BAREIS Position Statement

Position Statement
The Board of Directors of the
Bay Area Real Estate Information Services, Inc.
Re: California Association of REALTORS^® MLS (H-MLS )
February 22, 2008

Introduction

Members are asking about the position of the Board of Directors (the "Board") of Bay Area Real Estate Information Services, Inc. ("BAREIS") regarding the statewide multiple listing system ("H-MLS") recently approved by the California Association of REALTORS^® ("CAR") Directors. The BAREIS Board has followed the progress of the CAR effort since 2005, and published a position statement in April of 2006 that covered a number of the aspects of the CAR proposal. By letter dated February 20, 2008, in response to a request by CAR that BAREIS sign a non-specific letter of intent to participate in H-MLS, the Board authorized a letter to CAR stating, in part:

At this time BAREIS is not able to execute a letter of intent, but will continue to explore and evaluate the effort emphasis added. Following a very thorough review of some 200 pages of documents that CAR has published on the effort, the Board feels the program is not far enough along to facilitate a decision.

There are a number of items that are not currently in place that will be required for the Board to make a formal decision, including acceptable Articles of Incorporation, Bylaws, Rules and Regulations, full and realistic budgets, studies justifying the need for the proposed service, software for the database, and a formal business plan. Most importantly, none of the materials we reviewed addressed how an independent MLS, such as BAREIS, can be involved and/or cooperate in the effort while maintaining its own independent structure and operations.

There was some concern expressed by the Board that CAR should obtain a private ruling or an opinion of qualified antitrust counsel attesting to antitrust compliance regarding the consolidation of services, the pricing structure, and the business model, prior to moving forward with the effort.

As stated, the Board will continue to evaluate the effort as CAR moves forward and formalizes the organization. We have met with your task force three times, and have responded to other requests for information during your research period, and will continue to do so.

Full text of the letter may be viewed on BAREIS.com > BAREIS Position on CAR's Statewide MLS > BAREIS Response to CAR or by clicking BAREIS Response to CAR.

The April 2006 position paper may be viewed on BAREIS.com > BAREIS Position on CAR's Statewide MLS > April 2006 Position Paper or by clicking on April 2006 Position Paper.

Recap of the Effort and History of the CAR Project

During the January 2008 meetings of CAR, the organization approved going forward with a statewide "singular" MLS database owned and operated by CAR and administered by the local associations of REALTORS^® or Regional MLSs (the "Associations"). A special task force of CAR has been working on the concept since 2005.

Based on our review and interpretation of the documents distributed by CAR as recently as February 2008, the H-MLS will be owned by CAR, and will have a board of 17 directors that will govern the operation. CAR will either serve as the vendor or employ a vendor, and provide the database to the Associations at a stated projected cost of $8 to $12 per participant/subscriber per month. These costs are referred to as a “wholesale cost” to the Associations, and not the end cost to the user (see Pricing and Finance). The Associations will be obligated, at their cost, to provide add-on enhancements, ensure data integrity, maintain member support, enforce the H-MLS Rules, and bill and collect from their members for the use of the H-MLS. The Associations will be entitled to charge for these services. The total cost to users to H-MLS remains unclear and will likely vary from Association to Association. The Associations must submit letters of intent by March 1, 2008, in order to have any proposed candidates for the H-MLS board of directors to be considered.

Links to the CAR documents as reviewed by the Board are BAREIS.com > BAREIS Position on CAR's Statewide MLS > CAR Documents or by clicking on CAR Documents.

Items the Board Considered in the Process

The BAREIS Board considered a number of issues prior to taking a position on the CAR H-MLS effort.

Underlying Assumption - A Bigger MLS is Better. There are certain economies of scale that can benefit the members of a large MLS, although the Board has found there seems to be a natural resistance when an MLS reaches a level where it can no longer customize the system to respond to local market needs. Real estate is a geographically driven business, and California is not one homogeneous market (see Need).

Business Plan. A business plan was published by CAR in May of 2007. The plan is not specific about a number of items, including costs, etc., and has not been updated to reflect recent decisions.

Links to the CAR business plan as reviewed by the Board are BAREIS.com > BAREIS Position on CAR's Statewide MLS > CAR Business Plan or by clicking on CAR Business Plan.

Need. There is a real question about the need for statewide data, with the exception of providing aggregated single-site data for and data transfer to multi-regional brokers and other members wishing to enhance internet sites.

Our own statistics that are based on the Quattro and California Alliance usage statistics state that less than 9% of our total members hold memberships in multiple MLS organizations and/or need access to statewide data. A slightly larger percentage (approximately 17%) of our membership located on bordering regions of San Francisco and MetroList^® are logging directly into the San Francisco and MetroList^® system. A larger percentage of membership in Southern California (approximately 36%) logs into other Southern California MLS systems through the MLS Alliance. There seems to be a much greater demand for a common database in Southern California than there is in Northern California.

