12 MLSs are the future organized real estate: that was the lukewarm consensus of a recent panel at Inman in New York. The general feeling of the speakers (MLS executives included) seemed to be that consolidation will end with a dozen or so large, well-run MLSs. Inman News headlined the coverage “Is Your MLS Doomed?”
Our host was on the panel and followed up here:
“The MLS is not doomed unless we fail to doom the vast majority of them. As an industry, we have two choices. We can either cull the weak from the herd. Or we can all perish together.”
“…not fast enough, not nimble enough. There are too many. You’re too small. And you’re too poor. Every MLS is run, even if it’s a for-profit entity, like a non-profit.”
This is going to be long, and full of speculation—you asked for Notorious, you get Notorious. Some of it is above my pay grade, and I’m sure you’ll let me hear about it.
It’s based on a presupposition that neither you, readers, nor I, necessarily agree with. Quality local MLSs may continue to serve their happy local customers. But consolidation could end in a configuration of MLSs that is beneficial or detrimental to the industry. And there is one path that could alter the paradigm of an MLS as a geographically-limited organization.
The MLS of today
Sitting in my comfortable, well-run Pacific Northwest MLS corner of the world, I don’t have a strong need for consolidation in my marketplace. But many brokers do–100 MLSs disappeared last year. There’s no denying that the momentum is growing and the avalanche is getting louder.
Consolidation is, by and large, a good thing for real estate. When done with proper planning, it creates broad cooperation in the sharing of listings, greater efficiencies, and economies of scale not available to a scattered network of “fiefdoms”, as R.O.B. lovingly calls the most remote outposts of our MLS empire:
“The total annual revenues of a 150-person MLS, if they’re charging around the industry average of $30/mo for the MLS, is $54,000. Can it even afford a part-time CEO? Or a couple of paid interns, for that matter?”
Too many, too small, too poor–that’s true for most small MLSs, but not necessarily all. Some small MLSs could become the exceptions by altering themselves radically.
Boutique, niche MLSs might charge their members 100x the dues of a normal MLS to keep their services high and keep the “others” out. It’s a cynical, counter-productive play for the industry as a whole, but I’d almost guarantee that some tony peninsula enclave will try it. Their productive members can afford it, and it would effectively build their protective walls even higher.
Let’s assume, though, the scenario where massive consolidation takes place. Will 6, 12, or 50 MLSs (there are 700 today) be the end point where we see maximum efficiency achieved in the industry? I’ve heard calls for super regionals, one MLS per state, even one per college football conference. The premise seems to always rely on geographic boundaries.
What’s the endgame?
And yet, when MLSs are defined purely by geography, the process of consolidation–in the name of efficiency–has an end point of one. If an MLS can absorb its sister city, its neighboring county, or its 3 adjacent states, why would it stop before finishing off everyone one of its counterparts? If it were to stop overtaking other organizations, what or whom would be responsible?
We’re clearly seeing the emergence of MLSs which can service multiple marketplaces effectively: CRMLS, Bright MLS, MFRMLS, MRED, etc. These organizations can segment compliance and interaction rules based on local idiosyncrasies and differing licensing laws, while still providing the cooperation, data, and tools necessary for their users across state lines. They’re less expensive. They’re more robust.
The process of large-scale consolidation seems to be proving that while geography might be important to an MLS’s administration, it has very little to do with a well-run MLS’s ability to service its customers.
This is where the internet audience screams “National MLS!”, and everyone runs for their tinfoil pitchforks. But a national MLS is a simplistic idea, and a terrible one at that. There are a number of reasons why, and it’s important that we continue to highlight them.
The folly of a national MLS
“Monopoly”, “public utility”–you think you’ve heard a lot of legal-speak from Rob so far? Just wait for the single MLS scenario. A single national MLS would immediately be in the government’s crosshairs. Luckily, I’m not an attorney, so I can simply report what a layman hears in the industry (“I’m just a simple caveman lawyer”).
No one I know who has thought through the broad consequences of a single national MLS thinks it’s a good idea for the industry. The federal government would be sniffing around like a raptor in Jurassic Park, testing every entry point for weakness and a chance to wreak havoc.
It’s not just government scrutiny that’s a concern. With one MLS, there’s no competition, no cost control, no alternatives to drive innovation. It’s bad business.
So if these dynamic dozen MLSs are left standing at some point in our future, how do we avoid that worst case scenario of consolidation into one? Brokers have been driving MLSs toward fewer organizations with greater geographic coverage. Why would they not continue gobbling each other up? The eventuality of a single MLS is actually the most likely scenario—these efficiency driven organizations have been built and trained to absorb one another’s territories.
Isolation by choice
Let’s also look at our panel’s proposed scenario where the 12 super regionals decide, for some reason, that their territories are large enough. Some yet-unnamed force (Hastur the unspeakable?) stops them from consolidating further.
