Objective agent ratings nothing to fear

Still from a href=http://thewizardofoz.warnerbros.com/ target=_blankThe Wizard of Oz./a Still from “The Wizard of Oz.”

So a couple of multiple listing services have slapped the virtual wrists of one HomeLight, a Google-backed startup that seeks to match buyers with real estate agents.

It appears that there is some murkiness as to what HomeLight may or may not do with the MLS data that its algorithms use to match a buyer with a real estate agent.

“After reviewing the site, I contacted the broker member and asked that he remove our MLS data that is being used to generate statistics, agent photos, etc., on his site because it fails to comply with our MLS rules,” Pismo Coast Association Executive Cindy Doll told Inman News.

Even though HomeLight was initially approved by the Pismo Coast Association as an MLS member, and is therefore entitled to receive MLS data, the trouble is it does not have the right to do much with it.

The Pismo Coast Association, in addition to questioning HomeLight’s eligibility as an MLS participant, has also informed the company that it needs to obtain a licensing agreement or an Internet Data Exchange agreement in order to display MLS data online, or create a secondary product from the data it’s receiving.

According to Inman News, Doll told HomeLight CEO Drew Uher that he was “not authorized to use the data to create this secondary product and therefore you need to take the data down.”

How … innovative!

The sin and the sinner

Let’s make sure we understand the sin that HomeLight has supposedly committed here. In its own language, HomeLight tells us why it exists at all:

“The HomeLight story started when co-founder Drew Uher and his wife set out to buy their first home,” the company explains on its website. “Finding the right real estate agent was a daunting process. There was no real way to research an agent’s past transactions, and searching through review sites took hours. After working with several different agents, it was clear that not all of them are created equal.”

How shocking! Not all real estate agents are created equal? The members of the “Raise the Bar” movement in real estate would, I’m sure, be stunned silent. Or not.

So the fresh-faced young technologists at this company say they put together a database on 2 million real estate agents (remember that NAR has only about 1 million members) and created something newish.

As the company describes it, “the HomeLight proprietary algorithm creates unbiased personalized agent recommendations for prospective homebuyers and sellers by analyzing transactional data and the licensing records of over two million real estate agents. The data can then be filtered by city, neighborhood, property type and price to match buyers and sellers with the best agents for their needs.”

The goal, then, is to introduce buyers and sellers to real estate agents. And to make money from it somehow — whether that’s through a referral fee or selling leads or some other way is unclear right now.

But however HomeLight makes money, what they are trying to do is to link consumers with real estate agents, based on the agents’ qualifications.

Let’s be clear about this: HomeLight is not trying to “disintermediate” the real estate agent. In contrast, HomeLight is trying to “intermediate” the real estate agent as much as possible, going so far as to say things like:

“The best buyer’s agents are tough negotiators who can get you the best price for your home. HomeLight can find these agents and save you money.”

“We find agents who specialize in your target area. Whether it’s knowing price trends, local schools, or listings before they hit the market, these agents have the knowledge to get you the home you want.”

“HomeLight can identify agents who are simply better at marketing and prepping a home for sale, resulting in up to a 10 percent higher selling price.”

One should note that every single real estate broker, Realtor association and real estate agent in the country repeat these talking points — even if they are debated in some academic circles. So to the extent that a tech company in San Francisco is out there preaching the same message as NAR is preaching, presumably HomeLight is a Friend of the Industry.

Don’t feel alone, HomeLight

But, what HomeLight is doing may be verboten, we hear, because although it was admitted as a member of the Pismo Coast Association, it may not meet the definition of an eligible MLS participant after all. As the National Association of Realtors defines the term, just possessing a brokerage license — as HomeLight does in California and a number of other states — is not necessarily enough to qualify you as an MLS participant.

The Pismo Coast Association points to NAR policy, which says MLS participants must “actively” try to list property on the MLS, or accept offers of cooperation and compensation made by other listing brokers or agents in the MLS. The world would like to know what “actively” means, of course. A company like HomeLight could offer and accept cooperation and compensation, except that they have no listings themselves and bring no buyers to the table — but if they did, they would offer and accept cooperation and compensation. Very confusing.

But we don’t need to dive into all of the intricacies of the definition of “MLS Participant” because, under any definition, Seattle-based brokerage Redfin qualifies as an MLS participant. And that didn’t stop the industry from greeting Redfin’s Scouting Reports — which also used MLS data to tell consumers about real estate agents — with the same enthusiasm as a new bride would greet a gang of homeless vagrants at her wedding reception.

This blog post by Glenn Kelman should remind us of how the Scouting Report was received last year. Result? Scouting Report go bye-bye.

And lest you think this is the MLS being the bad cop, the Houston Association of Realtors, which operates the MLS in its market, tried something very similar in 2010. The resulting controversy was something to behold indeed. HAR has since then retreated to a voluntary consumer rating system that had SmartMoney Magazine making acidic comments about it.

