Through a recently published white paper, RE/MAX International has just alerted its broker network to the franchise's position on virtual office Websites, as regards the NAR's proposed VOW policy, including an argument in favor of selective broker opt-out.

The purpose of the RE/MAX white paper on VOWs is to "examine the merits of the NAR draft and help educate RE/MAX Brokers and Sales Associates regarding the nuances of VOWs."

Applauding the NAR for "doing the right thing regarding this issue by soliciting its members’ input," the white paper also warns that it is an "issue that can cut both ways. While reading this policy, you need to consider how it impacts you not only in the short term, but how it impacts you and the competitive market in the long term."

The following is RE/MAX's recap of the essentials of the seven-page policy:

• MLSs must allow VOWs. Any MLS affiliated with NAR must permit VOWs. Additionally, each MLS must permit an agent to have his or her own VOW, as long as the broker agrees to be responsible for the actions of the agent. It is not clear whether an agent’s name can appear on the frame of a competitor’s listing posted on the agent’s VOW site. We assume that the answer to this would be affirmative due to the fact that an agent has the right to have a VOW site, but this issue is not addressed in the policy.

• No rule-making flexibility. MLSs will have to subscribe to the NAR “model rules” and will not be able to “adopt rules or regulations that are more or less restrictive than the policy.”
• Brokerage relationship. A legitimate and lawful consumer-broker relationship must be established before the consumer can enter any VOW site. This varies from state to state, but typically will include agency disclosures and other requirements. All of the formalities of the VOW operator’s state law must be met as though the consumer were walking in the front door of a bricks and mortar brokerage.

• Compensation arrangements. VOWS and their operators cannot lock-in the consumer with a mouse click that would require compensation from the consumer; an additional agreement must be entered into and confirmed. In other words, visiting a VOW site doesn’t necessarily lock-in a consumer to paying a commission for discovering or viewing a property online.

• No advertising on VOW listings. Wherever listing data or information is displayed, the VOW operator may not place any form of advertising other than the VOW operator’s name, address, phone number and company logo as well as any additional information required by state law. Because an agent can be a VOW operator, it is assumed that the agent’s name can also appear as the name of the VOW operator, but this has not been specifically addressed.

• Referral-generating companies may not use VOWs to generate referrals. Brokers using the aggregated listing information of fellow brokers cannot turn around and sell to other brokers the names of consumers who registered to enter the VOW site. Specifically, “a broker may not provide the identity of a registrant (on its VOW) to any other entity for compensation.” This restriction applies to non-brokerage related entities as well. For example, a VOW operator cannot sell for compensation the names of its registrants to a household goods moving company. An exception to this provision allows for the traditional practice of brokers and agents referring consumers to another broker or agent for compensation if the VOW operator is unable to provide the specified services required by the consumer and if the number of referrals generated is a small portion of the referring broker’s real estate business. In other words, if a VOW operator serves the southern part of a large metropolitan area and attracts a consumer who is looking for property on the northern edge of that metropolitan area, some 35 miles away, it would be acceptable for that VOW operator to refer the consumer to a practicing broker/agent on the north side of town for compensation. This historical practice would not be restricted under the VOW policy unless such referrals become a significant part of the VOW’s business. Referral generating companies will still be able to practice their trade, using various online tools such as mortgage calculators and moving planners to generate potential leads for sale to the real estate community. The one tool they will not be empowered to use is the work product of the broker/agent, the listing, as aggregated by the MLS.

• Seller “opt out.” Under the proposed policy, the seller of the property can instruct the listing broker/agent regarding his or her desire for exposure on the Internet, including on a VOW site. If the seller specifically requests that the broker not provide the listing information to VOW operators, then the listing broker must comply. This is similar to sellers directing where their properties can and cannot be advertised, as in the past.

• No broker “opt out.” At this point in the evolution of the policy, listing brokers who are members of the local MLS have no choice but to participate. That issue will be discussed later in this document.

"The foundation of our industry is the listing agreement," intones the white paper. "It is an asset of the broker or agent and they should have the right to deploy that asset as they see fit. It is NAR’s duty to protect the assets of its members. People outside of our industry seem to think that listings just happen. A practitioner acquires listings because of investments in time, education and building relationships, as well as money expended for office rent, salaries, furniture, utilities, advertising, promotion and anything else that it took to keep the business active over the years. Consumers respond to that longevity with repeat business. This business is in the form of listing information, and the broker/agent has a responsibility to the seller to protect that information."

