We Have Convergence: All Hands Rig for Collision

Convergence: When two or more forces come together and create a new, more powerful, force.

No real estate brokers or agents were injured in the production of this article.

(This comment does not, however, apply to what is apparently about to happen.)

Convergence factor #1: Shortly after the return of the real estate market in 2012, it quickly became obvious that the market that had returned was nothing like the market that had crashed in the late fall of 2005. Across the country, sales figures dramatically increased while inventories remained extremely low and prices began to precipitously increase. This market was quickly classified as a "Hyper-Market."

Convergence factor #2: Accompanying these symptoms, and appearing amazingly early on in the new market, were observations that suggested that real estate professionals at both the brokerage and agent levels were demonstrating behaviors totally inconsistent with their own, the consumer's, and the industry's long-term interests.

The most alarming of these behaviors were the "Off MLS" marketing activities that by early 2013 had rapidly spread and, in some markets, were impacting over 30% of transactions--a level that clearly threatened the stability and function of the Multiple Listing Service (MLS). Major markets began to experience brokerage commercials that promoted the availability of "coming soon" properties not yet on the market. It became obvious to many observers that some real estate professionals were so focused on making up for the lost time and income brought by the 2005 crash that they were willing to risk destabilizing critical institutions and lifelong relationships.

Even after the presence of off MLS marketing and its legal and marketplace dangers became known, few leaders spoke out against it. Brokers expressed fear that any interference would result in "breakage" as agents threatened to play out their eternal "I don't need no stinking boss" routines. Participating agents created an entire litany of excuses and rationalizations including such soon-to-become classics as "My clients are requesting this," "I am protecting my clients against the ravages of incompetent agents," and "My clients are worried about their privacy."

The agents whose ideas of professionalism included telling real estate consumers "You don't need no stinking MLS" are not "those agents" (the ones everyone loves to accuse of being ill-trained part timers without real passion for the job or love of their clients). The agents leading this new movement were the elite, the vaunted "top producers," the agents that were seen as "role models" for the rest of the industry.

By mid summer of 2013, concern for the negative market, legal, regulatory and relationship ramifications of these behaviors (and the resulting lawsuits) had reached a point were some of the top entities in the real estate industry had began to speak out about the dangers of these practices. The California Association of REALTORS® demonstrated great courage and caring with a fully funded multi-media program that warned California consumers against the evils of off MLS marketing practices.

The brokerage response was taken up by no less a firm than Long and Foster, a national icon in the American real estate industry. Untold amounts of its resources were invested in a program to caution consumers in the several states in which Long and Foster operates that off MLS marketing opportunities were not in their best interest. These materials were published in several publications including the prestigious Wall Street Journal.

Convergence factor #3: While the real estate industry was working its way through these issues, other movements were gaining speed, influence, and power. Welcome to the world of the community or "neighborhood" website.

A neighborhood website connects people that share common interests in a given neighborhood. These common areas of interest enable neighbors to meet new friends and connect with each other. These connections are initially made on a publically accessible website, but at some point, many shift to a limited access subscriber based connection on a social media network such as Facebook.

Over the past several years these "community websites" have gained both popularity and sophistication and, duh, are now are widely being used to market real estate outside the MLS (and agents.) It comes as no surprise that consumers who use these neighborhood networks have learned to use them as private networks to make sure than only the right people buy into the neighborhood.

Unfortunately, after being told by top real estate agents "you don't need the MLS, I have buyers," some consumers have come to the conclusion: If I don't need the MLS, then perhaps I don't need a real estate agent. I also know buyers, they are coming to our community website everyday.

Convergence factor #4: Insecure proponents of off MLS marketing are fond of pointing out that these practices will only work in a hyper market and it will not last forever. While the logic of this agreement may be correct, its metrics are not. This market will, in all likelihood, last for two more years. During that period of time, hundreds of thousands of consumers will 1) have been told that they don't need the MLS and 2) will have followed the advice of friends and neighbors relative to how to respond to that announcement.

Convergence factor #5: Last week, the Convergence theory took on new power. An impressive number of marketing areas across the country reported impacts and fall out from last fall's large broker/MLS skirmish that burst into flames during NAR's Washington Meetings. These matters came to light when representatives from several marketing areas reported unusual contacts from their brokerage community demanding that they take certain steps regarding their MLS operations.

Convergence factor #6: Last week, information provided by no less a source than CoreLogic reported that in 2013 some 43% of real estate transaction didn't pass through MLS.

Convergence factor #7: Additional information emerged last week that portal traffic had continued to grow and that the top five portals were capturing almost 40% of consumer Internet traffic, with Zillow alone capturing almost 17%.

Convergence factor #8: Zillow was actually a question on Jeopardy! last Thursday night. Don't you hate it when those Zillow folks make fun of us? Aren't you sorry you suggested that the Obama interview was a flash in the pan?

Convergence factor #9: Last week, Errol Samuelson, one of the brightest and most respected persons in the industry, summarily departed REALTOR®.com for Zillow.

Convergence factor #10: Last week, it was reported that REALTORS® associated with one of Houston's largest brokerages had created an entity known as PocketListingInfo.com. In a one-page manifesto that some might describe as a declaration of war against the MLS, and shooting themselves in the foot, these scholars essentially announced to the fourth largest marketplace in the country that, relative to off MLS marketing, "All the cool people are doing it, so why not pay us $14.95 a month and join in?"

While all of this is happening, officials of the Consumer Financial Protection Bureau, one of the most powerful and savvy regulatory programs ever created in the United States, just happen to be working in broker offices across the country monitoring compliance with their several hundred new mortgage related regulations. While we certainly hope they don't have time to figure out what all the noise is about, it does seem doubtful. Perhaps they will believe declarations that it was all a joke.

So, that's it. Nothing much is happening here in Deadrock. After dinner awards and prizes will be given out to those who can list all of the ways in which contract provisions, licensure laws, fiduciary duties, fair housing regulations and consumer best interests are being fouled by the behaviors discussed above. Then, just before the strike of midnight, we will call for the scribes and summon the brilliant minds that brought us this impending disaster to tell us what in heck they were possibly thinking. Upon completing this task, we will gaze up at the moon and wonder how much Spencer Rascoff paid Zorro to put that Z on the man in the moon's shirt pocket.

We desperately need some leadership here.

To view the original article, visit the RECON Intelligence Services blog.