Editor's note: This is the second of a two-part report. Part I reviewed the environment that gave rise to the VOW debate and the current proposal and presented the most significant potential impacts of the proposed policy. Part II details more specific impacts of the policy on various industry segments and identifies areas that may require further clarification. For the text of the proposal, click here.

On Monday, October 22, 2002, the National Association of Realtors® Internet Marketing Work Group released a new draft policy directed at virtual office web sites or VOWs. The work group will present its proposal at the NAR’s November annual meetings in New Orleans. If approved by the trade group’s board of directors, the policy will carry a July 1, 2003, mandatory implementation deadline for MLSs.

This piece covers some remaining issues with the proposed policy and identifies some of the impacts it is likely to have on various industry segments.

Vision not quite 20/20

The work group’s new proposal clarifies a vision of the future for virtual office web sites (VOWs). But the vision is not yet perfect. The proposal gives rise to a number of questions and issues. Here are some of the most significant. The extent of seller opt-outs The premise of the new policy proposal is that listing brokers would not have a right to prevent other brokers displaying their listings on VOWs. But the proposed policy would permit sellers to withhold their listing addresses and listings by instructing their brokers to that effect.

According to Section II.5.c., “listings or property addresses of sellers who have directed their listing brokers to withhold their listing or property address from display or distribution on the Internet shall not be accessible….” in VOWs. (See also Section III.2.)

Theoretical problems. No rationale is stated for sellers being able to opt out of display of their listings in virtual offices. Sellers cannot ordinarily direct listing brokers not to allow other brokers to display their listings in certain ways. If sellers are concerned that their neighbors will find out their houses are for sale, they probably do not want to list in MLS in the first place. This requirement does not appear to be directed at any particular danger associated with virtual office web sites.

Practical problems. Listing brokers have long used imagined seller desires as proxies for their own. In this case for example, the listing broker may not even offer its sellers a rationale for withholding their listings; instead, the broker might merely check the appropriate box on the input form, and viola! none of that broker’s listings go to other brokers’ VOWs.

Much would hinge on how this requirement was implemented. For example, could the MLS require the listing broker to deliver an MLS-approved form, signed by the seller, on which the seller acknowledged that he or she had been advised of the effect of withholding the listing from the Internet? Could the MLS refuse to transmit the listing to broker IDX sites and to realtor.com if the seller requests no Internet exposure? If the answers to both these questions were “yes,” then very few listings would likely be withheld. If the answer were “no,” it would be difficult to imagine the rationale behind the policy.

It is possible that this provision is an accidental vestige of the May policy proposal. MLSs and especially brokers operating VOWs may demand clarification before accepting this requirement. Scope of policy is unclear

The policy would define a VOW as a broker’s “Internet website, or a feature of a … website, through which the broker provides real estate brokerage services to consumers with whom the broker has first established a broker-consumer relationship (as defined by state law) where the consumer has the opportunity to search MLS active listing data without direct personal involvement or interaction (either in person or remotely) with a broker or licensee.” (Section I.1.)

But in its description of its own scope, the proposed policy would say that a broker’s “Internet websites may also provide other features, information, or services… which … are not subject to this policy.” (Section I.2.) Section II.1. also suggests a VOW relates only to displays of active listings (presumably other than IDX displays).

The policy apparently would apply only to displays of active listings. Yet Section II.4.a. places restrictions on brokers’ ability to display off-market listings in their VOWs. The NAR’s constituent groups may desire clarification on this point.

Listing status issues

The policy would prohibit displays of expired or withdrawn listings on VOWs. It would permit displays of sold listings only if the MLS allows it. No rationale is offered for why the policy would afford greater protection to the confidentiality of expired and withdrawn listings, which may not be displayed at all, than to sold listings, which may be displayed if the MLS permits it.

No rationale is offered for why the policy would not permit the display of expired listings. Many agents use expired listings when preparing comparative market analyses (CMAs); it is unclear why a VOW would not be able to use expired listings in providing the same service. It does not appear to be related to any particular danger associated with VOWs.

The policy does not address pending sales at all. MLSs may have to decide for themselves whether they are to be treated as sold listings, active listings, or something else.

Privacy issues

The policy would require brokers to deliver to their MLSs certain information about consumers who are registered to use the brokers’ web sites in the event MLS is investigating a possible abuse. (See Section II.2.b.) The broker would be required to disclose the “name, e-mail address, username and current password of each” registered consumer. This language raises a couple significant privacy issues.

