Who Holds The Bigger Gun, NAR or Zillow? How About Tomorrow?

Mar 9, 2008  |  Michael Wurzer

In reviewing Zillow’s latest press release about their mortgage offerings, Greg Swann writes:

I’ve likened Zillow.com to Ebay.com and Wikipedia.org before, and this is another step in that evolution. On Ebay, a trader’s dearest asset is neither goods nor gold, but his reputation for honesty. Abuses of the type decried by weepy college professors are possible, but only topically, and only in the short run. In the long run, criminal behavior is flushed from Ebay, with the result that the most-crime-free market in the history of markets is the one that has no cops — nor even any security guards.

I wonder if Greg read my post a few weeks ago about this post from Nick Carr, in which Nick quotes:

Patti Waldmeir, in a column in the Financial Times today titled “The death of self-rule on the internet,” writes, “For those who were there from the start of this experiment in digitising utopia, including me, this is very disillusioning.” By “radically rewriting the constitution of the democratic republic of Ebay,” she says, the company has closed the book on a certain brand of internet idealism.

As eBay creates new rules to deal with the abuses and fraud, do you think those who’ve invested their resources into eBay feel similarly about eBay to how Greg Swann and others feel about NAR? Doesn’t eBay, with their large market share, hold as much of a “gun” or brute force as NAR holds in the MLS? I agree with Greg that market forces are excellent at creating truth over time, but I’m not sure I see such a big distinction between rule-making in an entity like eBay or Zillow versus a trade organization like NAR, all of which have reputations to protect in order to grow and retain membership and the only distinction seems to be how big they are currently.

Let’s make this point again by imagining ourselves into a Zillow future, when Zillow is defining quality in real estate. Now, imagine Zillow requiring an MBA to be a mortgage professional under their umbrella and imagine they have enough market share to make belonging to their network effectively required. You think getting an MBA is silly but you want to be a mortgage professional and Zillow is “it” and so you spend a couple years of your life getting the MBA. Just as you’re about to graduate, Zillow changes its mind, because Zillow believes their customers are better served by those who have a PhD in economics. Who’s pointing the gun now?

The bottom line is that a “seal of approval” is a decision of one set of human beings, which necessarily is as flawed as any other decision. Market truth, however, is made of many independent decisions and that’s why Russell Shaw has it right when he says “mega agent” teams are the future. Russell doesn’t need Zillow’s seal of approval because he’s generated his own reputation based on actual creation of value through actions judged worthy by the marketplace over time. The only value to a seal of approval is to those who haven’t yet acted or been judged by the marketplace, and, to those, my advice is act, do well, be judged, and make your own reputation, without worrying about Zillow or NAR or any other seal of approval.

36 Responses to “Who Holds The Bigger Gun, NAR or Zillow? How About Tomorrow?”

  1. Greg Swann says:

    It is specious to speak of guns in a free market. That kind of thinking beclouds the mind. Where traders are not compelled to do some things and forbidden from doing others by actual guns, they will determine the direction of the marketplace by their own mutually-voluntary transactions. That one or the other of them might not like the aggregate outcome is not predictive of anything, is not dispositive of anything, and, ultimately, is not very interesting.

    Everybody doesn’t like something — but we are each of us free to do as we choose, regardless of what anyone else chooses to do. As an expression of the conditions necessary for free moral agents to survive and thrive, Capitalism is physically and meta-physically consonant, epistemologically correct, ethically just, politically fair, economically efficacious, and, very often, esthetically pleasing. You can’t get any more right than that.

  2. Okay, so you don’t like my analogy, but you’ve not said why Zillow is different than NAR in the marketplace.

  3. Greg Swann says:

    If I could have access to ARMLS without belonging to NAR/AAR/PAR, I would have nothing to do with them. The relationship is not coercive, but it is right next door — forced association. There is nothing like that to be found in Zillow, in Ebay, in Wikipedia or in the Russell Shaw team. To the contrary, if any true free market entity makes consistent, egregious errors, it gets supplanted with dispatch. In Ebay’s particular case, there are hungry competitors just waiting to capitalize on any slip-ups. The NAR is immune from this kind of competition, for now, because it has a chokehold on the resale inventory.

    The right name for the logical fallacy is Specious Analogy.

