Seven Big Questions: The MLS Edition

17 thoughts on “Seven Big Questions: The MLS Edition”

1. Rob –
   in your first sentence you state “I’m honored to be asked to give the closing remarks at the Council of MLS conference in Chicago this year, taking place in Chicago at the end of September/early October. ” …but where is it? Is it in Chicago?

   I’m sorry, I could not resist.

   • Hehe, thanks for catching that. Fixed!

2. Rob – The simple answer is GOOGLE. They could create a system where agents pay a small flat fee to become a member of the GLS, or Google Listing System. This membership would provide the necessary agreement to share commissions with cooperating agents, which is the primary benefit of today’s MLS. That fee could be as low as $100 per year. Multiply $100/year times the number of active agents, say 1 million, and you come up with a potential annual membership revenue stream of $100,000,000. Agents would save around $900/year over the dues they currently pay to their MLS and to the NAR, and we’d have one simple, common system. Add in the ad revenue, and it’s a huge money maker.

   I think it’s already happening. Just do a Google search for any address, then click on the “more” tab and you can find homes for sale on that map that appear in Google Base. What’s your take on Google’s plan?

3. John, I think your answer is correct except that it missing one key, irreplaceable element: local standards enforcement. The reason why MLS data is so valuable is because it is so accurate and legitimate and this is because you have local people who check each listing and have processes to bring down the hammer on violations. Same for the cooperative commission system. You have to have local grievance committees to hear these disputes and enforce the rules of the game.

   I just don’t see how these things can be managed centrally. I think some things are just done better on a local level… like school boards.

4. I’ve written about Google and their unannounced plans for real estate, but I don’t think MLS is in that mix. As Brian Wilson pointed out, the main issue is one of compliance and data integrity. Google has zero interest in getting in that business, not for a piddly $100mm. That’s probably Google’s annual budget for flowers in their various offices.

   Plus, is there a real estate agent/broker in the country who doesn’t want Google to have their data for free anyhow?

   I think Google’s looking to get into real estate from the consumer side of the equation; they’re more than happy to work with the MLSs and the professional community they power.

   -rsh

5. Rob

   Inciteful/insightful as usual.

   If I were a marketing person I would insert a shameless plug for CMLS 2010, hosted by MRED here in Chicago – September 29-October 1 – http://cmls2010.com – where we will answer all of Rob’s questions, and more – easier ones like “What is the Meaning of Life?”.

   Brian is spot on when it comes to Google. Resource-wise they could put MLSs out of business in 6 months. But they certainly don’t want to get involved in the data accuracy, rules, enforcement and professional standards. That and the unbelievably low margins generated by MLSs.

   Rob does provide much food for thought – maybe I will write a book about MLS – or at least a gray paper.

   Russ Bergeron
   CEO, MRED LLC

6. Love it, thanks so much Judith. I’m going to see if I can edit your response a bit to put in paragraph breaks, etc. to make it easier to read for others. 🙂 See if Disqus gives me that right…

7. True! If I were a marketing professional, I might mention that anyone who isn’t attending CMLS 2010, between September 29 and October 1, taking place in Chicago, hosted by MRED, will be missing out on some of the best conversations and debates about the real estate industry taking place today. I mean, they might not even get to hear what is sure to be a fantastic wrapup closing remarks. Plus the parties.

   Boy, if I were a MLS executive, or someone in positions of authority at major brokerages and franchises, I sure would hate to miss out on the learning and the fun….

   🙂

   -rsh

8. Google has compliance and integrity checking built into their Ad Words service. Entering an ad that doesn’t meet the guidelines causes a flag, provides corrective suggestions and is held in suspense until corrected.

   Expanding that technology to include listings is not technically difficult, but it doesn’t fit their current model. That could change tomorrow.

   If a large, regional MLS wanted to scale up to accommodate a national footprint, it wouldn’t be technical issues that prevented that growth, rather political issues.

   RPR is an example of how quickly and easily the technology could be created. It’s only missing a listing load module and a few other features.

   So, if not Google and not RPR, then who? That $100mm might look good to someone. Any takers?