VOWs are "an online environment in which a broker/agent does business with a consumer … without bricks and mortar," explains the white paper. "The purpose of the proposed VOW policy is to ensure that the same rules and regulations that exist in the bricks and mortar world are also applied in the online world, as though the consumer were physically in the office, face to face with the broker/agent. Although VOWs have existed in some markets for a number of years, our industry is just now beginning to grapple with the use and misuse of listing information in this environment. In some cases, existing MLS rules have been bent and even disregarded. The purpose of NAR’s proposed policy is to reign in any existing abuses and provide a road map for the future."

VOWs are "presently online displays of VOW operators’ accumulated listings of the entire Multiple Listing Service (all the listings of all competing brokers), presented without the expressed permission of each of the competing brokers; to access the listings, VOW users must register and receive a password. On the other hand, IDX represents permission-based listings exposure due to its opt-in/opt-out feature; it requires no user registration. Potentially, VOWs can become significant traffic generators for people already within our industry as well as for those traditionally outside of real estate, which means that a lead generator can demand a referral fee from the very broker/agent whose work product (the listing) generated the lead."

VOWs are not a bricks and mortar operation, as there are substantial differences between the two business models, reasons the white paper. "A computer loaded with the requisite software can technically “qualify” a potential VOW customer. But that qualification is only as valid as the data that is entered...No matter how well intentioned, no piece of sophisticated VOW software can be a substitute for meeting a customer face to face. VOWs and software are not a substitute for personal and physical interaction between a broker/agent and a potential client."

Fuzzy issues

The white paper goes on to point out issues swirling around the VOW controversy.

RE/MAX contends that VOWs are not a consumer issue.

"Opponents of the regulation of VOWs claim that VOWs are a consumer issue. Proponents of VOW regulation disagree with this position, contending instead that VOWs are an industry and MLS issue and therefore should be discussed within the industry, all the while with an eye toward meeting at least some of the expectations of the consumer." However, "While service is a priority for the consumer, the consumer also needs to understand that service comes at a price. In our rapidly evolving online environment, consumers may be quite vocal about certain issues until they realize that any service enhancement is costly. Because it is our industry – and not the consumer – that first pays for enhanced online service, VOWs are, most directly, an MLS and Realtor issue, not a consumer issue," suggests the white paper.

RE/MAX also warns its network about misinformation. "Brokers and agents need to be aware that many of the online sources carry their own agendas and report as fact what is actually opinion. You are urged to do diligent research before you come to any conclusions regarding the VOWs controversy," says the white paper.

"A virtual office is not an exact duplicate of a bricks and mortar operation," reiterates the white paper. "Again, the seller expects the broker to supply information about the property to qualified buyers, not casual browsers or those who would appear not to have a legitimate reason to view the listing....We should take reasonable steps to protect the seller’s information."

RE/MAX discourages acceptance of "success-based" advertising (referral fees) in the VOW environment.

"Some current VOW operators believe they have a right to extract a success-based advertising referral fee for simply providing the name of a potential customer who uses our industry’s work product (the listings). Imagine, if you will, that a local newspaper uses its own telephone number instead of yours in an advertisement you have placed on one of your listings. The newspaper later calls and says they have a buyer for your property and expect you to pay a 35 percent referral fee for that name. Would that be consistent with your expectation? This issue may also find a direct parallel to the online VOW environment to the extent that one is considering the prudence of any selective broker opt out. Offline, our industry has selective broker opt out. Although opting out could make the online process more complex, brokers would have more control over how their listings are marketed, and at what cost."

RE/MAX trains its guns on online referral companies in the white paper.

"In the past, referral companies facilitated the referral between one broker and another. This new generation steps into the middle of that process, collecting information from VOW sites in order to sell referrals to local brokers. The unknowing consumer doesn’t realize this is happening, that additional cost has just been added to the transaction. The question becomes: Does the added value equal or exceed that cost? One might conclude that, like those offering success-based advertising, these salesmen are engaging in a kind of slight-of-hand trick similar to those performed at carnivals a hundred years ago. They change wording and impress us with their technology to disguise the fact that they are seeking profit. They call referral fees “success fees” and claim that a solicitation is not a solicitation but an “invitation.” Brokers need to see through the smoke to understand the end game here. Technology companies look at our industry as being disorganized and unaware of what is going on. It’s time to inform ourselves on the practical economic consequences of our relationships in the market and to make our own informed judgments as to what does and does not make sense when one’s listings are being marketed."