  4. The NAR is immune from this kind of competition, for now, because it has a chokehold on the resale inventory.

    I suspected this was your argument, but this is nothing more than complaining about NAR’s success or, as I said in the post, “the only distinction seems to be how big they are currently.” Zillow would have the same “forced association” effect were it big enough. eBay clearly has a pronounced “forced association” effect; just ask the buyers and sellers impacted by the recent rule changes. The market power now being wielded by the NAR would be just as effective at forcing you to associate if it were being wielded by Zillow. That you feel forced by the market power being wielded by the NAR does not make the NAR any more or less subject to the market forces than Zillow would be in the same circumstances. The only difference would be the people involved. As you said above, “That one or the other of them might not like the aggregate outcome is not predictive of anything, is not dispositive of anything, and, ultimately, is not very interesting.”

  5. Greg Swann says:

    You’re being deliberately arch. The NAR’s current dominant position does not owe to effective competition in the free marketplace but to political manipulation.

    This is me, yesterday, in a comment to Teri Lussier’s post on BloodhoundBlog:

    Residential real estate brokerage is thrice absurd, alas:The broker-level license — which provides that only the broker can be compensated for the salesperson’s efforts — gives the broker a built-in incentive to fleece as many salespeople as he can, as quickly as he can.
    The salesperson-level license is a ridiculously easy “qualification” to obtain, resulting in a continuous and massive supply of new salespeople for brokers to fleece.
    The IRS “safe-harbor” withholding-tax exclusion for real estate brokers engenders a situation where the carrying-costs of newly-hired salespeople is essentially zero, where even the most inept of newly-licensed salespeople will produce thousands of dollars of essentially cost-free income for the broker before failing — broke, broken and embittered.This is not the universal condition in our business, but it is much too common. The incentives are perverted and, therefore, the results are perverse.

    If the laws and rules entrenching the status quo in residential real estate were repealed, the NAR would be a dead letter overnight. It’s only reason to exist is to sustain the residential real estate broker’s cartel. If you elect to affect not to see the bright line distinction between commerce and force, you will have to persevere in error.

  6. If you elect to affect not to see the bright line distinction between commerce and force, you will have to persevere in error.

    I believe you see too bright of a line that exists only in ideal conditions that never exist for long. If Zillow is around in 100 years and in a market-dominant position, do you not believe that laws and norms will have evolved to entrench them into a very forceful position? I love competition but I also am willing to recognize that market force exists and corrupts. My point is that Zillow (or any entity), once imbued with the same power, would corrupt and entrench itself in the same way you believe NAR has done.

  7. In support of your position, check out this recent post.

  8. Greg Swann says:

    > My point is that Zillow (or any entity), once imbued with the same power, would corrupt and entrench itself in the same way you believe NAR has done.

    Is this how you behave? If you are on a parking lot elevator late at night and an attractive woman gets on, do you proceed to molest her? You have the same kind of power without recourse or consequences that the NAR seeks from legislatures. In any similar context, do you take advantage of your situation?

    I personally love the twice-libertarian nature of the web-based entrepreneurial revolution. Why twice? First, the creators of all these new businesses are not interested in using force to squash their competitors — not so far at least. And second, the would-be regulators-of-all-things are too spooked to sputter: They are scared to death they’ll kill the goose that lays the golden eggs, so, so far, they have resisted their habituated impulse to ruin everything with facile nonsense backed up by prison sentences.

    We are growing vastly rich because we have — for now, at least — broken with the insane patterns of the twentieth century. I was laughing about this with David Gibbons, inviting him to talk to the folks at Boeing about how much of their head-count is devoted to legal compliance. The enwebbed world is a brand new world, at least for now.

    It is certainly possible that Zillow or another market player could, eventually, seek to dominate markets politically. This is not an argument against markets, it is an argument against political interference in the marketplace. If you want to rid the marketplace of epidemic crime, what you actually want is to rid the marketplace of governments. These are the mafias of superior firepower that make systemic criminal abuses of otherwise free markets possible.

    In any case, we seem to be agreed that right now, at least, Zillow and Ebay are engaged in mutually-voluntary commerce, where the NAR exists in its current form only as a consequence of political force imposed upon people against their will. That’s a clear distinction — leaving your analogy in ruins, alas.

  9. we seem to be agreed . . .

