

But when MLS compensation and publication of listings rules were enacted decades ago, it wasn't possible for a single member to give the MLS book to a third-party for publication in exchange for a substantial referral fee or exclusive advertising arrangement. It was also unthinkable that media would obtain real estate brokerage licenses in order to display the listings and command referral fees instead of advertising fees. On the Internet, both scenarios are happening with a vengeance, and that is what is upsetting listing brokers.

While opponents of the VOW proposed policy claim that they have the right to use the MLS database to service clients in the same way they would use any other mediums to show clients listings, such as faxed or e-mailed listings, they have opened up competitive discussion that could backfire on them.

Cendant Real Estate Division CEO Richard Smith has publicly stated that he would pull NRT listings and encourage all Coldwell Banker, Century21, and ERA brokers to pull their listings from local MLSs, and start a Cendant MLS, if the proposed policy doesn't include provisions that enable brokers to protect their data from unwanted advertising arrangements, especially those that result in referral fees to the listing broker.

Clearly, if some members are upset enough to threaten to pull their listings, the issue is not going to be easy to resolve. As one spokesperson put it, "Anything that drives big factions out of the MLS shows that you aren't addressing their concerns. We hope we don't make decisions that drive members away."

A franchise executive told Realty Times off the record, "It's simple. It's our listings. Would the NAR prefer to be sued by its members or by third-parties?"

The division among members puts additional pressure on the NAR to come up with a plan that avoids member drop-out, as its first priority is to maintain and grow membership. To do so, the NAR has limited options - to rely on state law to enforce current MLS rules of advertising and to set common law precedent, or to provide a broker opt-out provision.

State laws on what constitutes advertising

Under California laws, the California Association of Realtors believes that VOWs are advertising, in which case brokers would need other brokers' permission to advertise their listings, points out June Barlow, CAR's general counsel.

But what if VOWs haven't been defined as advertising?

When there is no law addressing VOWs and advertising, common law would prevail. "If there is no definition then you have to go by common sense," says Barlow. "Our statutes have a definition of that; they use Websters' when there is a gap."

"If the state has ruled it advertising, individuals would have a tough time claiming it isn't advertising," says Barlow.

In California's case, broker opt-out would allow VOWs to exist but with severe limitations on how they can be used in advertising relationships. Still, any association or MLS would be wary of being sued by an angry VOW operator thwarted from making a name on other brokers' listings.

"The opt-out is the perfect solution," says Barlow. "It allows them (brokers) to make individualized decisions. You don't have to get into why or how."

Brokerages or advertising models?

Barlow says that the VOW issue is sensitive, because it requires "recreating rules that are understood and easy to implement, and reflect the business practices of our members and are flexible to foresee electronic models of the future. With electronics, we were able to do things never before imagined, so our rules must coincide with the fast pace of technology. That's why flexibility and broad-based rules are easier to manage."

Kris Keener, Web coordinator for RE/MAX Equity Group Marketing Department, says she has an acid test for whether a VOW is engaged in advertising or not.

"What if the data for VOWs had to reside on the MLS's server and they (VOW operators) had to simply frame that data as provided by the MLS? After all, if they are providing the same data they would provide to a real person in their office, that's all that they show the in-person client anyway - the MLS client printout," suggests Keener. "There isn't any reason for the data to be sent to the VOWs Web host for manipulation. That manipulation makes it advertising (which is why agents design flyers and ads, and those don't look like MLS printouts). IDX takes care of Internet advertising for brokers. All the registration requirements can happen before they (consumers) get to the MLS search and the MLS can password-protect the search form so it's not available unless it comes through a VOW site and then the MLS (and generally the brokers) can control what the VOWs are doing with the data."

Administration of broker opt-out

If the NAR chooses to include a broker opt-out in its VOW policy, MLSs may face the additional problem of how to administer it.

There are only two means of broker opt-out on NAR's table: selective and blanket. Blanket opt-out means that the broker opts his/her listings out of all competitors' VOWs. Selective opt-out means the broker can pick and choose which competitor's VOWs he or she would like company listings shown.

"There are problems with both models," says Barlow. "A blanket opt-out is easier to administer because it mirrors IDX (Internet data display - permission-based broker reciprocity in listings display), and that is attractive. What's unatrractive is you are forced out of models you would like to be in. The pros of selective opt-out is you don't have to opt out of models you want to be in."

Selective opt-out clearly raises some possible anti-trust questions, as brokers essentially would pick and choose among competitors to showcase their listings, if implemented.

Blanket opt-out has less of a learning, administrative, and enforcement curve.

MLSs can drag their feet

Most MLSs have not implemented IDX for their members, despite a mandate by the NAR to make permission-based broker exchange of listings available to be advertised on consenting members Websites by January 2002. The reasons why the implementation is spotty are due to cost, technology, and in some cases, demand, all of which postponed any enforcement action by the NAR. Presumably, VOW implementation could meet the same fate, except in key relocation markets where large numbers of listings are crucial to certain VOW operators' business models.

It could be that MLSs who are mandated to adopt yet another Internet data display policy would simply pass on administrative and policing costs to members who want VOW participation. Or, they could simply drag out implementation for years, as some have done with IDX.

"The simplest is to treat it administratively like IDX," suggests Barlow.

In any case, VOW adoption, with current provisions against sharing listings with third-parties and controls over consumer access, and with or without broker opt-out, may become a non-event.