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Battles in the Boardroom: Chicagoland’s MLS Merger Melee

by Chicago Agent

By K.K. Snyder

Still recovering from the turmoil that rattled the 51,000-member Multiple Listing Service of Northern Illinois Inc. (MLSNI) in 2004, which prompted the firing of then CEO Jay Huffman, the organization now finds its membership again divided over the proposed merger with smaller competitor MAP MLS (the MLS of Mount Prospect, Arlington Heights, Palatine and Prospect Heights). The merger, which would result in the creation of a new MLS — Newco — is all but decided, pending a Nov. 15 vote of the MLSNI shareholders.

A number of members left MLSNI during the Huffman ordeal, which was followed by the organization’s receipt of a subpoena, related to an antitrust lawsuit that the agency filed last year against the National Association of Realtors. Subsequently, the subpoena also concerns those brokers who initially pulled out of MLSNI only to return in favor of the merger, as well as the proposed merger itself.

The disagreement is being played out in boardrooms as well as online, sparked by the “Save Our MLS” Web site (www.saveourmls.info) posted by an anonymous group. The posting was debated in a “Truth and Lies” statement written by attorneys at the request of three Realtor associations: North Shore-Barrington Association of Realtors and Chicago Association of Realtors and Realtor Association of West/South Suburban Chicagoland.

At the core of the issue are five of the 10 MLSNI members: Realtor Association of the Fox Valley, McHenry County Association of Realtors, West Towns Board of Realtors, Aurora Tri-County Association of Realtors and Oak Park Board of Realtors, who are against the merger, saying their organization is essentially being given away. They contend that the transaction is shortchanging shareholders.

And, while these groups represent 50 percent of the MSLNI member organizations, they only represent 9.5 percent of the voting power for the fiscal year of 2007 voting power computation and 9.8 percent of the listing input for September 2006, says Terese “Terry” Penza, CEO of the North Shore-Barrington Association of Realtors (NSBAR), which stands in favor of the merger.

“NSBAR has always been for one MLS,” Penza says. “This makes sense for both the real estate industry as well as the buying and selling public. MLSNI would not exist without the members. So, what is best for the members is the position to take.

“MLSNI was not formed to build an empire, not formed to make associations money and not formed to make staff money. It was formed by local associations who made the decision to transfer to a centralized system that previously was our most lucrative service for the betterment of the members. Again, if we do not please the members, we do not exist.”

Many MLSNI dissenters say the proposed merger is beneficial only to the MAP shareholders, but Penza says all brokers benefit through efficiencies and economies of scale.

“Remember, the dissenters represent only 10 percent of the entire membership and listings in the system,” she says. “[The merger] is already a win-win; it is in the best interest of almost 50,000 who are served by the corporation.”

Nancy Sobol, president of the McHenry County Association of Realtors, an original shareholder in MLSN (a Realtor association-owned listing service formed in the 1980s) and one of the five dissenting associations, says the whole issue has “been a real challenge for everybody. It’s very intricate, and very, very, very complicated.”

“We’re not looking at the whole thing, we’re looking at tiny pieces,” says Sobol in reference to the Internet debate on the issue. Sobol says the information on the Save Our MLS Web site was an educational and public relations-related effort by the dissenting members. Unfortunately, the information was drafted with some inaccuracies that were not identified until after the site went public.

“We did end up with egg on our face from that,” she says. “[The inaccuracies] have since been remedied. It was not intended to be inflammatory. You can always pick at something and refute it or twist it, but when you look at the whole picture it’s not that simplistic.”

Sobol contends that the main idea behind creating one MLS was to keep members from having to pay fees to two services. About 18 unique MAP members are already members of MLSNI, she adds. “Quite frankly, that is the issue that we have in spending money we don’t have to spend,” she says. “My board’s concern is spending money for something we already have and not increasing membership.”

MLSNI has spent additional money hiring legal counsel that specializes in dissenter’s rights to advise them. Said counsel has since been forced to remove itself due to a conflict of interest identified by the opposition at MAP. Since then, MLSNI has struggled to replace their legal representation, says Sobol, as the opposition seems determined to point out even the slightest possibility of any other conflicts of interest. In fact, Sobol says the opposition hired a consulting firm to search out potential conflict with any legal counsel the dissenters may try to hire.

“We have been deprived of our counsel,” she says. “In our opinion, things are not going in as good faith as we hoped they would.”

Sobol says the dissenters are willing to move to the middle and negotiate. “We want to talk,” she says. “That’s how deals are made. You give a little and take a little and, in the end, you come up with something you can both live with.”

