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What replaces the MLS? Advertising is a given. Compensation/ cooperation can be addressed separately. But the quality and quantity of the data is irreplaceable…

By: Greg Swann, Phoenix Real Estate, Post Archive, RSS Feed
Posted: Monday, October 16th, 2006, 9:38 am MST
Category: Blogging,Disintermediation,Marketing,Real Estate

Tyler Sookochoff ask these questions in a comment to another post, but my reply is long enough that I think it warrants a post of its own.

Marketing of homes aside, do you rely solely on your local MLS to do CMAs and price homes you’re hired to sell? Or could you survive/thrive without the MLS?

Too many questions conflated as one. There are actually three justifications for the MLS: Advertising, the co-broke — and protection of the earned commissions of “procuring” agents. The latter is what is literally meant by “cooperation” — all member agents agree in advance to respect each other’s client relationships, with a dispute-resolution procedure if they don’t.

If the MLS were opened up or replaced, would sellers still want maximum exposure for their properties? Yes, certainly.

Would this entail an offer of broker cooperation/compensation? That depends on whether the buyer’s agent’s compensation continues to come through the seller/listing agent, or whether the RESPA/HUD-1 procedure can be interpreted or revised to permit buyers to finance the buyer’s agent’s compensation as part of the home loan. (This is what is happening now, it’s just being done by sleight of hand through the seller and listing agent.)

Will brokers use whatever price information they have at hand to prepare CMAs? You bet — but not exclusively. Their own on-the-ground knowledge of neighborhoods and the comp listings, plus a first-hand inspection of the subject property are at least as important as any information derived from a database.

So the question is not, will I be stuck working without an MLS (commercial brokers often do, as do land and business brokers)? The question is, what form might a future MLS take?

For what it’s worth, I’m a skeptic on MLS-replacement for now. First, it takes an incredible amount of data to make an MLS listing worthwhile — more work than FSBO sellers might be willing to do, in many cases entailing knowledge they do not have. Second, significant details vary from one locale to another.

Witness: My friend and colleague Richard Riccelli is selling a triplex right now. What’s a triplex? In Boston and New York City, it’s a three-story apartment, condominium or co-op — any one of those three kinds of tenancy/ownership, details unspecified.

Where I grew up in Illinois, a triplex was three domiciles under one roof, each independently owned as a horizontal property regime (condominium plat), with the structure and grounds owned as a tenancy-in-common (I think; I would probably need to be licensed in Illinois to understand this kind of multi-family dwelling).

Here in Arizona, a triplex is a multi-family apartment property, three domiciles under one roof owned in fee simple by one owner/investor, who may or may not reside in one of the units. (We have duplexes, which are like triplexes, but we also have “twin-homes” or “gemini-homes”, which are like a duplexes in Illinois. To keep our brains unbefuddled, we have very few multi-story apartment-style dwellings.)

How many fields in a national database would it take to distinguish just those three (I’ll bet there are other types of triplexes), and how much knowledge of fundamental laws of property do you expect sellers and avidly-searching buyers to have?

Prognostication: A local professional MLS system like the ARMLS system here in Maricopa County is probably pretty safe. Access and syndication rules may change, but it is a real and useful database, not a joke foisted off on an unsuspecting public.

National toy-search systems like Trulia.com or PropSmart.com may do okay as advertising media, but they’re useless to professionals as home search tools.

National MLS-based systems like Realtor.com or realestate.yahoo.com are also essentially crippled, although they at least have a greater quantity of poorly-documented homes.

An hypothesized national professional-quality MLS system may come to exist, but I find this to be an extremely unlikely proposition in the near-term future. Data coordination would be a bear. An outage of any length of time would cause a recession. Eggs. Baskets. Hmm…

A national limited-scope aggregator of results re-syndicated from professional-quality local systems is a more likely possibility. But: Guess who owns those local systems?

The Trulia way of doing things — and the GoogleBase way — turns every listing into an exclusive listing, a giant step backward from the goal of MLS systems. But this problem would be addressed by severing the buyer’s agent’s compensation from the listing’s agent’s compensation.

In other words, the only “procured” client would be the one procured by a signed employment contract. If a represented buyer contacts a listing agent trough a Trulia link, the buyer nevertheless controls the compensation for his representation and pays the agent he is under contract to pay.

