Editor’s note: Inman Contributor Creed Smith recently asked us to consider whether “The sun is setting on the era of the MLS.” This piece is adapted from my comments in the Facebook discussion of Smith’s article.
The Internet has been around for a long time, and multiple listing services don’t seem to be going away. Instead of “disrupting” MLSs, all of the top real estate search sites, including Zillow, Trulia and realtor.com, are built on top of them.
If a home “does not need to be in the MLS to sell, it only needs to be on the Internet,” why do websites and business models that revolve around selling homes outside of the MLS still account for only a fraction of residential real estate transactions?
One reason is that MLSs do more than just publicize that a home is for sale. The primary role of the MLS is to facilitate cooperation between brokers representing sellers and brokers representing buyers.
Without co-brokerage — the mandatory offer of compensation that listing brokers make to any member of their MLS who can bring a buyer to a sale — it’s difficult to imagine that there would be a central repository of information on homes for sale.
If there were no central repository of information on homes for sale, suddenly it would become harder for buyers to do their own home searches, and for sellers to get exposure for their properties to the entire universe of buyers.
It’s undoubtedly true that in the past, real estate brokerages used their control over listing data and the power of the MLS to their advantage. Commission fixing in the pre-Internet era is a well-documented fact. It probably still happens in some markets where there’s limited competition.
However, sellers today have the ability to place their homes in the MLS through flat-fee brokers, and the Realtor association/MLS system, at least in theory, allows discount and a la carte brokerages to carve out a space for themselves.
It’s worth asking whether MLSs are still relevant, but if you want to imagine a world without the MLS, you also need to think about a world without co-brokerage.
That world might be better for buyers and sellers in some respects. But what would the drawbacks be?
Before the MLS system began to take hold in markets around the nation in the 1910s and 1920s, real estate brokers were often speculators, former National Association of Realtors General Counsel William North wrote in a 1993 defense of subagency titled “Agency, Facilitation and the Realtor.”
Under the “open listing” business model — still common in many international markets — sellers were free to work with as many brokerages as they saw fit. In the end, only the broker who could bring a buyer to a sale earned a commission.
Brokers were reluctant to market properties or cooperate with each other, fearing that a competing broker might take a buyer straight to the seller. Sellers, too, could deal directly with buyers, cutting brokers out of a commission.
One way brokers could ensure they wouldn’t be cut out of a deal was to take an option on a property, in the hopes of selling it at a profit. In these and other situations, brokers were often looking out for their own interests.
The trade was open “to anyone who wanted to be involved in any aspect of the real estate transaction on any terms,” North wrote, attracting “self-dealers” and encouraging “sharp practices that abused the consumer, gave real estate practitioners an extremely poor image, and complicated real estate transactions.”
Inman contributor Creed Smith envisions a single “open-source website … in collaboration with any other highly used websites” displacing MLSs.
What are the chances that a single website would emerge, where buyers could expect to find a comprehensive (or near-comprehensive) database of homes for sale in their market?
Who would operate and pay for the website? Who would determine its rules and data standards? Why would that website not have competitors (rather than collaborators)?
Isn’t it more likely that there would be many websites, with different rules and standards, and that none would have a comprehensive set of listings — sort of like what you have going on in the U.K. right now?
Sure, a seller can “offer compensation [to an agent who brings a buyer to a sale] on a public portal directly from [the] seller,” but who will enforce that?
When the MLS is enforcing the offer of compensation, the seller doesn’t necessarily have to get dragged into disputes between agents. If every dispute about procuring cause has to be settled in court, that’s another risk for sellers.
As I said on Facebook, I am not “for” or “against” MLSs. But I do think many people outside of the industry don’t fully appreciate that they do more than publicize properties. They are an integral part of the co-brokerage business model, and co-brokerage is the reason brokers are willing to share listings data through MLSs in the first place.
Take co-brokerage away and it’s fair to say there would be more fragmentation of listing data.
If brokers start to get secretive with listing data, say goodbye not only to public search portals like Zillow, Trulia and realtor.com, but the Internet data exchange (IDX) listings that brokers pool for display on each other’s websites.
It’s worth noting that the biggest threat to the MLS to date has probably come not from for-sale-by-owner sites, or auction platforms, or other new business models that circumvent or minimize the role of the broker and agent.
The biggest threat to MLSs has come from “pocket listings” — homes that brokers market quietly among their own agents or to other brokers. Those listings may never appear on any website, with the exception of small, private groups on Facebook or other networks.
So while getting rid of the MLS might sound like a way to bring more transparency and innovation to real estate, there’s also the chance that it could result in less of both.
I agree with Creed Smith that we should not underestimate the pent-up hostility toward the current system. But we shouldn’t underestimate the complexity of the issues that need to be tackled in order to build a better one, either.