For the full report, and more information about the authors and their vision, click here.
Few of us would be in this business today if it weren’t for cooperation and compensation. We have all benefited mightily.
Managing one of the largest MLSs (multiple listing services) in the country gave me invaluable experience. Stepping away gave me perspective. As I unpack all I have learned from many years in this business, I am reminded repeatedly that the world around us has changed and is changing dramatically.
Technology has given consumers confidence, agents independence and our industry the shudders. People with ideas and checkbooks are changing the game. They’re rewriting the rules.
New companies are using a combination of money, technology and data to deliver consumers an experience that is efficient, certain and convenient. And the clash between old and new is creating tribalism amongst players vying for the top of the heap. Not surprisingly, the MLS finds itself squarely in the middle.
As these new models and platforms become viable, broker and agent reliance and loyalty toward MLS will inevitably wane. As posited in the well-written MLS 2022 Agenda, “If there is a choice (and there will be), will they choose us?”
What we are witnessing is much more than different weather patterns, more than a few rogue waves. Don’t kid yourself. These changes aren’t just a stretch of bumpy road; we are off the highway and headed for the ditch. Indeed, we are in the midst of a seismic shift. And yet we continue to support systems that fail to recognize the intersection of consumer preferences and innovation. As a result, our once tidy industry faces challenges as never before. It’s called evolution.
It’s hard to imagine breaking up a system that has served the industry for so long and so well. Indeed, we are lulled into complacency because we cannot envision a viable alternative to what we have in place today.
Despite repeated calls for the MLS to evolve, we all agree that advances have been too slow — so slow in fact that some argue it’s akin to coming home and realizing you forgot to set your crockpot to actually cook a meal.
Traditional brands, legacy technology providers, people whose behaviors and practices are all moored in the past are attempting to reset their navigation. But it isn’t easy! Tenure combined with market share is incredibly stubborn. And cannibalizing one’s base makes change even tougher.
Our MLS delivery systems remain moored in the early 2000s. We rely too heavily on dated technology, third parties, strained coffers and fossilized thinking. Not surprisingly, our soft underbelly is exposed for all to see.
“MLS connects the most significant amount of properties to the largest number of competitors. That is pro-consumer!” – Brian Boero, 1000WATT
Of course, it’s easy to get consumed by all of it and descend into a form of real estate delirium, where we suffer from disorientation and intermittent confusion. In turn, we console ourselves with well-intentioned but misguided beliefs that we can create something new by delivering more of the same.
We must get beyond the perpetual fidget-spinning that surrounds MLS. No more empty calories. No more modest, well-intentioned, but half-baked efforts to move the needle. The time for trying to strike a balance between patience and urgency is long past. It’s our channel to lose.
This is our motivation for weighing in on what MLSs must do going forward. What if we could overcome these challenges by adopting a new mindset? What if the barrier to continued relevance is will power, not money? What if the future we envision is possible? Could it be that simple?
In this article, we’ll lay out our plan starting with the challenges and opportunities and moving on to the strategy and goals broken down into digestible increments.
- The challenge and the opportunity
- The strategy: MLS as real estate operating system
- Short-term goals (1-3 years): Neutrality principle, primary marketplace and buyer data
- Midterm goals (3-5 years): Open-source software
- Long-term goals (5+ years): The real estate operating system
Imagine yourself in 2022. Where will you be? Where will your MLS be? More importantly, where will your customer be?
And what is it you tell them you have been doing these past three years to ensure their success? Don’t let the pace of change distract you. Don’t rely solely on what has gotten you thus far from seizing this seminal moment! Adam Smith, Scottish philosopher and the father of economics was right: “Competition spurs growth and innovation.”
So now the MLS must undoubtedly prepare to compete. As the Council of Multiple Listing Services (CMLS) smartly advises, “MLSs must forge a new path forward.” The question for us: Will we?