9. Over the years we have been members of MLS’s – from coast to coast. Our memberships are primarily used for gathering data i.e. what’s active, pending and sold. We happen to operate under the fact that most residential real estate transactions are done on a local level (buyers are within X miles of the seller). Therefore, we build local buyer networks (agents, pro’s and individuals) of a specific property type, infill redevelopment i.e. teardowns and rehabs, and then open access to those buyers to sellers of such property . Essentially creating our own MLS making the established MLS’s irrelevant – at least from a broker-to-broker cooperation standpoint.

   Some years ago, we actually attempted to create our own MLS with the purpose of getting our exclusive listings on to Realtor.com. We ran into a wall – it was made very clear, that while private ownership of an MLS was acceptable – it was not something that the powers at be wanted to make readily available to just anyone.

   So, in our opinion, while we pay our dues, many of the issues / questions you ask about the MLS – really address transparency, the value of information and the presentation of that information. We feel that ultimately, the wall that surrounds the MLS’s and their protectionism approach will be broken by local, regional and national marketplaces. Marketplaces / exchanges established to lower cost and create more effective and efficient transactions. Just take a look at what has been done with financial securities. First there was the NYSE, then the NASDAQ – now there are third and fourth tier pools that trade stocks and other asset classes seamlessly and at much lower cost.

   Let’s remember. We are all talking ultimately about a transaction. Sure, the asset, in most cases needs to be seen, touched and smelled – but at the end of the day, the transaction is relatively simple i.e. price, earnest money, closing date and financing contingency. Simple is in – information hoarding and “two” many commissions will soon be out.

   Brian Hickey
   President
   teardowns.com

10. Question 1: Geography and the MLS: How tied is the MLS to geography? As tied as real estate: Location, location, location. The DotMLS movement isn’t about MLSs though: it’s about marketing. It’s about web presence, and understanding that when a consumer types a property request into a search engine, he will use a geographic filter: “homes, Peoria”.

    Another major trend I see is that the MLS should be thought of in two basic infrastructures: (1) technology structure and (2) the business protocol subset. The technology structure is non-geographical by design. The inherited Realtor market areas established decades ago are outdated and useless—neither the consuming public nor the real estate professional cares what MLS a property is located in. Regional, state, even national databases solve that problem, by eliminating the geographical restrictions. Technology makes this possible, even desirable. The business protocol structure is a different matter: geography, local government, acceptable business practices are a matter of local concern and established tradition. In a business where competitors cooperated, practitioners depend on all participants understanding local custom.

    Question 2: Dealing with Loss in Membership & Revenues. This is a familiar issue: it deals with a change in the business model of the MLS, and is no different than the change facing newspapers. How do you keep a sustainable business in a changing time? One answer is you look for new revenue. Again, MLSs are stuck with a decades-old revenue model which is no longer relevant: not all folks who have use for (and will pay for) MLSs products happen to have real estate licenses. Data is an important product, as is advertising support products. MLSs are seeing this: as the traditional paying-audience/salesperson source shrinks, products must be developed and sold where the market is. By the same token, if the role of the Realtor association is to build an industry business network, it will have to expand its audience to include a wider range of players, including specialized professionals who may or may not hold a real estate license.

    Question 3: : What is the proper interplay between the MLS, the brokerage, and national companies (both franchises and others, such as Zillow/Trulia/Realtor.com)? Hey. If you are going to have a competitive business product, you compete. Certainly, a paying income source will go to the best product at the lowest price, loyalty be damned. To my mind, the MLS is in danger of disappearing—its geographical limitations, its inability to develop competitive products because of internal politics, its restrictive rules and fees—these will all assist the member in making other decisions about marketing listings and participating in successful transaction ventures. The threat is not from the outside, it’s because MLSs are not providing products which meet the needs of consumers, whether those consumers are members or the general public. Google, or some organization like it, will do it better, and very soon.

    Questions 4-5(it’s an artificial separation): are MLSs a competitive business? Answer: nope. A part of the issue is the governance—one can’t run a successful business by committee, especially not a technology-based information business. What’s the answer? Part of it is in the Board of Directors composition: in the MLS, real estate sales is only a small part of the product, and an increasingly small part of the target market for MLS products. So yes, get a board with technology and data professionals, and internet marketing specialists who understand things like search engine optimization. Let the sales practitioners be in charge of business practices, not data delivery. And form product user groups, not governance groups.