    No, the corruption and entrenchment are not chosen, like rape, but a necessary consequence of monopoly and lack of choice. I read the various posts on the People’s Choice list and shudder at the thought of some supposedly benevolent dictator making determinations about who gets to play and who doesn’t. Mike Farmer’s bit about Zeelocations? Come on. That’s a nightmare not nirvana. The entire idea of a single organization of any kind, in any place having discretion over who gets to play and who doesn’t is far different than the marketplace (the independent decisions of many) making those decisions. I’m not saying NAR or Zillow are corrupt, I’m saying that monopoly and market power itself is corrupt through the resulting lack of choice.

  10. Greg Swann says:

    I may come back to this later. Right now, I have to go to work.

    All human behavior is chosen. There is no such thing as unavoidable crime.

    And: Do you want to know who provides the perfect disproof of your claim? My perennial favorite: The Underwriters’ Laboratories. The have precisely the power you fear in Zillow — and they understand perfectly that if they were to abuse that power, it would evaporate in an instant.

    Without the imposition of arbitrary force, we have no reason to fear our neighbors, no matter how prosperous they might be.

  11. Mike Farmer says:

    You also seem to assume that no one would compete against Zillow if they did create such system. No one could stop another site from having different (better?) criteria to select who they think are good partnership choices. The outcome would be that RE pros from different local areas would improve their performance and knowledge to be a part of these competing systems, and there would be room for all competent pros. Whichever site created the best partnership system, which created the best experience for the consumer would capture more of the market share. The consumer would be the winner and incompetence would be the loser.

    How is this different from competeing companies trying to hire the best agents?

  12. I know very little about Underwriters’ Laboratories, but their web site provides two facts of interest: (1) they are non-profit; and (2) many governments have laws requiring certification by “a nationally recognized testing laboratory before it can be sold in their area” and “UL is the largest and oldest nationally recognized testing laboratory in the United States.” I am not advocating or defending these laws in any way — in fact, I agree with you that “what you actually want is to rid the marketplace of governments” except as necessary to enforce contracts — but, absent the laws requiring certification, I wonder how many companies would “voluntarily” submit their products for certification? Would certification win out over advertising by less scrupulous producers? In an ideal world, yes, but, in the real world of less than perfect information and hyper-competitive for-profit companies?

  13. Mike, to my knowledge, no one is stopping anyone from competing against NAR or the MLS, either. The other difference here from UL is that, at least regarding listing services, they are the market or they are not effective because they do not reach critical mass. However, once critical mass is reached, the necessity of participation requires much more than simple competition to overcome.

  14. Mike Farmer says:

    The big difference is that you have to belong to NAR to get access to the MLS, and you have to be licensed to be a part of NAR. I truly think it would be better to have free market solutions to competence in real estate. Zillow, or any other RE company, can’t require licensing.

    That’s the point you swerve around. You can’t compete fairly with an entity that has government backing and the power to create laws that exclude.

  15. Mike Farmer says:

    BTW, I put my thoughts on Bonzai.

  16. Mike, do you have to join NAR to be licensed? Couldn’t you become licensed and not join NAR? It seems to me joining the NAR is voluntary, not forced by government. In fact, commercial real estate largely is practiced outside of NAR, why could that not also evolve in residential real estate if there were competitive options? The very fact that you’re proclaiming Zillow as an alternative shows that there is competition, it just has not yet been successful. My point is that, when it is successful, the nature of the real estate market is that it will be very successful or not at all (critical mass) and the resulting market power will leave the participants feeling just as powerless in their choices.

  17. Sean Purcell says:

    Michael,

    >why could that not also evolve in residential real estate if there were competitive options?

    Herein lies the answer. It is evolving outside of NAR even as we speak. The NAR itself has been a bit of a joke for some time now. The main stranglehold of the NAR is in its gatekeeper status guarding entry to the MLS. You can see the proof of this as we watch the continuous folly of trying to keep the listing data behind closed MLS doors.

    The great power of the internet lies in its dissemination of information. With the advent of the internet, disintermediation begins and MLS has become one very large intermediary. Information, once freed, can not be put back. The days of restricted listing information are limited and so, by definition, is NAR.

  18. Russell Shaw says:

    To compare the NAR with government is an absurd comparison. Membership is voluntary. An agent does not have to belong to be an agent. Further, in Manhattan there really IS no MLS. Many companies in Manhattan do not “co-op” their listings at all – and the ones that do offer direct payment via their websites to the broker who brings them a contract. In short, there is no “MLS” there, as we know it. As already pointed out – same with commercial brokers – most sales there are not the result of the MLS.