The challenge and the opportunity
The local MLS, the local exchange, where brokers gathered to tell each other about houses that were for sale and to promise to compensate anyone who brought them a ready, willing and able buyer, predates the Realtor movement.
At the heart of the MLS — and therefore, the American real estate system — there has always been a social contract that is unique in business history: The unilateral offer of cooperation and compensation. That contract is under attack today, both from within the real estate industry and from without.
We believe there are four major threats to the MLS today:
- Brokerages pursuing systematic exclusive inventory strategies
- Rise of institutional real estate (iBuyer/market maker)
- The commission lawsuits
- Government regulation
The consequence of failing to deal with these threats is simple: Residential real estate will look like commercial real estate.
Commercial real estate famously does not rely on the MLS, and there is no unilateral offer of cooperation and compensation. The norm in commercial real estate is for all prime properties and prime leases to be treated as pocket listings and kept within a small circle of brokerage firms. The only time a property or a lease vacancy hits the open market is when there’s some kind of a problem.
This might work in commercial real estate, where the clients are businesses and corporations. However, it runs into major problems in residential real estate with its fair housing laws and regulations and consumer protection concerns.
No consumer anywhere has ever said, “I really wish I could search a dozen different websites and talk to seven different agents from seven different brokerages instead of needing to contact just one agent who has all of the inventory at her fingertips.” (Just ask consumers in New York City.)
There are other problems of the MLS, of course, but those four are the major threats of today. And these are existential threats that require a response.
The MLS still has (a) a captive audience within its market area, (b) most of the listings for sale, and (c) tradition and inertia (not to be discounted, especially in real estate).
While cooperation and compensation is at the heart of the MLS, the value of the MLS is deeply intertwined with data quality. Listings are ads of properties for sale, but they convert into sold data, off-market data and other extremely useful information that professionals and consumers need.
There are three features of MLS data that make it particularly valuable, even compared to other sources of property data, such as public records:
Whatever strategy the MLS deploys, it must be based on preserving if not extending this data quality advantage.
The good news is that in crisis, there is today an opportunity for the MLS to embrace reforms, implement new strategies and create new value for subscribers.
Perhaps the seriousness and the urgency of these threats unleash creativity and political will from within the MLS system.
The result will be not only that the MLS survives, but it will also become even more valuable to brokers, agents and consumers by establishing a firm footing for the future.
MLS leaders of today have the opportunity to go beyond being caretakers of an important institution, to be revolutionaries who leave a permanent legacy behind. Forget fear, this is a time to rise up with resolve, action and optimism for the future.
In the rest of this article, we’ll lay out a strategy for how the MLS might be improved, how it might be strengthened and how it might be made even more relevant to brokers, agents and consumers.
The strategy: MLS as real estate operating system
Past attempts by the MLS to create new and different value apart from the listing database have met with mixed results. Public-facing websites, for example, are not a huge value proposition for MLS membership with the notable exception of HAR.com and possibly a few other markets.
Most non-dues revenue strategies also have the problem of coming into conflict with the business strategies of brokerages, who also want to provide tools and services to agents to differentiate themselves from their competitors.
Data access fees charged to vendors anger brokerages who feel that the MLS is charging exorbitant fees to access their own data. After all, it is the brokerage participant who contributed the information into the MLS in the first place.
We believe that there is one path that the MLS can pursue. It is, in fact, the MLS’s original value proposition and the one it had maintained for decades prior to the advent of the internet: Become the operating system for the purchase and sale and leasing of real property.
The operating system versus the platform
It is important here to distinguish between the Operating System and the platform, which numerous companies are building.
Zillow, Compass, Realogy, Keller Williams, HomeServices of America, RE/MAX, NextHome and dozens of other companies large and small all have some kind of a platform strategy at the core of their business plans. Most of these contenders are far better financed, far better governed and have far more capabilities than even the largest MLS in the U.S. Most of them are participants in the MLS and would look upon the MLS competing against them to develop a platform as a declaration of hostilities.
