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Good Standards Break Monopolies, Not Make Them

Sep 30, 2007 Michael Wurzer

The discussions across the country about consolidating MLSs rages on. In some areas, however, the focus appears to be more on who leads the consolidation than on the goals sought to be achieved. This conflict is similar to that created by Microsoft, which has created a de facto standard in many areas of technology. Some people laud the benefits of “standardizing” on Microsoft technologies and others recognize this as creating a monopoly and not a standard.

Similarly, to the extent MLSs advocate “their” MLS (system or vendor) as the “standard,” they are seeking to create a monopoly instead of competition. To some, reducing all MLSs to one system may at first appear to hold great allure. After all, as I’ve written previously, there are brokers experiencing real inefficiency (also known as pain) in dealing with multiple MLSs with many different rules and data formats, requiring entering listings many times, dealing with many different data feed formats, and paying many fees.

Reducing these disparities to one MLS certainly is one way to reduce these pains. The problem is that cramming all MLSs into one big one simply creates a monopoly and, eventually, the lack of competition will become stultifying and those same brokers calling for merger now will be crying for competition tomorrow when their interests ultimately diverge from those of the monopoly they created.

But there is a better way. Standards do not have to be created by choosing one vendor or creating one MLS. Rather, standards are about agreeing on the basics, the core, the non-competitive aspects of the business. For local MLSs, there certainly is an opportunity to solve real pain being faced by regional brokers by focusing on data standards (RETS) to allow single entry of listings.

If standards are followed, a listing can be entered once in any standards compliant system and then distributed to where the broker directs, eliminating the need for multiple entry points. Importantly, however, standards do not require choice of a particular point of entry (a monopoly), but rather enables choice among many standards compliant points of entry. This choice is what creates competition and competition is necessary to evolve the standard over time.

This last point deserves emphasis. Standards must evolve. Evolution requires competition. A single MLS does not enable competition. This is true for both the MLS and the vendors chosen by the MLS. One theory of regionalization says that if all MLSs were consolidated to one, competition could still occur at the vendor level. Vendors could code their systems to work with the “one MLS” and the many vendors that would be interested in this broader, bigger MLS would create more competition, not less. There is merit to this argument; it, too, has allure.

In practice, however, I believe the idea is flawed for two reasons. First, as I wrote a few months ago in a post called MLS Systems and Gateways, Front, Back and Middle, the need for brokers and agents to differentiate themselves will result in their selecting vendors that have capabilities not supported by the “one MLS” and so the goal of a single back end will be frustrated quickly by competition itself. Second, and more importantly, competition among MLSs is equally important as competition among vendors.

Despite being derided nearly incessantly over the last few years, the local MLS serves a critical function of providing true representation to the local brokers and agents. The local MLS can and will respond much more quickly to the local needs than will a monolithic state or national entity. The reason local MLSs have been attacked as being backward and inefficient lately is not because they are not responding to local needs, but rather because they are not responding to broader regional needs. The biggest complaints against the local MLS come from new entrants to that MLS, those trying to expand their markets from one region to another. When this happens, the brokers entering their next local MLS market see the differences from where they came and start cringing in pain as they recognize all the work they’re going to have to do to alter their business processes to accommodate the new rules, data formats, systems, etc. But the fact that these new entrants to the market feel ill-served does not mean that those who formed the MLS in the first instance feel ill-served. To the contrary, those whose home market is that local MLS more often than not feel well-served by their MLS. (If this were not the case, then they would change it. If anything, I think that MLSs should become even more local or micro, which would be possible with the distributed national repository idea I floated awhile back.)

Given that the local MLS serves a purpose in responding to local needs, the question becomes how to solve the pain experienced by new entrants or larger regional concerns? The answer? Standards, of course. By supporting standards, the local MLS can accept data input from other MLSs, reducing the need for duplicate entry, and ease the pain of processing data being received from the MLS. I also believe local MLSs could work better together on more common rules. This is one of the main reasons I started the Future of MLS Wiki. The Wiki hasn’t gotten a lot of traction yet, but often good ideas take time. 🙂

To those that would argue that such broad standards are difficult to achieve, I would agree. However, agreeing on broad and deep standards is easier than forcing mergers on unwilling participants. Moreover, the standards process is far less costly and could be executed faster than the politics of merger will allow. Most importantly, though, merger results in monopoly and that is the biggest cost of all.