The Board does recognize the need to provide aggregated and expanded data to multi-regional brokers and to other members wishing to enhance internet sites, and is currently working on resolving that need through the Quattro effort and other data-sharing initiatives.

CAR Ownership. CAR will own the H-MLS, and will either serve as the vendor or employ vendors to provide the MLS system. Vendors providing other services (productivity tools, etc.) will be able to continue doing so (assumption). In the Board’s view, the consolidation of all of the multiple listing services in California in a single entity creates a statewide risk to the California real estate markets should CAR fail financially, liquidate its assets, or transfer H-MLS to a third party. It is our perception that any proceeds of resulting transactions would, of course, go solely to CAR and not to the brokers who created the listings.

Conditions to Be Involved. Each Association or MLS participating in the H-MLS effort must subscribe to the CAR Rules and Regulations. It is assumed at this point they will also be required to be a CAR affiliate (see Rules and Regulations).

Pricing and Finance. CAR is projecting the cost to provide the H-MLS service to the Associations at $8 to $12 per member per month, referred to as a "wholesale price" in the CAR Regional MLS Statement of Intent, which will depend on "the vendor utilized and the number of participants." There are no published budgets in place.

As stated earlier, this will not be an end price to the member. Many members have assumed that this is going to be their cost. The proposal goes on to state that Associations will be permitted to mark up the wholesale price to cover costs for other services and management. We assume at this time this means rules enforcement, add-on products, membership services or support and basic management of the data. These costs are actually the larger costs of operating an MLS. We have estimated on a statewide basis that these services cost between $16 and $20 a month per member. Approximately $16 to $18 of the $34 per month that our members pay is dedicated to these very features. The cost savings of a statewide database as a result may be negligible.

Corporate Structure. The H-MLS structure will be a mutual benefit corporation owned by the California Association of REALTORS^®. There are no published proposed Articles of Incorporation or Bylaws.

Governance. There will be a board of directors of 17 members. Three of the directors (appointed) must be from the top 10 largest firms, an additional six must be brokers (elected), six may be either brokers or subscribers (elected), and two can be from the outside (elected). The three selected from the top 10 firms and outside directors will serve one-year terms, and the balance will be three-year terms.

There is a voting process described under the Governance Working Group paper as a "Dual Membership Vote," with each participating organization having one vote per organization and another weighted by the size of the organization. Members should review the CAR documents to see if they understand how the voting structure will work.

Rules and Regulations. The proposal includes the standardization of Rules and Regulations and a requirement that all organizations involved adopt the CAR model rules, yet there are no published rules in place for the CAR H-MLS.

The BAREIS Board does recognize that firms with multi-regional interest do have a difficult time keeping up with the rules of the many MLS organizations they belong to. The Board has agreed with the need to standardize certain elements of the rules and has taken action to do so. The core of our Rules and Regulations are based on CAR models, but are modified to recognize the needs and practices of the members in the common market we serve.

Trade Issues. The effort proposed will combine the databases of the approximately 74 MLS organizations throughout California that serve approximately 200,000 real estate professionals. There was some concern expressed by the Board that CAR should obtain a private ruling or an opinion of qualified antitrust counsel attesting to antitrust compliance regarding the consolidation of services, the pricing structure, and the business model, prior to moving forward with the effort.

Currently there are a number of MLS organizations in California, with the ultimate effect of keeping pricing down and services up. The entire real estate industry could be at risk if we find out later the combination of these MLS organizations does not meet with the intent of the various trade laws we are affected by, and/or eliminates the competitive force created through having many MLS organizations in the business.

A similar concern was expressed by Clareity Consulting in an independent paper published by the firm (not commissioned by CAR). The full paper is available at BAREIS.com > BAREIS Position on CAR's Statewide MLS > Clareity Consulting Paper or by clicking on Clareity Consulting Paper.

Assumptions - This is "Good for the Consumer." The consumers of an MLS are the agents, brokers and appraisers we serve, not the consumers of real estate services offered by the members.

Assumptions - A Statewide Database is Required to Compete With the Mega Internet Sites. There seems to be a great deal of focus and anxiety held by real estate practitioners regarding certain mega internet sites. These are public internet sites designed to provide real estate information to the consumer considering the purchase of real estate. Public internet sites rely on the accuracy of data provided by either a broker or an MLS to survive. Executives from a number of these mega sites have repeatedly stated publicly they are not interested in being in the MLS business because of the complexity of data management involved. These organizations are not licensed real estate practitioners, but rather indirectly provide services to real estate practitioners in the form of advertising and exposure of listings. Real estate transactions remain very complex, and in most cases require a real estate practitioner to be involved.

Conclusion

The BAREIS Board will continue to evaluate the effort as CAR moves forward and formalizes the organization. There are a number of items not currently in place that will be required for the Board to make a formal decision, including acceptable Articles of Incorporation, Bylaws, Rules and Regulations, full and realistic budgets, studies justifying the need for the proposed service, software for the database, and a formal business plan.