Realty Times exclusive! If the NAR leadership vote on VOW recommendations doesn't go the right direction, Cendant Real Estate Division leaders say they are willing to do what it takes to protect their franchisees' businesses, including pulling NRT and brand listings from local MLSs to avoid their being misused by competitors.

NAR is creating recommendations on the regulation of VOWs because MLSs report to NAR subsidiaries. The recommendations will be put before membership for comments and leadership for final vote at the May mid-year convention. The issue is whether virtual office Websites (VOWs), business platforms similar to brick and mortar brokerages, have the right to use MLS databases in referral fee arrangements and exclusive advertising arrangements, among other issues.

Richard Smith, chairman and CEO of Cendant's Real Estate Services Division and Robert Moles, president and CEO of the Cendant Real Estate Franchise Group have told Realty Times that they approve of the general creation of VOWs but that they would like to see VOWs operate only with opt-in/opt-out options given to participating brokers. They also don't want to see VOWs used to charge referral, advertising or other service fees to other brokers. And last, they don't want VOWs to be used in exclusive advertising relationships with other brokers, including third-party broker-portals.

In a white paper given to NAR leadership, Cendant Real Estate Division leaders said that "listings are the property of the real estate broker and not the MLS." In the absence of any opt-in or opt-out requirements associated with VOWs, "there is a likelihood that local brokers will seek to avoid sharing listings with the applicable MLS in order to prevent otherwise unauthorized incorporation of the listings into third-party VOWs."

The situation, the paper points out, "would weaken and ultimately cause the failure of local MLSs."

To view the Cendant Real Estate Division's white paper on the misuse of VOWs in a PDF file, click here

Why speak out now?

"Our purpose," replies Smith, "is we have two constituents. Our franchisees may not be well versed in VOW issues. Four or five months ago, we weren't well versed. We want them to have the benefit of our knowledge, and we want to make sure that our sales associates, all 225,000, are also well versed. It is easy to let this escape us we are all busy and this is a difficult time in the industry, and we want to let interested third parties, namely NAR, know how we feel."

Adds Moles, "We have been looking at this, and we needed to put our heads together and get it into a public record."

"The biggest issue," explains Smith, "is referral fees which we view as a misuse. That VOWs make listings more available to consumers, we are all for, but if the VOWs are going to be used to hand a fee back to us, then that can undermine the revenue stream and change the fundamentals of the industry."

"It isn't good for the consumer," suggests Moles. "The increased cost will have to be borne by someone."

"This is a case of 'Let me borrow your watch, tell you what time it is, and charge you a fee,'" declares Smith. "This could affect service levels. We don't see the value in it unless it is intended to display online listings to as many buyers as possible without creating a new fee structure."

Cendant Real Estate, like others in the industry, did not react when a few brokers threatened lawsuits against MLSs in order to push their notions of "consumer-friendly" business models on the rest of the industry. But traditional brokers, seeing their listings are being used as referral fee tools for competitors, are beginning to fight back.

"Shame on us for not paying attention," says Smith. "If I were they, I would try to do the same thing. In 1990-98 in the tech world, it was said that real estate brokers were going to be disintermediated and the transaction would be put online. It frustrated a lot of people and some created some value for the industry, but others are trying to capitalize on what is perceived to be a dysfunctional industry. There are a lot of companies that try to provide perceived value and try to create some value for which they charge a fee. They don't have a captive audience and control over the listings. To the extent that you can essentially tap into this asset and hand back to us consumers for a fee and have few expenses and claim that it is to market the listing, our industry sees little value in that. The consumer isn't going to see a value, and I don't see how it is going to help the industry. It will only serve interlopers."

Says Moles, "The more information we got out, the better it was for consumers, but this is the first time we are faced with the possibility of having our information sold back to us."

Yet, many brokers freely give their listings to third parties such as Lending Tree, HomeGain, Yahoo! Real Estate, and other virtual licensed brokers. Some do so with the full knowledge that they will pay a referral fee for a consumer lead. If local brokers believe they are getting valuable business, how can Cendant leaders stop them?

"We can't tell brokers what they can and can't do," responds Smith, "but we discourage it as not offering value to the consumer or the sales associates. What we often hear from brokers - who aren't thinking through it - is that it is 'incremental' business.' Even if you believe that it is incremental, if you are not careful, 100 percent of your business could come back with these fees attached. This is like an affinity program that covers every citizen. All affinity groups provide 'incremental' business, but if you are giving them access to all your listings, then in theory 100 percent of your business could come back with a referral fee attached, and this industry can not afford that kind of business."

Continues Smith, "Real estate sales constitute 15 percent of the Gross Domestic Product, and these third-parties aren't providing value. They aren't marketing the house any better, they aren't representing the buyer or seller."

Says Moles, "At the end of all this, we're strongly advocating that the broker has the right to control their information, so that is why we feel the opt-in/opt-out provision is important. They can control their own information so it isn't misused."

The Cendant Real Estate division leaders believe that it is possible for brokers to regain control of their listings.

"Lending Tree is another issue - it is pretty much same thing - they are not creating value," says Smith, "they are only charging fees. This isn't like the relocation business where they have substantial investments in the lead. These companies have limited ability to expand beyond certain markets. There are brokers who are willing to accept those referral fees, but we don't support Lending Tree or VOWs without an opt-in, opt-out position."

Smith believes that commissions have been trending downward for over 20 years. "The full service brokers have been discounting to market pressure, and VOWs will accelerate that process. You have operating margins below 5 percent. Unless we want to operate like grocery stores with margins under one percent, we need to take control of the business, or one percent will come faster than we suspected."

How far is Cendant Real Estate willing to go to back their recommendations to the NAR and the company's brokers?

"I think the industry has been receptive to our position and agree that with a couple of changes, VOWs are fine," says Smith, "and we are willing to press as far as we need to. They'll find that the industry agrees with this position. Other brokers have said that when you hear the story of what the outcome is, they are opposed. If you can opt-in and opt-out, they are sympathetic to that view. The NAR is trying to do a good job, but the ultimate control is the ability to opt-in or out."

If the NAR vote doesn't go that direction, will some brokers remove their listings?

Replies Moles, "I'm in conversations with many brokers, not just Cendant brand brokers. They've said "If we don't control the information, then we can't be a member of the MLS.' If we had to do that to protect our business, then we would say that privately, too."

Could there be a Cendant MLS someday?

"Absolutely," declares Smith. "We are not handing our business off to someone who doesn't add value. If this is a battle call, we're ready. We aren't going to sit back and watch this go in the wrong direction."

Published: March 5, 2003

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Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. To contact Blanche, email her at . For more articles by Blanche, click here.