    The fact is that the MLS is an incredibly wonderful, useful and valuable tool for residential Realtors. It was created some time ago and the National Association of Realtors has been VERY effective in safeguarding it for all of the state and local associations. Anytime one sees an organization that is this old they are going to see a lot of “rules”. Are some of those rules really really stupid? My answer is yes. But I don’t see how “getting rid of the NAR” would solve any problem. None. It would create a temporary mess is what it would do. Then the big brokers in each city would form a new one. Just like they got together and did many years ago. My guess is that in most cases they would formulate a very similar set of rules to the ones we have right now. It might take them a while but they would eventually get around to most of the current rules.

    As far as I know most any MLS is either owned by a Realtor Association or a group of brokers. In California it was decided by a court case some years ago that you did NOT have to be a member of the NAR or the state association to be a member of the MLS. California still has the highest number of Realtors in the United States.

  19. Mike Farmer says:

    Whether there would be a mess without NAR doesn’t take away from the fact that one has to be licensed to join NAR and have access to the MLS.

    That is backed by law, which is where the government comparison comes in. If anyone could sell real estate, there most likely would be a mess for a while, but free markets are messy.

    I know it’s radical, but in reality the laws that protect agents through an association like NAR is antithetical to a free market. The way I see it is anyone ought to have the right to sell their own home through any means they choose (not just FSBO).

    If someone disagrees and thinks that only licensed agents should be able to sell homes for others, then they also have to accept the government connection that creates exclusion of other means fully developing.

    Whenever government is involved, as it is with NAR, there is always a comparison to be made. Regardless, it still doesn’t equate a company like Zillow with the power of NAR, minus Zillow’s connection with government and laws of exclusion.

  20. Mike Farmer says:

    To clarify about NAR — if they are doing a good job, then they should do fine as one of the players in an open market — and messiness would be at a minimum.

    The reason I got out of mental healthcare is because more and more laws were being created through our association’s connection with lawmakers that gave strength to MSWs and squeezed people like me out. I was trained on the job and through certification. I had as much knowledge and skill as the MSWs, but laws prevented me from acting equally.

    The rallying cry for exclusion was “the public good”, but it was to protect the business of MSWs from competition.

    The patronizing cry of “the public good” is a dead giveaway.

  21. Mike, you have the logic backwards — that NAR requires a license from the government doesn’t mean the government requires you to join NAR. Also, your statement “The way I see it is anyone ought to have the right to sell their own home through any means they choose (not just FSBO)” is contrary to the idea on your blog that discrimination is okay. Why should just anyone be able to use the assets of the MLS? Why is it not okay for members of the MLS to create their own network for their own use? The MLS is not created or required by the government, it is a private network that has proven to be very successful. It is this success and the market power that comes with it that causes your consternation, and the reason for my original post. I am suggesting that substituting a new rule-maker (Zillow or anyone else) won’t change the game, just the players.

  22. You can see the proof of this as we watch the continuous folly of trying to keep the listing data behind closed MLS doors.

    Sean, I’m familiar with a lot of MLSs and the issue for them today is much more about sending the data here, there and everywhere than it is about keeping it behind closed doors. The suggestion that MLSs are trying to hold something back flies in the face of the proliferation of listing data to every corner of the web.

  23. The NAR’s current dominant position does not owe to effective competition in the free marketplace but to political manipulation.

    The above quote from Greg is, I believe, the nexus of the difference in our views on this issue.

  24. Mike Farmer says:

    The discrimination I’m talking about is in judgement of quality, not actions that are coercive. There’s a big difference. All the difference in the world. You can have a difference of opinion and competiton in judgement, but physically coercive discrimination is forced with no competition, and other opinions don’t matter.

  25. Greg Swann says:

    >> The NAR’s current dominant position does not owe to effective competition in the free marketplace but to political manipulation.

    > The above quote from Greg is, I believe, the nexus of the difference in our views on this issue.

    The NAR wrote the licensing laws. Its entire purpose is to frustrate free markets by limiting how people can do business. This is true of most trade associations, but the NAR was the pioneer in anti-Capitalist legislation.

    > the nexus of the difference in our views on this issue.

    The nexus of my disagreement with you is FUD — fear, uncertainty and doubt — sown by you. The NAR is definitely a criminal conspiracy against the consumer right now. Zillow and Ebay are definitely corporate good citizens right now. Things definitely will be different in the future, but the only experience-based argument to be made is that they will be better, not worse — this outcome being particularly likely because of increased information efficiencies. In any case, you have no basis for your fears but your imagination.

