Death of the MLS?

Mar 9, 2007  |  Michael Wurzer

Over the last year or two, many people seem to be talking a lot about the “death of the MLS,” which is acutely important to us as we serve a lot of them. These prognostications seem to fall into three related categories:

  • Looking for a Newer, Shinier ModelSome suggest one of the new listing aggregators may emerge into a national listing service.
  • Raging RegionalizationOthers suggest that there are simply too many MLSs and that the number should shrink to one, or one per state, or one per MSA or some other model, but certainly far fewer than the 700 or so that there are currently. The primary reason large regionals are advocated is to reduce the burden large brokerages (which span bigger geographies) have in joining many different MLSs and dealing with disparate rules and data feeds. Even the NAR’s Presidential Advisory Group is advocating the possibility of a single “repository” of MLS and other data on real properties. Last week, I was at a conference and regionalization was a very hot topic, with many of the biggest MLSs staking out their positions in northern California, southern California, D.C., Minnesota and elsewhere. Who will be best positioned to create the national repository?
  • Legal Challenges — Lastly, there is the view that the antitrust lawsuit brought against the National Association of REALTORS® by the U.S. Department of Justice could kill the MLS. Regardless of the outcome of the case by the DOJ against the NAR, the brokers could simply decide to pack their bags and go home, leaving the cooperative atmosphere of the MLS behind.
  • I’ll be writing more about each of these theories in the coming days. There are some important insights in each and some very real pain or pressure points raised. At the same time, getting caught up in the hype of the arguments is easy, polarizing all sides.

    The popular approach is to bash the MLS. Only a few have reminded us that there remains some value in the services offered. We here at FBS believe there is more to say along those same lines, and we intend to say it here. (I’m hopeful readers don’t need to be warned that we’re biased. We’re entrenched in the MLS industry. We love the MLS industry and want it to continue for a long, long time.) At the same time, we’re trying to keep our eyes wide open. We are business owners, after all, and we need to adapt as necessary to continue to provide value to someone. That’s one of the reasons we’re starting this blog. We want to have it out full force regarding the future 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 facillitates 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?

    These are some of the questions we’re asking. In the coming days, I’ll be posting some thoughts and further questions to see if we can get a dialog going. I hope you join in.

    11 Responses to “Death of the MLS?”

    1. Matt Cohen says:

      There are so many interesting places to start the discussion. Let’s take your first example as a starting point – “Some suggest one of the new listing aggregators may emerge into a national listing service.” I do not believe that an advertising oriented site can hold a candle to the MLS and could easily emerge as one. It is one thing to declare oneself a “Listing Service” and another to deal with the rules and data compliance, resolution of disagreements and the myriad other functions a real MLS provides – functions crucial to facilitating high-stakes financial transactions.

      An Advertising Site is NOT equal to Listing Service. These aggregators, and many other sites that come up posing as MLSs when one searches for them in Google, do the industry and the consumer a disservice. They are at the heart of the consumer perception that they have access to the MLS and that they don’t need a Realtor, and at the heart of Realtors who ask, “Why am I paying for MLS – the consumer gets it for free on”.

      In Canada, there are legal protections for the term “MLS” and “Multiple Listing Service”. The value of those terms and the importance of what they represent is perhaps better understood there. It’s too late to provide the legal protection for those terms in the U.S., but hopefully MLSs are up to the task of making it clear that they provide value far beyond an advertising site “aggregator”.

    2. Following Matt”s thread …

      The MLS provides and orderly local market for Real Estate. There should be more “back office” business benefit (due to posted offers of compensation) than “front office” (advertising purposes).

      The future of the MLS might be influenced by the following definitions. When looking at “front office” (advertising) services, there are several primary functions:

      1) Distribution – Collect and send listing information to “Internet destination sites”. This is more than a feed of listing back to members.

      2) Publication – A “destination site”. The MLS might have their own, but the national trend is to let Brokers and Aggregators have this space. There are some MLS who do a great job in this space though.

      3) Lead Generation – Managing the process from “contact” to “lead”. A whole topic on its own. Matt was right, “there are so many interesting places to start”.

      Great topic FBS!

    3. The MLS facilitates competition by allowing any licensed, paying member access to the database. The large franchises need the MLS far less than the boutique real estate brokerages who, without the larger database from which to work, would be struggling trying to survive on their own inventories.

      Most of the debate seems to focus on the front-end side, as Mark put it. Some interchange the front- and back-end, which seems silly to me. They’re two very different animals. And putting a pretty face for p.r. purposes on the one isn’t going to eliminate the need for the back-office side.