In that circumstance, the listing agent will need to decide how to respond, but the doctrine of procuring cause occasioned by the current form of the listing contract goes out the window.

That much I like. For the rest, hide and watch. If the Feds can limit their involvement to policing crimes, the market will take care of itself.

Assuming we don’t get Big Mother rammed down our throats, which will be hugely destructive, what we’re left with is this:

Advertising is a given. It not only will not go away, it will get a lot better, even though it will offer only limited detail.

Cooperation and compensation are easily addressed by other means. The need for dispute-resolution goes away if we can sever the buyer’s agent’s compensation from the listing agent’s fee. That leaves current MLS exclusivity as an anti-consumer cartel — kind of a nose-wide-open position to be in.

What’s left is the quality and quantity of the data in an MLS system, as against any would-be competitors. The more arcane data doesn’t travel as well as we might want it to, but it probably doesn’t need to in any case.

But: It would be a mistake to replace this depth of information with a more-shallow but more-user-friendly substitute. A true home search entails searching for the small details, not the big features.

The irony is, if we burn down the mission, as it were, my value as a professional home scout will go up, not down…

 
The divorced real estate commission file: This is an organic compendium of weblog posts and internet-based articles arguing for and against the idea of divorcing the residential real estate commission — eliminating the co-brokerage compensation from the listing agreement, with buyers contracting for and arranging compensation for their own representation. One way this might be effected: Lenders could permit buyers to expense representation on the HUD-1 form as sellers do now. The entries collected here represent the full gamut of opinions on what may be the most important issue facing Realtors today. To submit additional posts or articles for inclusion on this list, fill out the form at this link.


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    • 5 comments

    5 Comments so far

    1. Tyler Sookochoff October 16th, 2006 10:50 am

      Thanks for the elaborate reply, Greg! I agree that the MLS’s greatest asset is its quantity of info (Although, the quality is sometimes debatable). This is an invaluable resource for agents, and cannot (should not?) be easily replaced. However, as I tried to address in a previous post of my own, while the public may benefit indirectly from agents having access to this info, it doesn’t necessarily follow that the public (and agents themselves) find the MLS to be the grand marketing/advertising tool that it is often made out to be (Note: I’m not suggesting that YOU say the MLS is a ‘grand marketing tool’, I’m just reiterating a point I made previously).

      BTW, pretty impressive that Nadel contacted you directly. Keep fightin’ the good fight!

    2. Greg Swann October 16th, 2006 8:13 pm

      I agree with you. I wrote last week about home searches that have little or nothing to do with the MLS.

      There is this: when all you have is a hammer, the whole world looks like a nail.

      But: When you get really, really good at using your hammer, you can pound out good results with just about anything. The MLS is a wonderful answer to many. many questions you may never have thought to ask.

      I thought this bit was funny. If you’re a working Realtor and you don’t have a”fixer” bot, turn in your propeller beanie at once!

      Here’s a real challenge though, at least in Phoenix: Write a bot that reliably produces listings for home that are truly tenant-occupied.

    3. Real Central VA - Tracking the Charlottesville and Central VA real estate market and more » What if - the MLS went away? October 20th, 2006 3:21 am

      [...] Greg puts it succinctly (as usual): But: It would be a mistake to replace this depth of information with a more-shallow but more-user-friendly substitute. A true home search entails searching for the small details, not the big features. [...]

    4. FBS Blog » Blog Archive » Death of the MLS? March 9th, 2007 11:26 am

      [...] 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. [...]

    5. FBS Blog » Blog Archive » Raging Regionals March 14th, 2007 8:36 pm

      [...] We’ve installed over one hundred MLS systems and it never ceases to amaze me how different one MLS data set is from the other. Often, these differences are the result of opinion or local vernacular. In other words, the data isn’t actually different, but it is described and understood by the users differently. In these cases, the data cries out for standards. In other cases, the difference in the data structures is necessary to properly reflect the value drivers of the local real estate. The axiom that real estate is local has real meaning when it comes to data standards. Each community has unique data requirements that have been painstakingly created by the local MLSs and those data structures have enormous value (due respect to the Bloodhound and others who’ve pointed out the value of the deep data in current MLS systems). The RETS standards, however, present an opportunity to maintain the robustness of this local data while also providing deep and broad listing definitions that ease the movement of data to wherever it needs to go (more on this in a few paragraphs). [...]