Ever since brokers and Multiple Listing Services began posting abridged versions of MLS listings on the Internet some 15 years ago and real estate consumers have been able to see for themselves what’s available in their neighborhoods, the public has confused MLSs with online auction sites like eBay or electronic classified ads like CraigsList. To the layperson, the MLS looks like any other marketplace where properties are bought and sold. But nothing could be farther from the truth.
What makes MLSs special is not just that they introduce extraordinary efficiencies into the real estate transaction, or that they level the playing field so that the newest, smallest, greenest broker has just as much ability to profit from the system as the biggest guy in town. Even the fact that they are probably the safest databases on the Internet — thanks to the standards of quality and care exhibited by the organizations that own and run them — is not the single most distinguishing feature of MLSs.
What makes MLSs unique in the business world is that they exist first to facilitate cooperation between brokers, and that includes interbroker compensation.
Lately a number of people — among them those who don’t understand the MLS system at all and those who do but would like to change it to fit their own agenda — have voiced concerns with the principle of a seller’s broker compensating a buyer’s agent. They believe the practice is anachronistic, illogical, or that it should be ended because it raises suspicions among federal regulators who, in my opinion, truly do not understand how and why the system works.
To eliminate interbroker cooperation in the MLS is to eliminate the MLS as we know it today. Once compensation offers are stripped from the system, no longer is there a significant reason for the MLS to remain a broker-to-broker system and it can become what so many outsiders would like it to be — a simple database that can be opened to all and mined for the value resident in the real estate listings it contains. Welcome to the MLS as a public utility.
There can be no doubt that stripping compensation from the MLS will make interbroker cooperation infinitely more difficult. What the current crop of reformers fails to recognize is the value the current system brings to the buyer and the buyer’s agent. The current system has made the proliferation of buyer’s agency possible, and with it, the vital benefits of professional representation for home buyers, especially first-time home buyers.
Consider for a moment the importance of buyer’s agency — and interbroker compensation — to the cause of minority home ownership in America. Progress toward parity in home ownership has been excruciatingly slow, and now the housing economy is slowing it even more. Interest rates are ramping up in response to the Fed’s policies to check inflation, and many expect rates on a 30-year fixed mortgage to exceed 7 percent. Higher rates coupled with high property values make it more difficult than ever for lower- and middle-income families to cross the threshold of their first home.
Now comes the Consumer Federation of America with a proposal that will make minority home ownership even harder to achieve. CFA would restrict the ability of sellers to offer partial commissions to buyers’ agents to pay for their services in the real estate transaction, forcing buyers to be responsible for some or all of the cost of professional representation. The result could be that buyers’ agents would not be paid from proceeds of the transaction received by the seller but by fees charged directly to buyers. For thousands of lower-income and minority buyers, professional help would be out of the question under these conditions.
The CFA plan, proposed in a white paper issued June 19, would also have a devastating impact on the small but growing corps of minority agents and brokers that specializes in turning minority renters into homeowners. Those professionals help their customers access an extensive array of services such as credit counseling and home-ownership education. Without help from those professionals, people unfamiliar with the home-ownership transaction may never make it over the financial and cultural hurdles standing between them and their first American Dream.
Don’t get me wrong: We believe in change. The MLS has evolved over the years to meet the needs of the marketplace and will continue to do so. At NAR, we have created a Presidential Advisory Group to look at the future of the MLS, and the PAG will consider a wide range of options on handling compensation. It’s anticipated (but not guaranteed) that a report with recommendations will be made to me at the Convention in November. The PAG has met with people from outside the Realtorfamily like Michael Adelbeg of Google and Pete Flint of Trulia. I’m sure that its findings will make a very positive contribution to the debate — and foster changes that will improve the service that MLSs provide for consumers and the industry alike.
Thomas M. Stevens
National Association of Realtors