Offer spamming

Imagine you are a real estate broker, and you receive an email like this:

From: Mystery Investment Company, LLC.

To: YOU

Subject: Offer To Purchase

LETTER OF INTENT TO PURCHASE

123 Elm Street [the address of one of your listings]

Hello, Broker:

I am submitting this letter of intent to purchase the property you have listed below. I am making this CASH offer to you, the listing agent, with no other agent(s) involved. Please notify your client of my CASH offer. Should your client find my offer acceptable, please draft my offer on a standard contract form.

As you relay my offer, please emphasize the following:

• ALL CASH OFFER
  
• 21 DAY20CLOSING
  
• AS IS PURCHASE
  

1. PARTIES: Mystery Investment Company, LLC as (Buyer) and Owner of Record as (Seller).
   
2. MLS NUMBER: 1234567
   
3. PROPERTY ADDRESS: 123 Elm Street, YourTown, Any State
   
4. PURCHASE PRICE: $99950 CASH [less than ½ the listing price].
   
5. PERIOD: Closing on or before 21 Days.
   
6. PROVISIONS: Property purchased in "As Is" condition. Buyer and Seller agree to pay normal closing costs. Proof of Funds upon request. Earnest money to be deposited upon acceptance.
   

Buyer: ___________________________________________________ Date: _____________

[Signature line for buyer, but no signature]

Seller Acceptance: __________________________________________ Date: _____________

Seller Acceptance: __________________________________________ Date: _____________

Imagine that you receive such an email for each of your active listings and that you learn from your peers that they too have received these emails. We understand this is becoming a more common practice all the time.

What do you do? Are you bound by the REALTOR® Code of Ethics or state law to present these 'offers' to your seller? Should the listing broker forward every one of these emails to her sellers? Can you get your seller's written instruction not to bother her with such 'offers' when they are below 50% or 60% of the listing price? The answer, not surprisingly, depends...

Is the email an offer?

Under the laws of most states, an offer to purchase is the buyer's proposal which, if accepted by the seller, would create a binding contract between them. It is unclear whether the 'letter of intent' would constitute an offer under the laws of all states. Issues that jump out immediately include the following:

• The email refers to itself as a "letter of intent" before characterizing itself in any other way. Though it later, and frequently, refers to "this offer," it is unclear whether the recipient would reasonably interpret this email as an offer to purchase (and that reasonableness is typically part of the standard for interpreting an offer in contract law).

• There is no way to accept the buyer's offer. The email directs the recipient to "please draft my offer on a standard form contract." It is likely that the effort by the seller's broker to do so would legally constitute a counter-offer, as it would necessarily include terms that are not in the email. Consequently, it appears impossible to accept the 'offer' – and that makes it not an offer at all, but an invitation to negotiate, which is binding on no one.

• The email says "Earnest money to be deposited upon acceptance." But of course, there is no earnest money in the email. This again suggests the email may be something other than an offer.

Nevertheless, as we shall see, just the fact that the email is a written communication may be sufficient to require the broker receiving it to forward it to the seller.

Broker's obligation to communicate offers

This section looks at brokers' obligations under the REALTOR® Code of Ethics (the "Code"), which is binding only on brokers and agents who are members of the National Association of REALTORS®; and under the laws of a single state, which govern only brokers and agents in that state. If you are a broker or agent, discuss this matter with local legal counsel before acting on it.

Standard of Practice 1-6 of the Code provides: "REALTORS® shall submit offers and counter-offers objectively and as quickly as possible." Standard of Practice 1-7 goes on: "When acting as listing brokers, REALTORS® shall continue to submit to the seller/landlord all offers and counter-offers until closing or execution of a lease unless the seller/landlord has waived this obligation in writing."

Taken together, these provisions seem to say two things:

• Brokers must submit "offers and counter-offers" promptly, but no reference is made to communications that do not legally constitute offers.
  
• The seller can waive this requirement in writing.
  

Thus, based solely on the Code, if the listing broker concluded that the email was not an offer, she could probably just delete it. If she gets a lot of these, she could ask sellers to give her written instruction (probably on a form that her lawyer creates for the purpose) not to present such offers.

All taken care of, right?

Not so fast. The listing broker may still have an obligation to present the email to the seller under state law. For example, the license law in one state provides the following:

"A seller's agent owes the seller, other principals and the principals' agents... the following affirmative duties: ... (b) To present all written offers, written notices and other written communications to and from the parties in a timely manner without regard to whether the property is subject to a contract for sale or the buyer is already a party to a contract to purchase.... [A]n affirmative duty may not be waived." [Emphasis added.]