Noting that Houston agents received an average rating of 4.94 out of 5, SmartMoney’s Alyssa Abkowitz pointed out that in reality that score represented the average score of just 12 percent of HAR’s agents.

“Another 7 percent participate in the rating program but don’t make their results public,” Abkowitz wrote. “The rest — some 17,000 real estate pros — don’t get rated at all, either by choice or because they haven’t completed enough transactions.”

And because HAR surveys only consumers who have closed a transaction, the ratings don’t include anyone who walked away — satisfied or not.

“Those qualifications help explain why fewer than 0.3 percent of the Houston agents have been awarded a low one-star rating by their clients — a figure that seems to defy reality, given all the things that can go wrong in a home deal,” Abkowitz concluded.

HAR says low-rated agents often opt out of the program.

So it seems clear that “the industry” — or at the very least, the majority of brokers and agents — don’t like, don’t want, and don’t need objective scorecards.

So, what’s at stake here, really?

Assuming the whole participant angle is just smokescreen, one has to ask what’s really going on here? What’s at stake?

Cui bono? That’s Latin for “who benefits?”

Good, qualified agents who are actual local experts and have an actual track record of accomplishment have every incentive in the world to support an objective, data-driven ratings system and any technology that would introduce them to new consumers. That seems obvious. And based on personal conversations since 2010 when the HAR thing hit the fan, I know that to be the case.

HomeLight wants to promote good real estate agents who get results and then match consumers up with local experts with a track record of local expertise. Redfin and HAR wanted to do the same thing. HomeLight is getting hammered for its troubles, just as Redfin and HAR got hammered for their efforts.

Why? One has to wonder who it is that opposes objective ratings systems, and lead generation efforts that match consumers with qualified local experts. Who benefits from such policies?

In October, I heard the most amazing thing from a consumer at the HearItDirect SoCal event. (Disclosure: I am a minority partner in HearItDirect.)

This consumer is a 20-something executive at a major company in Southern California who admits that he comes from money. He has a great job and disposable income that allows him to be a real estate investor in this troubled economy.

He told me that he works with professionals every single day — lawyers, bankers, accountants and business managers. He thought that real estate agents, based on his experience, were “lazy and stupid.”

He said that if he could find a way to do real estate deals without involving an agent, he would. As things stand today, he regards brokers and agents as just a transaction cost, like taxes and transfer fees.

Would he have felt the same way if he had been matched up with a real estate agent who knew how to work with him, who was a true local expert in real estate?

What is at stake is nothing less than the future of the real estate industry, as the next generation of consumers takes over the market. That young Gen Y executive is not an anomaly, but the leading edge of a trend. HomeLight’s founder, Drew Uher, is not a weirdo, but the likely demographic of Gen Y consumers: highly educated professionals with money.

It is imperative that these smart, educated, tech-savvy consumers have one experience after another with real estate agents that lead them to believe that real estate professionals are just that: accomplished professionals with real expertise and knowledge. The competition is not other real estate agents, but the post-agent automation-driven future.

As long as the institutions of real estate, and the rules and policies of the industry, work to protect the bad and below-average real estate agent by pretending that everybody is the same as long as they have a license or an R after their name, consumers will continually have one bad experience after another. They will come to conclude that real estate agents are just another necessary evil they must tolerate, like taxes and transfer fees.

Except that using a real estate agent is not codified into law. It’s a matter of consumer choice and the free market. And as surely as day follows night, the free market economy will find a way to minimize necessary evils. It might take a while, but it will happen.

What to do?

So what to do about all this, then? Even if you agree with all this analysis, what do you do about it?

There’s no way to offer a broad sweeping agenda of reform, but I can say this, as far as it comes to HomeLight and companies like it.

The industry and all of the institutions and organizations that make up the industry, from the association to the MLS to brokers, must do everything possible to encourage, not discourage, innovation that puts real estate professionals front and center.

MLSs should be falling over themselves to figure out how to get innovators all of the data they need with the minimum of restrictions to make real estate look good in the eyes of consumers.

Associations should be looking for every possible way to advantage the great consumer-centric brokers and agents, at the expense of those who make everybody look bad. Franchises and brokers should be doing everything they can to support that effort.

If that means sacrificing some agents who are bad at their jobs, so be it.

Great brokers and great agents have a moral imperative to put the bad ones out of business. The associations and MLSs have a moral imperative to uplift the good and to put down the bad.

This shift won’t be easy, but things worth doing rarely are. Such a move would be controversial, but the essence of leadership is to lead.

On such considerations, the future of real estate hangs in the balance. Cui bono? Cui bono indeed.

Robert Hahn is the managing partner of 7DS Associates, a marketing, technology and strategy consultancy focusing on the real estate industry. Follow him on Facebook and Twitter (@robhahn).

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