    Question 6: Can MLSs master the technology landscape? Short answer: NO. Most don’t function like a business—they have burdensome consensus governance, no research and development departments, and no real understanding of how to evaluate products and engage in meaningful competition. As younger, more sophisticated users emerge on the scene, the MLSs as currently structured can only lose paying audiences: they can’t keep up.

    Question 7: Who is the audience? See all the above questions. You’ll know the answer to that one only when you discover the answer to “what is the product?” And an ancillary question is, how can MLSs escape the traditional definition of the term ‘customer’, the definition that’s been in the pipeline since 1908 or so? How can we build business models that are, in fact, sustainable under current conditions of burgeoning technology, shrinking traditional salesperson/broker customer base, and increasingly demanding public pressure? MLSs have to do some serious thinking about the questions you raise, and they have to do so outside a very restrictive and no-longer-viable inherited tradition.

    Judith Lindenau, CAE, RCE
    Judith@judithlindenau.com

11. on question number 5, i am a big believer in the ability of profit incentives to reduce costs. it’s been proven time and again. i would go so far as to say that, if properly structured, the potential of profit can improve member benefits while keeping costs low, and finding innovative ways to boost membership. as long as none of the executives have names like Enron, Fannie, or Freddie on their resume 🙂 nice post Rob

12. Rob- I just wanted to say I look forward to hearing you speak at CMLS! I have never been to this event, but hear it is excellent. So I look forward to learning more about the things you mention from an MLS’ perspective.

13. Russ understands the priority of questions and anyone involved with an MLS who doesn’t attend CMLS is missing out on one of the more important meetings of the year.

    John Mitchener
    President
    Multiple Listing and Information Service, Inc.
    Las Cruces, NM

14. Here are a few responses just off the top of my head – which we all know is uncluttered. Might seem like a bit of a rant but I just kind of let loose with whatever was close to the surface so I apologize for the length of the post. Maybe Rob can run it as a seven part series. [Please note that the views expressed here are my personal opinions and do not represent the views of MRED LLC]

    Question 1: Geography and the MLS

    To those of us who think in black and white the answer to this question is simple. Local geographic governance and oversight is fine – handling rules violations, professional standards, data violations, etc. – but when it comes to the database then larger is better. It makes perfect sense to me to have statewide databases, and local delivery mechanisms and oversight. I will cite the CARETS model that we put together in Southern California (and hopefully further than that in the future) whereby a large geographic database was built from 8 MLSs, each MLS maintained its own autonomy and delivery mechanisms. The beauty for the end user was that they had many access points to choose from (different MLS systems, different desktop oriented packages, etc.) from many MLSs, yet only had to join one MLS to gain access to the entire CARETS database.

    The other aspects of a CARETS model that make it so successful are that in the CARETS scenario you have a standard database with standard field definitions, and standard rules. So to the end user it appears as if there is just one big MLS.

    This also answers the question for the smaller MLSs. It makes it easy for them to join (although we all know there is a lot of work to be done to accommodate a new database) yet keep their investment in whatever system(s) they are using, and enables them to keep their autonomy. It also makes it easier for them to merge into a larger entity. The old win-win situation.

    Question 2: Dealing with Loss in Membership & Revenues

    Whew! This might be the toughest to wade through.

    See my answers to number 1 for some ideas as to how MLSs may stay viable or merge into larger entities.

    Cutting costs is always a tough one. If an MLS is not already right-sized as far as staffing and expenses then I assume they can save by making some cuts there. As you know from your experience the cost of MLS varies considerable across the country – from low double digits to 3-digit numbers per month. There is also a compounding effect when you look at those MLSs that are board-owned and the MLS charges the board a wholesale fee, and the board then marks that up to a retail fee for the end user. This inflates the actual cost of MLS considerably when its goal is to help sustain the REALTOR organization and not the MLS – but it is always the practitioner who suffers the consequences. I know that associations provide services related to the MLS – billing, professional standards, etc. – so they have a legitimate reason for marking up the MLS wholesale fee. However, some associations use this as a windfall for fees over and above the MLS-related services they provide – sometimes to the tune of 300% markups.

