Luxury Connect
Meet the Luxury Leaders | October 19-20 | Beverly Hills

If the real estate industry were invented today, there would be no NAR (National Association of Realtors) or MLS (multiple listing service), and perhaps no franchises — there might not even be real estate brokers.

The MLS was built for three reasons:

  1. To place all information on homes for sale and sold homes into a central location for brokers.
  2. To create a percentage of sale price payment agreement between brokers.
  3.  To elevate NAR and the MLS companies to almost godlike status with monopoly power.

The marketplace now demands a system built on their desires, not those of NAR. How would you build a system for selling and buying homes based on market desires with today’s technology and market dynamics? You would offer an open-source international database (website … portal).

Let’s visualize just the American portion of the open-source system.

Obviously, it would be easy for users to input information about their homes and easy to search homes for sale. But who are the users? Users are home sellers, homebuyers and intermediaries — third parties who provide some kind of value-added service or information to the process.

The website’s purpose is based solely on the two most sought-after needs of sellers and buyers. Sellers most desire assistance in marketing their home to buyers. Buyers most desire finding their perfect home. That’s it.

There are two steps for home sellers to “market” their home to buyers.

The first step is knowing what buyers most desired in their particular neighborhood and preparing the home to meet those needs better than the competition does. Here’s an opportunity for an intermediary service, but no need for the MLS.

To properly market a home, sellers need a list of what buyers most desire and what the impact on sale price is as you add or subtract these qualities to the subject home. This intermediary could be a seasoned professional providing this counseling for a set fee. Or it could be some artificial intelligence-based software doing the same for a lesser fee. The first offers intuition, the other scientific facts. Neither requires the MLS.

The second service needed is the advertising portion of marketing. Once the home is made as perfect as possible (relative to what buyers most desired), you now need to tell them about it. Obviously, our open-source website does that, in collaboration with any other highly used websites.

But here we need a specialist who can capture the emotional triggers of what the buyers most desire. We need inspiring photos, videos and written descriptions. This is an additional opportunity for a skilled professional or professionals in each of these areas. There’s no need for the MLS or a listing broker.

The home is prepared based on market desires and advertised based on market desires for anyone on the planet to find.

Now our buyers, whether they are living next to the home just advertised or on the other side of the planet, wish to find this home.

Here, the website could provide those search tools. But right now, all real estate search functions on the Internet suck. Tell us your price range and bedroom and bath count. Here’s your list of undifferentiated homes; good luck. Every website on the planet works just like this. But that is not how buyers choose a home.

Buyers choose a home based on how aspects of the home trigger envisioned future life events. The more triggers, the more they desire the home. Whichever portal offers these kinds of search tools will dominate the Internet. Here’s another opportunity for an intermediary with a technical search innovation, but it’s probably short-lived, as the portal will buy out this superior technology to give themselves a market advantage. No need for the MLS or a buyer’s agent.

But wait, eventually the buyers will want to see some homes. This is the next opportunity for a fee-based professional service.

Then somebody’s got to write up an offer. Who do you as a buyer trust more to complete this task: an attorney or a broker? It might come down to who will do it for the lowest fee or who can offer some kind of legal guarantee of their work. In either case, the whole offer — negotiations, amendments and extensions, addenda and so on — will probably be fee-based.

Isn’t it easier just to hire an intermediary to do all this as a percentage or single fee? Maybe, but that will be up to the marketplace to decide what works best for it. However, it turns out there will be a lot more options for them. Perhaps some will be single-fee, do-it-all-for-you options, and others might be pay-only-for-what-you-need options.

But we need to focus back on the topic of the MLS, not the ancillary services. The marketplace desires open-source information on homes for both sellers and buyers. This will eventually kill the MLS companies and greatly empower the portals.

Brokers won’t let this happen. We’ll put all of our listings in the MLS first and then choose outside portals to advertise.

Well, maybe, for a while, but the marketplace of sellers will either start doing it all on their own or hire intermediaries who provide services that better meet their own desires, not yours.

According to the NAR survey in 2013 and 2014, in both years 43 percent of buyers found the home they actually purchased by themselves on the Internet. Another 9 percent found the home they purchased by seeing a yard sign. That’s 52 percent of buyers who did not need the MLS or a broker to find the home they bought.

According to the same NAR surveys, only 33 percent of the time did buyers buy the home the broker found via the MLS.

When you add to our initial 52 percent of buyers finding their own home to the buyers who purchased directly from builders or for-sale-by-owners, the percentage of buyers not needing the MLS is two-thirds of all sales. If homebuyers don’t need the MLS, why would a seller?

A home does not need to be in the MLS to sell; it needs only to be on the Internet. The market has already tipped.

Buyers already know this. Soon home sellers will figure it out and will refuse to pay a “listing commission” to be in the MLS.

And yes, I am fully aware that brokers were still used 88 percent of the time to write up the contract and “work the deal” (courtesy of the same NAR surveys). So, over 50 percent of the time, brokers were paid a commission for not finding the buyer a home. And that proves my point. Buyers and sellers want to do the stuff they can and will hire specialists to do certain other aspects of the transaction. Many will probably pay someone else to “work the deal” — the stuff they want help with. But with new options, the old MLS/NAR means of selling and buying real estate is listing fast (a ship sinking, not the archaic term used to place a home in the MLS) and will go under within just a few years.

Creed Smith is living the creation and implementation of innovation via QValue.net and DemonOfMarketing.com.

Email Creed Smith.