The MLS should seek to be the real estate operating system, rather than the platform.
The key idea here is that the platform is something like the Microsoft Office suite: the actual products and services and apps that a franchise or a brokerage might develop in order to drive productivity and competitive differentiation. The operating system is like Windows or Mac — the invisible and rarely thought of background framework on which platforms and apps and software can be built.
Under this strategy, the MLS does not compete against franchises, brokerages and tech companies. Rather, the MLS enables them to compete against one another on a common operating system with a common set of resources available to all, and the ability to build on them.
Add to this that all of the companies contending to become the platform are competitors in the real estate marketplace in one way or another. Brokerages all compete against one another, as do franchises. Dozens of technology companies are competing for pieces of the business in the MLS marketplace.
None of these companies have any reason whatsoever to get on a competitor’s platform. Keller Williams did not choose to leverage the enormous platform that Zillow built because it regards Zillow as a competitor in many respects. We do not see developers eagerly rushing to build on Realogy’s “open platform” because they don’t want to be tied to a single company’s platform and be shut out of competing platforms. NextHome is not building its software suite on top of RE/MAX’s infrastructure.
If the MLS is seen as favoring one group over another, favoring one type of business model over others, one type of technology over others, then it will fail to become the operating system.
Practically speaking, that means that these companies can develop a platform, but they cannot become the operating system due to a lack of trust between and amongst competitors.
The only entity in the real estate industry that could plausibly lay claim to not being an actual competitor in the marketplace is the MLS. This is the sole advantage that the MLS has over everybody else.
That means that the MLS and only the MLS can aspire to be the operating system, which lays beneath platforms and empowers them. The MLS can be the invisible foundation upon which everyone else builds their competing platforms.
Today, the MLS is a listings-only database that is defined by the unilateral offer of cooperation and compensation. Tomorrow, the MLS will be the real estate operating system that will be defined by the invisible enabling framework on which everything else in real estate is built.
How do we get there from here?
We begin with a preview of the short-term action items, the things that must be done today to set the groundwork for medium-term and long-term goals.
Short-term goals (1-3 years): Neutrality principle, primary marketplace and buyer data
In the short-term, the MLS must implement three things: neutrality principle, primary market principle and buyer data. These initiatives are not only critical, they are urgent.
The MLS must start working on these today if it is to have any hope of having them implemented and in place within the next three years.
Midterm goals (3-5 years): Open-source software
If the MLS has accomplished those three short-term tasks of implementing full neutrality, of becoming the primary marketplace and of expanding its universe of data to include buyer data, then it can tackle a necessary structural issue in the midterm, which we consider to be three to five years out.
That structural issue is software. The MLS must fully embrace open-source software. There are numerous reasons open source is important going forward, including cost effectiveness and transparency.
Long-term goals (5+ years): The real estate operating system
Once the MLS has achieved both short-term and midterm goals, it can then consider pivoting its value proposition from what it is today to becoming the real estate operating system: The invisible framework that makes everything else possible.
The definition of an operating system in the world of computers is “software that manages computer hardware and software resources and provides common services for computer programs.”
The operating system in and of itself does nothing useful for the actual user; it is absolutely critical to the software that does do something useful for the user.
The challenges confronting the MLS are unprecedented in scale, scope and in importance. Failing to meet these challenges means the end of the MLS as we know it.
The future should not be decided in a vacuum. Let that decision be explicit, be open and public and the result of serious discussion and debate.
The future we envision is currently out of reach, but not out of the realm of possibility.
It is imperative that the MLS has a fresh and reasoned alternative to the plethora of challenges confronting it. More of the same simply won’t cut it.
Editor’s note: This post has been cut down from the original version for digestibility. Read the full report in its entirety here.
Robert Hahn is the Managing Partner of 7DS Associates, a marketing, technology and strategy consultancy focusing on the real estate industry. Check out his personal blog, The Notorious R.O.B. or find him on Twitter: @robhahn.