    And the suggestion that taking over a smaller MLS will lead to more revenue is not necessarily true. The fact is, it takes as much work to convert a 1-member MLS as it does to convert a 10,000 member MLS (other than the training aspect). The amount of work to convert the database is absolutely the same for each conversion regardless of size. And the smaller the MLS being absorbed the less chance you will have of ever making up that cost because as we discussed above the fees won’t cover the expense – even over a 3-5 year time frame.

    This leads back to my statement in number one above – the standard database. If all MLSs were on the same standard then merging into one database could almost be done overnight. The initial conversion to the standard might be a burden but once it is complete, everyone benefits – the MLS, the end users, the vendors who would only need to program to one standard, etc.

    As to the evil master – TECHNOLOGY. Technology is coming at us so fast today that no one can even keep up with it – just look at the changes in mobility and social media. There is no way today that MLSs – who for the most part are working under the slimmest of margins, usually breakeven – can efficiently provide an R&D group sufficient to keep up. And even if they did – how do you get your customer base up to speed. All the focus seems to be on the under thirty crowd – but unfortunately that is not the MLS customer base, and it is not yet the customer base for the MLS member. Unless overnight you could have all of your customers be experts on every piece of technology and every new phone and every new social media site (last count they were numbered in the thousands). Why do you think a company the size of Google has not just put MLSs out of business? There is no money I it! I’m not sure where that $100 million number came from but I can pretty much guarantee that if you took all the profits of all the MLSs in the country and added them together it would not come close to that amount. And this affects the MLS vendors as well – read below where I talk about the past and you will see how the margins for these companies have come crashing down over the years as well, so they are also limited in how much R&D they can do.

    We are often compared to companies like Zillow, or Redfin or ZipRealty (the latter two are actually brokerages and are members of MLSs just like the traditional brokerages). But how many MLSs do you know of who have received VC money in the tens of millions in order to develop new products – none that I know of.

    Who wants a customer base of over 40s, over 50s, over 60s? And when you are a large MLS with tens of thousands of members, how do you make a major change in their behavior overnight? I equate MLS membership to a small city – how do you communicate with, govern and regulate that many people who are all different and expect different products and services from their government. It gets pretty expensive and again we are back to the very little that the average user pays for MLS service which could hardly be considered adequate to run a small city.

    I’ll give you an example of where we have come. In the late eighties and early nineties the average agent in Irvine, California was paying approximately $3,000 per year for their MLS service. Why? Because 1) there were more MLSs covering the same geography so they had to join multiple (sometimes 7 or 8) to cover their market area; 2) they had to pay to enter a listing into their home MLS as well as the outside MLSs they had to join; 3) they had to pay a hefty sum to have access to the MLS system, and even had to pay extra if they wanted to access form home, and of course they had to pay this to multiple MLSs. They paid all of this and what did they get – a dumb terminal, no pictures, no maps, and no tax data, none of the bells and whistles that are deemed a core part of the MLS today. Jump ahead and look at what is included in MLS systems today and it is like looking back to the dark ages – and the amazing part, the end user is now paying 1/10th what they did back then.

    So when we hear people denigrating the MLS industry for allegedly not doing what’s in the best interest of its members, or not keeping up with technology, we have to take offense.

    Question 3: Ancillary vs. Core Revenues

    Another sticky wicket. And again I don’t think there are any easy answers.

    The primary customer of an MLS is the broker. That is how MLSs began and that is who provides the raw material to build the MLS. Remember, without the tenants of Cooperation and Compensation the MLS database is merely that, a database which anyone could provide and if you go onto the Internet you will see that many have done just that (again with a lot/little help from VC money or from the mothership NAR). And those that you cited – Zillow, Trulia, Realtor.com – all use the listing content as the basis for their success – and how much revenue have they generated for the MLS? None. How much money have they put in the pockets of agents and brokers? I don’t know and couldn’t begin to figure that out. [NOTE: I sit on the advisory groups for both Trulia and Realtor.com].

    That being said if you were to view the MLS as an outsider you would think we serve the agent because they are the ones who use the products and services we provide. When we pioneered putting listings on the internet we blurred the vision a little more because we now included the consumer as one of the stakeholders of the MLS – and they got it for free. Again getting further from the broker.