The duty applies to all "written communications" and is not one the seller can waive, because the duty is to all the parties (including "other principals" – i.e., the putative buyer). At least in this state, the law appears to eliminate the wiggle room that the Code seemed to provide.

How to handle this situation?

If I were a broker, even if I were uncertain whether I had an obligation to present this 'offer' to my seller, I think I might take the following tack: I would draft a standard paragraph of text explaining what is going on, so that my agents and I could easily drop it into an email to my seller. Every time one of these 'spam offers' comes in, I would forward it to my seller with the explanatory paragraph and an email subject line of "Probable 'spam' offer." The explanatory paragraph would point out the following things:

• The brokerage firm has received an unsolicited email from a company that has sent similar emails regarding other listings in MLS.
  
• The email contains what purports to be a 'letter of intent' or offer to purchase the seller's property.
  
• State law and the REALTOR® Code of Ethics may require the brokerage firm to forward the communication to the seller, and the broker is doing so.
  
• The broker believes this not to be a serious offer, because the 'offering price' is a fraction of the listing price, and there is no earnest money.
  
• The broker will take no further action with regard to the email or the 'offer' unless the seller instructs otherwise.
  

I would probably try to phrase all this in such a way as to make sure that the seller understands my firm is looking out for her. Taking this step and making a record of it in the file is good risk management for the broker.

What do you think? If you are a broker, I'd like to hear from you whether you are receiving emails like this and whether you have a strategy for dealing with them that you think is more effective.

-Brian

REALTORS® Property Resource: A possible business model?

I have had numerous conversations with folks regarding the REALTORS® Property Resource (RPR), NAR's multi-million dollar initiative shrouded in secrecy. Until now, my view has been that there is no business model for it.

NAR says that RPR, which will operate under NAR's REALTORS® Information Network (RIN) subsidiary, will give brokers better sources of data than consumers have and to make them the consumers' 'trusted advisor.' NAR is supposed to announce the RPR business plan in November in San Diego. I believe two big problems face RPR: (1) NAR has trouble executing real business plans and (2) RPR has no viable business model.

As for the trouble executing, NAR is famous for the fact that RIN itself crashed ignominiously in the late 90s after trying to build some kind of national technology service thing (I was never sure what it was going to be) – the only "good thing" that came out of it was Realtor.com. (Not everyone agrees that is a good thing, either.)

But I have to acknowledge this case might be different, as the "Two Dales" – Dale Stinton, NAR CEO, and Dale Ross, former CEO of MRIS – behind RPR have some pretty impressive accomplishments behind them.

Hard so see the business model

As for the business model, I could not think of a way that it could work. Here's why: Imagine you are a real estate broker in St. Louis. NAR promises that RPR will deliver to you much better parcel-based property data than consumers can get online. But chances are you are already getting access to property tax data from your local MLS, a service for which your MLS pays a third party, and the cost of which is included in your periodic MLS fees. Chances are, too, that if you want more data than you are getting, and if you were willing to pay for it, your MLS would already be providing it. So, RPR is offering something for which you have not been willing to pay until now along with stuff for which you are already paying your MLS. My guess is, you would decline to purchase those services if RPR offered them to you for a fee.

If you are a broker in Minneapolis, Minnesota, or Hilo, Hawaii, matters are worse. There, the MLSs have their own tax databases, in which they have built the best parcel-based data available for their areas. The only place RPR can get data as good as the MLSs provide to brokers is from the MLSs. Assuming RPR licenses from the MLSs, who will want to 'buy it back' from RPR? All the brokers in those MLSs already have access to it, and the cost is built into the MLS fees.

The upshot: NAR will spend big bucks offering these services and the money will have to come from somewhere: reduced costs from somewhere in the REALTOR® community; increased costs to the REALTOR® community; or money
from outside
the REALTOR® community.

I can't imagine any reduced costs, in fact, quite the opposite seems likely (subject for another post, if we have time). There will be quite the outcry if NAR raises dues to make this a 'core service.' And I couldn't think of who outside the REALTOR® 'family' NAR could get to 'sponsor' the RPR with enough money to make it fly – certainly no one out there would want to buy RPR's parcel-based property tax record (and related) data, as it's already widely available, much of it for free on the Web.

So, I had written off RPR. But now I wonder...

REBIG redux?

RPR might be able to get the money to pay for this using a business idea that caused quite a stir a few years back: Licensing MLS data to businesses outside of the REALTOR® membership base. Mortgage companies, credit agencies, insurance companies, and others pay a fortune in fees every year to information service providers to help them predict property values, portfolio losses, etc. Real-time MLS data is almost a Holy Grail when it comes to these types of predictions and valuations.

