I’ve had the good fortune to be involved in organized real estate since 1999. I’ve been the CEO of a small MLS, the CEO of a large MLS, an executive with a national brokerage, a consultant and now, an executive with Apartments.com.
The reason why all of that matters is that my various positions have given me a unique perspective on a critical emerging need in real estate — one that I hope to reopen a discussion about with this article.
The importance of the MLS treating rental listings the same way as for-sale listings is not new. I tried to get my board of directors to make rental listings mandatory back in 2015. At the time, lack of an urgent need meant that my board felt the risk of disruption was greater than the potential gain, so they chose not to move forward.
Today, with effects from the COVID-19 crisis only beginning to be felt, I believe there is an urgent need that requires the conversation to be opened once again.
The economic effects of COVID-19 will create more renters
Now, some readers may be thinking that my argument is entirely self-serving because of my current role, but the reality is that most of our rental listings come from large multi-family complexes and condo towers. Fewer than 30 percent of rental listings come from MLSs.
Economic recessions drive consumers into the rental market, so the real opportunity is for MLSs to evolve their business practices to empower their brokers and agents to stay relevant to consumer demand.
We are at the beginning stage of what promises to be major, sustained disruption to both the residential for-sale and the residential rental markets. It will be mission critical for every MLS, broker, agent, homeowner, buyer, renter and lessor to have the most accurate, timely and comprehensive picture possible to weather this storm.
Below are two graphs depicting change in rental prices in the Northern California and Maryland/Virginia markets, measured from a starting point of Dec. 31, 2019 and ending in May 2020.
Here’s what we think is being reflected below. Renters who can work remotely are fleeing high-priced metros in favor of more moderately priced areas. In some instances, like Sacramento, California, and Richmond, Virginia, renters have found the price points attractive enough to actually cause a tightening of the market and subsequently, a rise in rental prices.
There are different rules for residential for-sale and residential rentals
The National Association of Realtors’ (NAR) Mandatory Listing Policy governing for-sale residential properties is a critical element to keeping the marketplace fair for brokers, agents and consumers.
The policy works to ensure that all available listings make it onto the shared marketplace of the MLS. This helps ensure a fair, comprehensive and global view for MLS subscribers and the consumers that rely on them for accurate information.
Residential rentals, on the other hand, have no such requirements or protections and operate on an “at will” basis in the vast majority of MLSs. Rental listings can be added — or not — to those MLSs that will accept them, but there are typically no rules requiring that brokers put all rental listings on the MLS the way there are for residential for-sale listings.
And even when rental listings are added to the MLS, there are usually few rules requiring which property features be provided. The result is an incomplete — and potentially misleading — picture of the rental market for the MLS, brokers, agents and consumers.
Why does it matter?
Because Americans are moving to save money on rent, find jobs or otherwise reduce expenses. On the left of the graph below, you’ll see 10 high-dollar major metro areas with greater than 10 percent increase in vacancies in April/May of 2020 as compared to April/May of 2019.
The right shows 10 more reasonably priced major metro areas where vacancies are either stable or decreasing. Whether it’s a result of physical job loss or some other motivator, it reflects an increased willingness by renters to move out of high-rent areas to find less expensive places to live.
Market disruption from the effects of COVID-19 will put significant demand pressure on the rental market — but just how much is anyone’s guess.
Whether it’s relocation for a job, needing more elbow room after being quarantined for so many months, dispossessed homeowners or just overcrowded situations, rental listings will be a critical piece of the puzzle in the recovery of our nation from COVID-19.
The fact is that everyone needs a roof over their heads, but not everyone has the money or the desire to buy one. Now more than ever, in a confusing market, renters will need the advice and local expertise of brokers and agents to guide them to making informed decisions. It’s up to the MLS to empower their brokers and agents with accurate data.
What if nothing changes?
If nothing changes to MLS rental rules, it’s certain that we will witness the confusion and exploitation that invariably accompanies lack of transparency in the market.
For the very same reasons that NAR enacted mandatory listing rules on for-sale properties, I encourage the industry to recognize the risks of not making rentals a mandatory class. Here are a few reasons why.
- Without mandatory status, there can be no clear picture of the rental market for brokers, agents or consumers.
- Without rules to prevent it, in high-demand markets, the temptation and financial incentive for brokers to keep the best listings private and only put less desirable ones on the MLS may prove overwhelming for some. This activity degrades the quality and relevance of the MLS system, the ability of the agent to meet their clients’ needs, the ability of the consumer to know if they’re getting a fair deal, and the ability to generate accurate market statistics.
- The absence of transparency breeds confusion and misunderstanding about market conditions and the fairness of rental pricing.
At the end of the day, more data on the MLS serves the MLS and the brokers, agents and consumers that depend on it. There has never been a better time — or a greater need — to make rentals a mandatory property class.