Are MLSs relevant?

Dec 18, 2008  |  Michael Wurzer

Saul Klein of Point2 has posed a question at InternetCrusade as to what ” 5 things MLSs must do to remain relevant to the Real Estate Industry over the next 5 years?”  When I first started the FBS Blog, my first substantive post was similarly entitled “Death of the MLS?”  That question was perhaps more rhetorical than Saul’s, but the point was essentially the same — many people are questioning the relevance of MLSs in today’s web world.  One of my main purposes in starting the FBS Blog was to provide a counter to this drum beat, because the relevance of MLSs seems pretty clear to me.

To that end, let me quote at length from my seminal post Death of the MLS?:

Before delving into the three doom and gloom scenarios (bias showing through), some background on the MLS model and its value proposition may be helpful.  Whenever someone asks me what I do for a living and they aren’t familiar with the concept of an MLS, I tell them that it’s sort of like the stock exchange for real estate.  The MLS facilitates the definition, if not the creation, of a market for real estate.  Now, I know this analogy is far from perfect, but I think the idea of a market is critical to this discussion.  What is the market being served by the MLS?  Is it the market for real estate services?  Is it the market for real estate?  Is it the market for real estate advertising?  Some other market?  Does the MLS serve the purposes of competition in any of these markets?  How?

From my days in college studying economics, I recall there were some pre-requisites to “perfect competition” in a market:

  • Many buyers and sellers.
  • The products are basically the same (homogenous).
  • Perfect and complete information — buyers and sellers are on equal footing.
  • Low barriers to entry into the market, mobility of resources.
  • Predictability, usually established by some legal framework to uphold promises.
  • Of course, there isn’t a “perfect” market anywhere (some agricultural commodity markets come close, but that’s about it).  Rather, these conditions present a continuum towards perfection.  Looking back to pre-MLS, it’s pretty clear that the MLS helped foster many of these core requirements of competition in the real estate market itself.  The MLS brought more buyers and sellers together, provided more information about the products, lowered barriers to entry into the market, and provided predictability for real estate agents, buyers and sellers regarding how they could work together.  Much the same could be said for how the MLS impacted the market for real estate services.  Buyers, sellers and their agents knew much more about what each party was bringing to the table in the real estate transaction as a result of the MLS.  Moreover, the MLS “leveled the playing field” (eased entry) in the real estate services market, which is another reason many complain about the MLS today.  Many feel that competition is best experienced head to head, with as many barriers as possible.  By providing technology, education, lock boxes, and other services at a lower cost to the average agent, the MLS lowered a lot of barriers.

    Interestingly enough, back in the present, those prognosticating or wishing for the death of the MLS feel that the quest for perfection is now being impeded by the MLS.  The MLS is alleged to have rules that get in the way of new entrants, who don’t want to play by those rules.  The MLS is claimed to be preventing the free flow of information.  The MLS supposedly is restricting the number of buyer and sellers.  If true, these actions would indeed be anti-competitive.  The question is whether the claims are true or not.  In what market is it true?  If the MLS didn’t exist, would these factors be fostered more or less?  Would a national or super-regional MLS improve the competitive environment?  Under what circumstances?

    Much of the furor regarding the MLS lately is over the role the MLS should or should not play in the market for real estate advertising.  The lawsuit by the DOJ against the NAR mostly involves real estate advertising.  Many of those who complain about the rules and regulations of the MLS are those wanting better, cheaper, faster access to the MLS data so they can advertise it on the Internet.  Is the MLS fostering this market or making it less competitive?  Is the aggregation of the data possible on the same scale without the MLS?

    Of course, this was written before the settlement of the NAR/DOJ litigation over VOWs. Also, during the last 18 months, there have been several large regionalization efforts, but the majority of the efforts are focused on data exchange or sharing among MLSs, not broad consolidation. So, the value proposition of the local MLS seems to me to remain strong, providing for more efficient data exchange, lock box systems, and more to create the local real estate market. I don’t see that changing any time soon, do you?

    3 Responses to “Are MLSs relevant?”

    1. The MLS brings order to the chaos and turns a roomful of players into an orchestra. I think the “value” argument is largely being posited from a uninformed perspective.

      Now, depending on the local rules:
      * Who governs reasonability in the advertisement? Is the state’s attorney general going to bear that burden? That’s laughable.
      * Who arbitrates disputes? Again, without the mediating party (or at least mutually-agreed upon rules on how arbitration occurs), the only place to turn is civil court.
      * Who keeps the playing field fair? Even in the scenario of a super-regional or national MLS, you’ve effectively exchanged one oligopoly for another.

      … and the list goes on. Having observed the goings-on of the MLS as an insider (versus my previous experience as an outsider), I have a much deeper understanding of the vitality of the MLS’ role. Without it, you’d be at the mercy of person-to-person dealings without ready recourse. Could you imagine even cars being sold that way?

      Most of the arguments I hear to disrupt the “ecosystem” only result in shifting power to another player (and not to the consumer).

      -Matt

    2. Lisa Linn says:

      I was looking over the blog and I found it interesting to say the least. I have worked with a few “ex-real estate agents” who are actually anti MLS (those were the ones suprisingly enough that felt the commission rate I wanted to charge them was too high and felt I could make “enough” money with a much lower fee, guess they must not of thought their value was worth much, so maybe mine wasn’t either) I noticed in the article that there was no mention of commission as relevance to MLS entry which (I believe) also contributes to the general public’s view of this entity. Moreover, FSBOs having the barrier to all those “shiny” buyers that we enjoy as our clients unless they pay out a commission (which is why our Association office faced the FSBOs that wanted to get put their flyers into our agency’s boxes to try and use our services for little or no fees to them). In a way, I can understand the sentiment of “free flow” of information as it is in a buyer’s best interest and position to be knowledgable about ALL available properties that fit their needs without employing the services of a Realtor or agent who may limit the information fed to that buyer to only those properties listed in their MLS. But then it is our job to make these clients and consumers (both buyers and sellers) aware of our services and value.
      This in turn does encourage a market atmosphere wherein which those who employ the services of a reputable Realtor for, among other services, entry into the MLS may be more successful with their sale, lessened legal liabilities (since the liklihood of the accuracy of information for which the property is being represented) which could be as comparable as paying to have a good attorney for better chances of winning your case or a Doctor who is a specialist for a better chance of a cure. The MLS certainly is a tool that encourages competition in this respect as with the spirit of competition it is ultimately the participant that has the better tools and knowledge to use them that ends up the winner. Those who want to facilitate the death of the MLS are not understanding of that aspect of competition and would rather have the hard work of others to use as their tool, and that is definately NOT a fair playing field (that is cheating). . .

    3. rob aubrey says:

      The first and foremost purpose of the MLS is a co-op for brokers to offer compensation to another broker.

      Now with that said do I think the data should be kept secret? No, however it is not a public utility. It is a database of information that is paid for by it’s members.

      Now those dues paying members that understand that offering information to a consumer in the hopes of getting business are further ahead than those that don’t.

      But remeber it is still to offer compensation to a cooperating broker.