In the early part of the decade, REBIG LLC (a joint venture of several MLSs) attempted to aggregate MLS data and license it for exactly these purposes. REBIG did not fly. There were many problems with it; key was that many brokers hated the idea that someone would profit from their data. But the projected revenues were impressive: According to some early projections, by the third year of operations, REBIG was supposed to be making more than $150 million per year in licensing revenues from MLS data. But if those numbers were right (even if they were twice the right number), NAR could provide very sophisticated services to MLSs, get MLS data from them aggregated at the national level, and make a handy profit in the process.

Think about the strategic implications if NAR could pull this off. "If" is the key word, though.

Getting brokers and MLSs to permit RPR to license MLS data could be tough. If RPR is not an MLS (and NAR says it will not be, at least for now), providing MLS data to it will be a use of MLS data that is not part of the core purposes of MLS. Under NAR policy (which I assume RPR would honor), listing brokers have to be given an opportunity to opt out of any such use. Some brokers would choose to opt out or would work hard to keep their MLSs from signing licensing deals with RPR, even if there were clearly defined benefits flowing back from NAR. That's because listing brokers very naturally dislike the idea that others will profit from their listings.

So RPR as REBIG redux might not work. But I had not considered it previously because I was blinded by my own experiences with REBIG. I wonder what other business plan possibilities for RPR I've overlooked. With smart people and lots of money at their disposal, the Two Dales may yet have something very interesting to tell us in San Diego.

So now, all of a sudden, I'm kind of curious and excited to see what they announce. I'm trying to be more open to the possibilities of RPR, too. What do you think?

-Brian

(Disclosures: I was an employee of REBIG for nine months and did some legal work for its founders early in its formation. My firm has done legal or consulting work for some of the MLSs to which I referred above.)

Emancipating innovation from the ‘legacy customer’

MLSs are plagued by a seemingly intractable problem: their legacy customers. This is the existing broker 'member' or 'participant/subscriber' base. The problem finally crystallized for me during Brad Inman's keynote at the CMLS 2009 conference in Lake Tahoe at the end of last month. Brad was explaining why start-up companies innovate faster than 'legacy companies' – his premise is that innovating faster is essential. He gave four reasons why legacy companies do not innovate; to each one, I've attached a paraphrased common complaint by MLS executives:

Denial: "These new technologies and tools are cool, but the current needs of our existing customers are what matter."

Legacy technologies: "We have to maintain these systems because they are what our current customers are used to."

Funding challenges: "We can't raise/spend/invest the money of our current customers based on our ideas about what might happen in the future."

Resistance to partnering: "Company X provides an interesting opportunity for partnership, but our brokers would be very upset if we worked with it."

Can't just do whatever they want: "Our brokers would get very upset if we did that."

Start-up companies do not face these challenges, because they do not have legacy customers. In fact, they often don't have any customers. They often get money from investors who are sold on a vision and (maybe) a business plan. But real estate brokers and agents (and sometimes especially the ones on MLS boards of directors) don't want MLSs to 'level the playing field,' invest in research and development, build reserves to take advantage of development opportunities, raise dues (because that would be very unpopular, especially in a market like this), or try lots of new things out (because many of them are likely to fail). They want the MLS (and REALTOR® associations) to be "run like a business," but then they hog-tie their managers to prevent exactly that.

Of course, the MLS cannot ignore or greatly antagonize its existing, legacy customers, as they are paying the bills. But as someone at CMLS said:

If Apple had continued to view itself as a computer and operating-system developer competing with Microsoft and Intel, we would not have the iPod or the iPhone.

Apple redefined its market and its competition by innovating (and in the process, it picked up share in PC and operating system sales). It's also true that not all innovation is useful innovation (as Greg Robertson recently pointed out). So coming up with whacky and fun ideas is not in and of itself a way to deliver more value to MLS subscribers.

So, my question is, how do MLSs emancipate innovation from the legacy customers? Do they have to have subsidiaries to be innovation engines (like the national, California, and Florida associations have done)? Are there general strategies that MLS and association executives can use to build confidence in the volunteer leaders and members and gain support for investments in innovation? If you have a strategy that works, I'd like to hear about it. (I'm not really interested in one-off tales of a successful innovation – I want to know how you have created a culture of innovation.) If you are a broker and think MLSs should not 'waste their time' trying to 'level the playing field,' I'd like to hear from you, too.

-Brian