    What have the brokers done? Many complain that we are giving away their listings, yet on the other hand the brokers turn right around and syndicate their listings to every possible web site out there regardless of the amount of traffic generated and without care as to what these 3rd party vendors might be doing with the content once they have it. Most of these vendors legitimately use and deliver the content as advertised, but that still does not ensure that the broker’s business is being well represented or even promoted. What have we heard for years “you use my listings and then make me buy back leads using my listings as bait”? Well that has to be a strategy for each broker to determine. The MLS can facilitate their wants by acting as the filter for dissemination of the listings but in the end the broker must decide.

    As to the debate about competing with the brokers with products and services I think you have a legitimate argument. However, it has always been my observation that agents don’t necessarily join a brokerage for the cool tools they provide – it is usually for their reputation and how big a split they are offering. At MLSs I have been with we have always tried to find a balance between what’s useful for all MLS members and what should be a product that could be purchased by the individual agent or brokerage. It’s not always an easy decision but in most cases it works. Can you get a good basic product for all members at a relatively low price? Yes. Can you then share with the vendor any future revenues for upsell of premium products? Sure. Is there a lot of money in this? Maybe yes, maybe no. Most MLSs are not staffed to have that marketing/sales department you talked about earlier, and if they do then much of the revenue they garner from the sharing goes into support staff and then help desk so the profitability is not necessarily that great. And my guess is that most brokerages can make the same statement.

    Three more areas to talk about here – MLS public web sites, Content Licensing and advertising revenue.

    The debate continues on the MLS providing public web sites. I am not going to get into any detail here but just want to say that if brokerages feel they are getting the bang for their buck on their own web sites they need to look at the numbers. An MLS has a good chance of being a popular destination because it is the “source” of the current and accurate data, and they are neutral. The example I always use is Sunday at the car dealer – you can wander around the cars but there are no sales people to bug you. And that’s all I have to say about that.

    Licensing. Another revenue source is the licensing of the MLS content. In the past this was limited to the IDX vendors or product providers who would license them data so they could offer products back to the agents and brokers. Recently we have seen companies offering to pay MLSs for content in order to use it in other industries (e.g., CoreLogic, LPS/RPR). The former applications like IDX were somewhat lucrative in that a large MLS might be able to collect an annual amount equal to a month’s worth of costs. The recent offerings are even more promising as far as the amounts talked about – whether they are realistic or not I am not sure. Some of the models are true revenue generators, where the others are offering products and services in lieu of cash. Whether it is in the best interests of our members to use their content to support publicly traded companies is not something I will debate here but it should be debated.

    Advertising. This is an area that is going to change the face of MLSs in the next year. If an MLS has a public web site that provides a perfect venue for all kinds of advertising models and can generate some significant revenue. But why stop there? Why not advertise on the MLS system itself? Why not advertise in any products that delivers information to your users or to consumers? Why not advertise on e-mails – AOL and Yahoo do it? Can we ever get to “sustainable” MLSs? That is, offer “free” (I can’t believe I said that) MLS supported by alternative revenue sources. How about selling naming rights to the MLS like football stadiums – The Home Depot MLS of Upper Podunk? Food for thought.

    Question 4: Governance

    As long as the MLS is a broker oriented service organization, my opinion would be that it needs to be governed by the brokers whose listings are used to feed the machine. Outside directors would be fine if they bring a special expertise to the table that was not readily available – but they could also be brought in as consultants as well. I know some MLSs and associations have the option to include an outside director. Don’t know how many have been successful. The ones that failed found that the person selected couldn’t take the time to be involved to the extent that our industry requires – which is not to say that our way is the best way.

    Bringing in someone from a big company like Google or Cisco would probably not be productive until such time that MLS boards (and some are very good at this) can become real boards focusing on strategic planning and financial oversight. Many MLS and association boards get bogged down worrying about a small expense item donating $500 to the local golf tournament. But to many people who sit on these boards $500 is a lot of money. It would be pretty embarrassing to have John Chambers sitting at the table debating this don’t you think?

    MLSs might not necessarily be set up as non-profit corporations, but the most that I am familiar with have a philosophy of not getting rich off the backs of its paying members. The result is as discussed earlier – low cost to members, but low margins to the MLS. I have often said – tongue-in-cheek – to the member who said that we were gouging them on MLS fees – just once let me charge you what the MLS is worth and I will never charge you again? I have had conversations with people from outside the industry about how much we charge for MLS service and they are amazed at how little we charge for such an amazing service.

