Editor’s note: Long a crucial center of a healthy, functioning housing market, the MLS now finds itself having to adjust and reinvent to keep up with changing times. This three-part series examines new initiatives in data-sharing and consolidation, as well as debates over public-facing property search sites and the MLS’s role in broker cooperation and offers of compensation.

Editor’s note: Long a crucial center of a healthy, functioning housing market, the MLS now finds itself having to adjust and reinvent to keep up with changing times. This three-part series examines new initiatives in data-sharing and consolidation, as well as debates over public-facing property search sites and the MLS’s role in broker cooperation and offers of compensation. (Read Part 1, "Consolidation, collaboration breaking down MLS walls," and Part 2, "MLS public listing sites gain support.")

There is more to a multiple listing service than warehousing data.

MLSs are marketplaces for showcasing information about properties, including pricing and property amenities. They are cooperatives that provide neutral ground for industry competitors to work together, make offers of compensation and share data. They are marketing portals that disseminate property listings information to public-facing Web sites. They are security organizations that verify the quality of property information while guarding private information about for-sale properties and scanning for improper use such as copyright and contract violations.

They are statistical agencies that provide detailed real estate market reports and enable participants to conduct their own data analyses. They are technology providers that roll out a range of tools and services for subscribers. They are governing entities that set and enforce rules.

Some industry participants have advocated for reform in the structure of MLSs, such as a change in the offer of compensation to cooperating agents. Some have questioned whether third-party technology companies and consumer-targeted real estate Web sites may reduce the role or relevance of existing MLSs, and whether there will be one unified MLS for the entire nation or whether the entire MLS system as we know it will go the way of the brontosaurus.

Despite the debate and an increasing push for MLSs to collaborate or consolidate with other MLSs, the core functions of the MLSs have remained largely intact. There are over 800 MLSs operating across the country, most of them governed by or affiliated with local Realtor trade associations.

"The compensation issue has always been a strength of the MLS," said Ed Krafchow, president of Prudential California Realty.

"Really what we are and were is a milk cooperative. All our dairy people take our data and put it in one large bucket and we all cooperate with each other. That’s in the interest of the consumers. The agreement that lies there as to compensation is relatively important. We all share in the data and then we all compete with each other to see who can find the buyer for that house," Krafchow said.

An MLS, as defined by the National Association of Realtors, is intended to serve as "a facility for the orderly correlation and dissemination of listing information so participants may better serve their clients and customers and the public," "a means of enhancing cooperation among participants," and as "a means by which authorized participants make blanket unilateral offers of compensation," among other functions.

Brian N. Larson, a lawyer who has worked with MLSs, has advocated for the elimination of inter-broker compensation in the MLS. In a series of guest commentary articles published by Inman News last year, he argued that "inter-broker compensation makes little if any sense. Getting rid of it would mean the end of MLS as we know it, but it solves a series of problems and may also open the door for more innovative brokerage and listing service models."

Larson proposed a new model for listing services in which brokers representing buyers would obtain their own compensation from the buyers they represent rather than relying on listing brokers to offer compensation for the buyer’s side of the transaction. In the current system, the listing broker posts a cooperating commission in the MLS that will be paid out to the broker who brings a buyer into the transaction.

He also has suggested that a new form of listing system might allow principal brokers to "pick and choose which registered recipients receive that brokerage’s listings, checking a box for each entity (the broker) wants to receive the data."

Point2, a company that offers marketing tools and services for the real estate industry, operates a platform called the Point2 National Listing Service, for example, that allows participating agents to make decisions about which property listings they want to advertise on other sites and where to send property listings information. Users of the NLS can make "Handshake" agreements to share property listings information with other users or to block other users from receiving listings.

MLS rules passed by the National Association Realtors allowing MLS subscribers to selectively opt out from sharing property listings information with specific brokers were challenged by the U.S. Department of Justice in an antitrust lawsuit brought against the association — Point2 has sought to steer clear of antitrust complaints by allowing real estate professionals to make independent advertising decisions in a peer-to-peer platform that is not affiliated with the trade association.