Peculiar choice of required disclosures. First and foremost, brokers may be concerned about why the MLS needs to receive the consumer’s password. This poses a security issue, since many consumers use the same password on every Website they visit and many sites use the consumer’s e-mail as an ID. The broker may already be concerned about its own employees misappropriating and misusing this information to access consumers’ accounts on other sites. But under the policy, MLS and anyone working for it may well have access to the consumer’s account on numerous web sites. If the broker distributes the password, it is unlikely the consumer could be held accountable for misdeeds on the account afterwards; he or she would simply claim that someone else had access.

The password would not be very useful to the MLS in terms of ascertaining whether a violation had occurred, and it would not be very useful in locating the consumer, two objectives that MLS would likely be pursuing. Instead, it might make more sense for the rule to require that the broker disclose the consumer’s name, email address, phone number, address, and any log file information about that consumer’s access. It is the log files that MLS could use to determine whether abuses had occurred.

Brokers need to revisit privacy policies. If the new proposal is adopted, brokers would be well-advised to revisit their web site privacy policies. The privacy policy should include a disclosure that the broker may provide specified information to the MLS under certain circumstances. Brokers should consult their legal counsel regarding any other requirements to disclose to consumers how their data will be used (if the broker is subject to the Gramm-Leach-Bliley Act, for example).

Impacts on industry segments

The proposed policy would have impacts on a variety of segments of the real estate technology industry.

IDX. One significant virtue of the policy proposal is that it would not unsettle broker and MLS efforts relating to IDX. The policy stands entirely separate from existing IDX policy. For brokers whose web sites have seen dramatic traffic increases under IDX, the possibility of disruption due to a new, untested policy approach was disturbing. The new policy should not affect current web site, MLS, vendor or broker approaches to IDX.

Brokers currently operating VOWs. Assuming that the seller-opt out provisions discussed above are narrowly interpreted, brokers currently operating VOWs should not sustain any substantial negative impacts. Current VOW owners will likely have to make changes to their sites, since very few existing web sites adhere to all the requirements the policy would impose. But the changes required should be largely cosmetic or inexpensive to implement.

If seller opt-outs are permitted under any but the most limited circumstances, however, listing brokers who do not like VOWs may effectively circumvent the new policy. If this results in a market having a high percentage of listings “opted-out,” some brokers who own VOWs may be willing to challenge this component of the policy in court.

Brokers contemplating VOWs. Brokers who were thinking of building VOWs before May were wise to hold off their investments until this policy issue was resolved. Assuming the proposal is adopted, those brokers should feel comfortable forging ahead with development.

Agents. Some agents have operated VOWs up to the present time. The new policy would permit agents or licensees to have VOWs only if their brokers and MLSs permit it. This may shut down certain agent VOWs.

MLSs. The policy as proposed would be mandatory on all MLSs affiliated with the NAR. Those MLSs that have used various means to discourage VOWs until now would have difficulty doing so in the future. In fact, the new policy would require active cooperation of MLSs in the development of VOWs; Section III.2 would require the MLSs to provide data feeds for brokers’ VOWs just as they now must for IDX.

MLSs will have some decisions to make:

1. Whether to permit sold listings in VOWs.
2. Whether to permit agents to have VOWs.
3. Whether the listing firm must be identified on all listings in a VOW.
4. Whether to impose additional security requirements (though those requirements cannot exceed what MLS uses to protect its own member-only web sites).
5. Whether to charge a fee for VOW data feeds, and how much to charge.
6. Whether to offer an MLS package or endorsed VOW product to members, as many MLSs have done with IDX.

Consumers. Consumers should perceive little or no impact from the proposed policy. For the most part, the proposal would enshrine the industry’s informal understanding of VOWs before the May proposal signaled an about-face. The technical changes required would do little to enhance or detract from the consumer’s experience.

Once and for all?

The new proposal from the NAR’s Internet Marketing Work Group will satisfy many that the trade organization is back on track with VOWs. The members of the work group are well-respected within the NAR’s leadership, and the proposal’s adoption seems highly likely.

The issues noted above may be addressed when the policy is adopted. Even if they are, it is likely that other issues will arise during the policy’s first few months of life. The IDX mandate of May 2000 has been amended at least twice since that date based on the experiences of MLSs around the country. The NAR has shown a willingness to adjust its policies based on the needs of its constituents, including MLSs and brokers, and in the case of the current policy, the trade group allowed those constituents to guide it in shaping the terms. There is no reason to believe the future will be any different.

Brian Larson is an attorney in private practice in Minneapolis. He is also a principal at St. Paul-based Tendal/Larson, LLC, a consultancy serving the real estate industry. He can be reached at BLarson@LarsonLegal.com.