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 Regionalization — Others 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.