Brendan King, chief operating officer for Point2, said the Point2 NLS already allows property managers and builders to advertise compensation offered to cooperating brokers, and there are plans to formally add a means for all NLS participants to announce inter-broker compensation.

Despite these developments, King said that Point2 NLS is "not trying to challenge what the MLS does — we think we work best in cooperation with regional MLSs. We want to leave the governance and for the most part the offer of compensation to the MLS."

Larson said that perhaps 30 percent of the legal issues that he handles for the real estate industry relate to inter-broker compensation. "It was a beautiful system when NAR invented it 30 or 40 years ago," he said. "Really, it was the right thing to do for that era." But the system does create problems, he said, "It’s pretty clear to me that the system we have to some extent suppresses price competition on the buyer-broker side."

Already, there are some agents who enter into agreements with buyers that spell out the amount of that agent’s fee and method of payment, regardless of what the listing broker offers as compensation to a cooperating broker.

Saul Klein, president and CEO for Internet Crusade, an Internet publishing company that offers online services for real estate professionals, has also questioned whether the offer of compensation will continue to be a vital role for MLSs. "The offer of compensation — is that as important in the future? I’m not so sure," he said earlier this month during an MLS panel at the Real Estate Connect SF conference. He also questioned whether real estate professionals would turn away a deal just because a non-MLS member brought a buyer to the table.

Larson said that MLSs play an important market-making role in the real estate industry by maintaining data repositories for other participants to view property listings and by working to ensure the accuracy of real estate data. Similarly, the NASDAQ stock exchange plays a market-making role for those who purchase stocks, he said.

"The future of the MLS depends a lot on whether MLSs continue to be opportunistic about maintaining that role," he said. MLSs should consider taking in for-sale-by-owner listings, he said, to help maintain their market-making role and to assist MLS participants who are working with buyers.

"I don’t see anyone stepping to the plate with more current information than what the MLSs have," he said.

But there is potential for third-party companies to make inroads into this core MLS territory by building up an updated and reliable set of property sales information, for example, he said. "I think MLSs could see a run for their money in organizations looking to build that kind of data," he said.

Consolidation and MLS data collaborations have the potential to disrupt the cooperative nature of MLSs, Larson said, as MLS participants in one market may not feel confident in offering full inter-broker compensation to a brokerage company that operates mostly in an entirely different market area.

Cooperation among MLS participants — and compensation as a component of that cooperation — are still key functions for MLSs and that may not change in the short-term, said Gregg Larson, CEO and founder of Clareity Consulting, a real estate consulting company.

"It’s right there at the core of (MLSs) and without that you have some potential for chaos," Larson said. "I think the offer of cooperation and compensation will stay in the MLS for the foreseeable future." He suggested that variable offers of compensation through the MLS could become a favored approach for some MLS participants, so that they could offer varying amounts of compensation based on the level of services that a broker performs on the buyer’s side of the transaction.

Rules enforcement is another important role that MLSs play, said Luke Glass, chief financial officer and chief operating officer for Threewide Corp., a vendor that offers MLS tools and services. "When it comes to all of the rules … I think they do a wonderful job of that. I don’t think you can get rid of that." He added, "I think that the MLS form of cooperation and compensation is a good model."

Some industry professionals have questioned whether third-party property-search sites may compete with the role that MLSs play in collecting and displaying a database of for-sale properties.

But Pete Flint, chief executive officer and co-founder of Trulia, a company that markets broker-supplied property listings information on the Internet, said his company is not there to compete with MLSs. "MLSs know best what services they plan to provide to real estate professionals in the future. We see our function as being different and complimentary in that the MLS has provided a valuable back-end business function for brokers and agents. Our function is as a media company to help consumers easily view neighborhood and listings information and also connect with brokers and agents online."

He added, "Our view is that MLSs have always served an important role in the transactional process, such as broker reciprocity."

David Charron, president and CEO for Metropolitan Regional Information Systems MLS, which has about 60,000 subscribers in the Greater Washington, D.C., area, said he expects the role of MLSs to grow in some areas, such as data monitoring and security.

MLSs could potentially play an expanded role in monitoring where participant data is going and who is using it, he said, and there are also opportunities for MLSs to enhance security to ensure that only authorized users have access to MLS data, for example.

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