Ginger Downs, CEO of the Chicago Association of Realtors, agrees, but says the give and take has already occurred.

“[This transaction] is the mutually beneficial outcome of intense and prolonged negotiations between the two entities for several years,” she says. “There was give and take on both sides, in order to make this a transaction, which enabled the shareholder associations to maintain 100 percent of the ownership, while giving brokers the direct management of the MLS that is critical to their business.”

She adds that the transaction, as it is currently structured, will allow them up to eight years to continue to provide administrative services to the members on behalf of the new MLS.

“That gives all the associations time to
demonstrate their value to membership in other areas besides MLS services,” says Downs. Also, under the current transaction proposal, a significant amount of money will be left in the MLSNI coffers. It is not unlikely that this money will
be distributed evenly to the 10 shareholder associations, providing a cash windfall for the smaller
ones, she says.

“Whether they ultimately distribute this money to their membership, or keep it to improve services, or strengthen their organizations, it is a boon that they should appreciate,” she says.

There are some things MAP brings to the table that even MLSNI dissenters admit they would find useful, namely listing software. But Gary Mancuso, the recently installed president of the Oak Park Board of Realtors, says MLSNI is about to eliminate the double entry issue for those who are currently members of both groups by utilizing the Broadcast Lister software, which he calls “revolutionary.”

The new program would allow information to be entered one time and posted to both listing services. In addition, with just the push of a button, the same info can be submitted to www.realtor.com and the Chicago Tribune.

“We want to preserve MLSNI as it is while making changes that will satisfy the brokers,” says Mancuso, who says his board “stands firmly opposed” to what he refers to as an “acquisition.”

Mancuso says his board agrees that the board of directors needs to be downsized to a workable number, which could include broker and association representation. He’d like to see the number decrease from its current membership of 22 to perhaps 11 – six brokers and five associations – which would still give the brokers a majority.

“We’re in favor of them having broker control over the board of directors but not ownership of MLSNI, and we’re firmly against the formation of Newco,” he says.

Mancuso is quick to admit that the situation with MLSNI has not always been perfect. “We’ve had some bumps, we’ve corrected them and we continue to run a successful MLS.”

Mancuso and his fellow dissenters agree that the merger will not grow MLSNI membership or geographic territory, as everyone in MAP is already a member of MLSNI, he says.

“We want to retain ownership [of MLSNI],” says Mancuso. “We’ll even go out on a limb and say we’d consider buying out MAP and shutting them down. As president of this association, it’s my fiduciary responsibility to look out for all agents and brokers, whether they’re small, medium or large. This is a very bad business decision when 50 percent of the shareholders say don’t want to do it this way.”

But it may be too late. Boards for both groups last week approved moving forward with the proposed consolidation. All that’s left now is the Nov. 15 vote by the MLSNI shareholders at their annual meeting.

“If Newco came to be, it could potentially have devastating results for certain categories of brokers and agents down the road,” adds Mancuso. “The effect will take years. Immediate effect probably won’t even be noticed.”

Not every association has chosen sides, despite the imminent status of the situation. Michael Lescher, immediate past-president of the Realtor Association of Northwest Chicagoland and incoming MLSNI director, has yet to decide.

“Our board, at this point, is still watching all this unfold,” he says. The board represents the interests of the 8,000 members in the association. “We’ve not reached a decision.”

Lescher says choosing to be in favor of or against the proposed merger depends primarily on whether MAP is seen as a potential threat to established territory.

“If you don’t believe MAP can spread into your territory, you’d not pay a dime and just let them wither on the vine,” he says. “But things keep reshaping every minute, and we’re kind of in the middle. We’re letting the dissenting boards and those boards in favor of it work it through. Right now, there aren’t enough votes to get it done.”

Nationwide, the consolidation of MLS systems is not a new idea. In fact, most major metropolitan areas have only one service, as regionalization becomes a favored practice. While the new entity will continue to be a Realtor association-owned service, it will be broker-managed in principal.

In the early days of consolidation discussion in 2005, broker control was a principal objective, and it remains so. The proposed Newco would be designed to operate in the manner by which monthly MLS fees are set high enough to cover the cost of operating the service, but not so high that they create a profit for the MLS. C.A.

CONTACTS:
Ginger Downs
CEO
Chicago Association of Realtors
312.803.4900

Michael Lescher
MLSNI Incoming Director
Past-president, Realtor Association of Northwest Chicagoland
847.207.1788

Gary Mancuso
President
Oak Park Board of Realtors
708.697.5900

Terry Penza
CEO
North Shore-Barrington Association of Realtors
847.480.7177

Nancy Sobol
President
McHenry County Association of Realtors
815.338.4455

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