RE/MAX addresses concerns about relocation companies which may have inadvertantly provided the blueprint for "success-based" advertising from online referral companies.

"Practitioners are increasingly being asked for discounted commission structures and referral fees. Relocation companies have received criticism from many in our industry for their practice of extracting 25-35 percent on a relocation customer. Anytime a referral fee is paid, regardless to whom, it adds cost to the process. Fortunately, relocation-related transactions affect fewer than 2 percent of the total transactions in the marketplace. Relocation companies successfully receive these referral fees because there is a value established by the contractual relationship between the relocation company and the client corporation that is initiating the transfer. In effect, the broker/agent receives part of the benefit of that contractual relationship. In the case of a VOW operator, however, an extended relationship and repeat business, as represented by the client company in the relocation example, is arguably not there. The VOW operator, effectively interrupting the flow between client and broker/agent, becomes a gatekeeper who extracts a toll."

"We’ve all heard that as many as 55 percent of buyers today start their search on the Internet. That is nearly 30 times the amount of business that relocation companies control – and that figure is growing. The proposed VOW policy would restrict VOWs from “providing the identity of a registrant (consumer) to any entity for compensation.” While this regulation would temporarily block the extraction of unearned referral fees, you can bet that these firms will try to adopt some kind of a blocking strategy of their own. Proponents of the referral model might also scream “antitrust,” but it is our position that the NAR policy is not only defensible but that it is both pro-competitive and ultimately beneficial to consumers."

Building a case for selective broker opt-out

"The policy as currently written requires mandatory “opt in” on the part of MLS participants. Mandatory opt-in short-circuits the premise that the broker owns the listing information. With mandatory opt-in, the broker can no longer control what he or she owns. In fact, the MLS controls what the broker owns."

"As a result, it is our position that there should be a “selective broker opt-out” provision available. This is the position being taken with NAR by our team of experienced antitrust lawyers. Although VOWs will help the consumer and the broker in most cases, there undoubtedly will be some uncomfortable situations in which VOWs misuse the broker’s information. With a selective opt-out provision, the broker could stop that particular VOW from using the information while still receiving the benefits of the other operating VOWs that are available."

Editor's note: There are two types of broker opt-out being suggested to the NAR and its attorneys by various companies. Selective broker opt-out means the broker can pick which VOW he/she allows to publish his/her listings. Blanket broker opt-out means the broker opts out of allowing his/her listings to be published in any VOWs. Either solution poses additional administrative complications for MLSs, argue some, while others argue that MLS services are for brokers and should evolve with the industry.

RE/MAX's reasons for allowing a broker to selectively opt out of a VOW:

• Seller expectations of care and control of the dissemination of the information.
• Quicker reaction to circumstance. The first person to realize that the information is being misused is the broker. Many MLSs are slow-moving and bureaucratic. The broker could put an immediate halt to any transgression by a member of the MLS.
• The MLS doesn’t own the listing. The broker does. The entity that controls the data technically owns the data. With mandatory opt-in, the MLS controls the data. Selective opt out acknowledges who truly owns the data – the broker – and that the individual broker has the right to determine how to market those listings most efficiently and effectively.

"Given that NAR has more than 800,000 members," concludes the white paper, "most of whom are members of the local MLS, you can rest assured that there are a number of renegades who would not hesitate to tear down what has been built by decades of broker cooperation. The existing MLS model is the envy of the world in that it provides quicker sales for sellers and better incomes for participants.

"We think it would be a mistake to have a policy that paints brokers and agents into a corner where they have only one option if their listing information is in fact being used improperly. As it currently stands, the only “out” is for the broker/agent to drop out of MLS, which is an extreme remedy that cannot be regarded as being beneficial to the consumer or the market in general.

"Lastly, no policy can anticipate all circumstances that may arise, and surely, circumstances will change over time. This policy needs to be fluid to ensure the continuation of the Multiple Listing System that has been so beneficial to consumers and practitioners alike."