    With that, I exit this debate. Your analogy is specious, so your argument fails.

  26. Mike Farmer says:

    Well, now that the cat is out of the bag, people will find a way to get information. Licensing and NAR caused a sleepy reaction for years because t seemed a closed system that could only be cracked by getting a license and joining NAR — you are right, that is over.

    Also, government regulations of real estate give the mistaken impression that the consumer is protected — that is also a myth destroyed so that no one sees licensure as a guarantee of quailty and competence. So, yes, I agree, it’s now a different ball game.

  27. Mike, how is NAR in any way using “physically coercive discrimination”? That’s FUD. 😉

  28. Lastly, I fear nothing but also do not believe the practice of real estate will be transformed forever by a seal of approval from any organization. Rather, the transformation of real estate will occur in the marketplace one deal at a time.

  29. Mike Farmer says:

    I’ve give up, too. We’ll get dizzy going in circles.

  30. That was a fun read. You are all right 😉

    We don’t plan to start a new association. The lender confirmation process that kicked off last week is just that; confirmation that the professionals on our platform originate loans for a living. It in no way endorses or differentiates the LO’s who use Zillow.

    There are more effective ways to help mortgage shoppers evaluate loans and lenders.

  31. […] benighted (”being in a state of moral or intellectual darkness; unenlightened”) and is no longer participating in the discussion, but I think there is more to understand here, if only for myself.   Greg extols the virtues of […]

  32. Brian Brady says:

    “It in no way endorses or differentiates the LO’s who use Zillow.”

    That’s not entirely true, DavidG. It differentiates originators because it shows that a 3rd party, private company has verified their status.

    That may appear, on the surface, to be nothing…however, if the Zillow-verified lenders CLAIM that Planet Zillow Mortgage is the only eco-system a consumer should visit, the verification becomes quite valuable.

    It’s all in how it’s marketed to the consumer (and not necessarily by Zillow)

  33. Sean Purcell says:

    Michael,

    >I’m familiar with a lot of MLSs and the issue for them today is much more about sending the data here, there and everywhere than it is about keeping it behind closed doors

    The contortions I refer to is in how to get this info out, but only to members. I recently completed the training to receive the new security FOB here at our local MLS. Yet another security measure intended to make sure that only REALTOR members can access the golden information contained within the MLS. Somewhat amusing given the explosion of information offered outside of the MLS. Russell Shaw is right (or course), the MLS has been a great tool and can continue to be, but they will be forced to recognize that they are no longer the gatekeepers… just one of many organized models for information dissemination.

  34. Sean Purcell says:

    Brian,

    > …however, if the Zillow-verified lenders CLAIM that Planet Zillow Mortgage is the only eco-system a consumer should visit, the verification becomes quite valuable.

    I am not sure how you view this. It scares me a little. The one area I agree with Michael on is this: Power corrupts and absolute power corrupts absolutely. I am all for Zillow providing a democratic access to information for the public. A platform even, from which you and I might scream out transparency. But when it takes on an imprimatur I begin to get leery.

  35. Sean Purcell says:

    I have said before (actually I have discussed at length with Brian Brady would be more accurate) the clear benefits of the NASD. Coming from the securities field as we both have, the difference between the NAR and the NASD are night and day.

    NAR is an industry promotion group (cheerleaders) with only titular power. They spend their coin on protection of themselves and (to a lesser extent) their members. They have very little to do with the safety and protection of the public. Now maybe that is not their charter and I am OK with that. But this industry will improve vastly when there is more SELF-regulation similar to the NASD.

    The discussion here and other posts about the elimination of licensing is, in my opinion, an indictment of the false security given the public due to the meaningless testing performed by the state. That is not to say that there shouldn’t be some barrier to entry that is much higher than we have now. The testing, requirements and regulation should spring from ourselves (as in any free society). Like the NASD, there must be teeth behind that body as well.

    Maybe Zillow will eventually move in that direction, but it seems highly unlikely. If Zillow wants to perform the duty of checking a person’s employment vitals before allowing them access I say have at it. But let’s hope the public does not put any more validity on that measure than they do the facile licensing of the state. In our industry, getting hired today is no more difficult than it was to get a loan one year ago: got a pulse?