    4. Looking forward to reading your blog. As president of a brokerage exclusively representing buyers I am acutely interested in discussions surrounding the currnet and future state of the MLS systems.

    5. Dan Woolley was talking about your blog at lunch today. I hadn’t had a chance to check it out yet so I was prompted to take a look when I got back. Dan was right, you rock! Good insight and looking forward to reading more.

    6. Terry Murphy says:

      Interesting stuff…. just a little hint when posting with WordPress. There is an Icon that says “Split Post” above your posting block. When you write a long post, you can insert this command after the first paragraph. The user can read the first paragraph and click a link for the entire piece. Allows readers to preview many of your posts from the front page..

    7. Brian Larson says:

      As for the benefits of the MLS, I think folks have already addressed many of them, and with most I would not argue. I’ve written elsewhere about the questionable value of inter-broker compensation, however. See this post that originally appeared on Inman News: (Despite the title of the article, I do not propose the end of MLSs, just the end of the idea that an MLS must have an offer of compensation associated with it.)

      I was interested when news about Point2’s NLS broke; Point2 said they are not competing with MLSs, and some industry commentators said they liked Point2’s model in part because it stayed away from being an MLS. But I think MLSs should be concerned about the offering. NLS may not be competing with most MLSs today, but it is doing now something that the MLSs should have been doing years ago: listings syndication.

      When a broker puts a listing in MLS, there is no reason she should not be able to send it anywhere she wants it to go; the MLS should facilitate that (for a fee, if it’s necessary). Too many MLSs want to decide whether each data recipient is “worthy” – substituting their own judgments for those of listing brokers. Listing syndication is a service that MLSs are ideally suited to provide; they can assure the quality of the data that goes in, and also the quality of its display when it comes out – stuff brokers are ill-suited or unmotivated to do themselves.

      Do we actually NEED MLSs for anything else? I don’t know. I’ll keep reading here to see.


    8. Brian, thanks for posting! I enjoyed your series in Inman and agree about the compensation issues. I’ve also got a draft of a post about Point2 coming. but a quick summary is: (1) there’s no doubt MLS systems should be helping brokers syndicate their listings to places like Google, Trulia, Craig’s List, etc.; and (2) the value the MLS brings over a system like Point2 is the critical mass from cooperation. Without the cooperation (not on compensation, but rather generally), you end up with a lack of predictability (who’s sharing with me today?) and that prevents critical mass from being reached. At least that’s the case so far. Take a look at Point2s listing numbers, you’ll see what I mean. What’s necessary is for MLS systems, like FBS’s, to do some of the cool syndication things that Point2 is doing and deliver control to brokers, within the context of the cooperation already established in the existing MLS systems. The big question that remains after that, of course, is the entire VOW debate, which is neither answered by Point2 nor syndication. That will be the subject of one of my next posts. 🙂

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    11. Neil says:

      it seems to me that the MLS is the last bastion of proprietary market information about what is for sale, in this instance houses. There will certainly be a time in the future when anyone can search listings without the involvement of a real estate broker who holds the keys to the MLS door. While brokers like to defend their turf with aggrandized versions of their value, the truth is that the actual functions they perform are low-value-added. They do not secure a title or insure it. They do not appraise properties. They do not inspect homes. They post signs, drive people around and serve as a communication go-between for buyers and sellers. Without their stronghold on access to properties for sale (the MLS), most would be out of business, much as stock brokers were put out of business when the Internet enabled retail investors to buy and sell stocks all on their own via technology. What if I had to pay a broker 6 percent when buying a blender on EBay, o even a more complex product, only because I couldn’t see what was for sale because EBay’s database would be proprietary? Same for stocks and bonds. What if I had to pay a broker a healthy commission only because I couldn’t gain access to the stocks for sale because they were locked up in a vault? All the brokers out there can get ragingly defensive, but their jobs are all at risk, and hopefully sooner rather than later – through legislation or market forces – we will all be able to see the inventory without signing a contract with a broker who will take 6-pecent of our hard-earned money for pushing some papers and driving people around. Even if I pay to list my house on MLS without a broker, then the buyer will not see it because the buyer has no access without a broker, so any buyer brough to me will still want 3 percent of the transaction. As I said, this last bastion of private information, in a world of open and democratized access to virtually any and all information, is destined to go the route of everything else: efficient, streamlined, Internet-enabled, buyer-to-seller direct transactions without the parasitical attachment of a broker who run away with three or six percent of the sale for adding virtually no real value.