    Question 5: Is the MLS a business?

    Greed is Good – Gordon Gekko, Wall Street (can’t wait for the sequel). In the case of our industry, I have seen it time and again that when there is profit, it gets fought over. Should the broker be compensated for their listings? Should the shareholder board get a dividend? Should profits be put back into the company in order to keep costs down? You can make an argument for everyone.

    But an MLS is kind of a benign monopoly. As you stated there really isn’t competition amongst MLSs because people tend to stay within their geographic comfort zone. With initiatives like CARETS you WILL see more competition because an agent/broker only needs to join one MLS to get access to the content. How do they choose? Might be the low cost alternative. Might be the MLS with the most bells and whistles. Will we see selling across MLSs? What if I want to join the low cost MLS but want to buy the super cool CMA that the neighboring MLS is offering? Lots of ways to handle this and I think you will see some creative ways of doing it.

    Question 6: Technology Issues

    I touched on this earlier and in answer to your questions the answer is yes. I think immediately financial is the overriding factor. There is always some political hesitance – and political is not the best term for this – I always refer to the four Ps that we are forced to overcome – Politics, Personalities, Paranoia and Protectionism – as being the anchors that way down the decision making processes in our industry.

    Technical not so much. We can all access technology but we can’t make all customers like it or even use it. Do we force everyone in the MLS to get on Facebook? Do we tell them we will no longer use e-mail but will only communicate via Twitter? The challenge as I see it is one of perception. Other sites out there look cool but our MLS systems don’t necessarily have the WOW factor. Do our systems deliver a good product for the money – absolutely?

    I always get a kick out of going to conferences like Inman Connect and listening to the young guns saying how out of touch the MLSs are and how antiquated our systems are, yet when they come to my office and I explain how our users need to access the information and what they do on a daily basis they get an new found appreciation for what it is we do. Too often a new company comes along with a technology looking for a solution, and I would prefer to work in the other direction.

    This is not to say we couldn’t use a jump start. Maybe as a group we go out and get some VC money and pump it into the MLS of the future (assuming we need one). I think with the work we are doing on creating data standards we will create an environment that will make development of apps that much easier and we can start taking advantage of new technologies as they present themselves.

    And how can we become more nimble in our decision making. Selecting products for example – in the past month I have a dozen IDX vendors, as many mobile product vendors, mapping vendors, etc. all wanting to get into the MLS space. How can we quickly choose which direction to take? We can’t choose them all, but it would be nice to get something out there to see what sticks. The problem with most of these companies is that they are operating on the same shoestring budget that we are so there is not a lot of play in what can be put out into a test market since the development and integration needs to be done prior to any rollout. Which again brings me back to standards? Do you see a theme here?

    Question 7: Who is the Customer? Who should be?

    This might be my favorite question. And my answer is – who the heck knows?

    You have put the customer in perspective pretty well. The only change I would make is that you need to break it into three categories – agents, brokers, consumers.

    At the agent level your 80/20 these days is more like 90/10 or greater. Historically 50% or more of MLS paying members do no business in a calendar year. With the market the way it is today that number is more like 60-65%. Why do they stay? Again back to cost – we have made the MLS so inexpensive that many of our members are “hobbyists” in the real estate space – the housewives, the retirees, the part timers with other full time jobs.

    Can we offer a basic service, and then a premium service for the top producers? Possibly? Should we charge by usage of the system – those who use it more pay more? Hard to do these days with the ease of downloading, etc. These have all been tried and worked or didn’t work. I don’t think anyone has yet found a happy medium.

    There ARE some products that lend themselves to top producers –and those are the ones associated with the transaction. Products like forms, eSignatures, and TM platforms are geared toward the top producers. But there are just not that many top producers. With people who actually have business only averaging 2-3 transaction sides a year there really isn’t a huge demand for transaction management outside of the manila folder.

    Brokers on the other hand – at least the larger ones are always looking for back office products that can help them measure productivity of their agents, profitability, lead capture, etc. Those are areas that traditionally MLSs have not been involved in, but could obviously work with brokers on.

    That’s all I have for now. Hope to see everyone at CMLS at the end of the month. Thx.

    Russ Bergeron
    CEO, MRED LLC

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