There are still long-term concerns. If their footprints and their listing scope are defined by their differing geographies, each is again the only MLS service provider for a vast portion of the country, with no local competition. With such great geographic coverage, isolationism might become a viable business strategy. Nobody kicks up dust on anyone else’s turf, no one else has access to the local listings, so everyone just keeps their head down and cashes checks. Over time, stagnation would likely become the status quo.
So we have two scenarios: one in which there’s an unstoppable consolidation wave which ends in a single, unchallenged, massive liability called an MLS. The other is a handful of super regionals with territorially-limited listing data, and no in-market competition to push them for improvement. Neither sounds like the ideal endgame that we sought in our initial push for consolidation.
Is there a way to prevent either of those scenarios? Let’s define the goal before creating the roadmap.
Rob and Michael Wurzer of FBS had a great back-and-forth recently that highlighted the discussion around the core values of the MLS. The short version:
“The core value proposition of the MLS is that it is the lawgiver which regulates the behavior of real estate professionals to each other…..the basic value proposition, the WHY of the MLS, has not changed: certainty of behavior and transparency of the transaction.” – Rob
“…the core value of the MLS is cooperation, not the rules themselves. The rules are the agreement that comes from and creates the cooperation but that doesn’t mean the value of the MLS is from the rules themselves. I think the failure to make this fundamental distinction results in people thinking of the MLS as a burden instead of a value.” – Michael
There’s some chicken-or-egg here, but I have to agree with Michael philosophically. America is a magnet to people worldwide because of the freedom and opportunity it offers. The Constitution is a beautiful framework that ensures those benefits, but it is not in and of itself the core value proposition of America. Opportunity is.
That’s a bit heady for an MLS discussion, but let’s remember that the MLS exists for cooperation between brokers. Everything else is support structure.
Brokers seek consolidation for the efficiency of cooperation:
- Efficiency of standardized cooperation across broad geography
- Efficiency of a single source of broad listing data
- Economies of scale for improved services and/or lower costs
So how do we influence the MLS evolution to focus it on cooperation?
Data sharing agreements are the best example in our current marketplace. While they sometimes seem like intermediate steps toward consolidation, they achieve one of brokers’ primary goals—access to shared listings (cooperation across geographies).
Can we ensure that as MLSs grow to a significant size (yes, that’s vague), they continue to be open to mutual data sharing agreements? Is there a way to prevent the prophesied 12 from becoming isolationist at the cost of innovation?
Considering the vast range of ownership models of MLSs, there’s probably no fail safe. But imagine the effect of proactively recruiting all of the largest MLSs into a nationwide data share. MLSs end their geographic protectionism of listings, and focus solely on their services.
MLSs Without Borders
Let’s define what a nationwide data sharing agreement would look like today. Create a platform, or an identifying label, for MLSs that allows them to offer a standing agreement for standardized cooperation with other MLSs. Much like a RESO platinum identifier, an MLS with a nationwide data share certification could promote its commitment to a quid-pro-quo, open-ended offering of mutual data sharing. Member MLSs could quickly identify partners with similar motivation for data sharing, while not recusing themselves of their local administration duties for the cooperation of their brokers.
Let’s remember why brokers encourage consolidation: for improved efficiency and greater access to cooperative listings. Their motivation to push MLSs for further consolidation would be significantly reduced when the latter benefit has been fully achieved.
Some MLSs would still consume one another, but the nationwide data share would drastically decrease the likelihood of one MLS taking over the entire national marketplace. It’s much more likely that many MLSs would continue to exist, improving services levels and offering more value to keep their share of membership.
Brokers would naturally find the most value in the cooperation of their local MLS. But their ability to use nationwide MLS data from one source would be a boon to their research and tools. They could also hold their MLS’s feet to the fire if service levels diminish. Everyone would have the same data, and if the local MLS didn’t keep its brokers happy, they’d simply invite a new MLS into town.
Commoditized listing data = economical innovation
MLSs would still need brokers on their boards of directors and their administrative committees to ensure local policies are applied correctly. They would still need membership to guide the changing cooperation and compliance rules of the marketplace. But when they’re freed of territorial shackles by nationwide data sharing agreements, they are allowed, even required, to innovate.
I know a few gunslingers in the MLS community who would probably step right up right away to nationwide data sharing. Many seem to be promoting or emulating it in practice already.
In the big picture, if we’re selling our data to every 3rd party provider, but not sharing it with one another in the brokerage community, we’re pawns in the data game. We look like the Hatfields and McCoys shooting up each other’s homes, never noticing the raiders stealing our livestock in our absence.
Brokers, franchisors, brokerage networks—we should be the first to have access to nationwide listing data, and it should come to us at the lowest of prices. Territorially siloed MLS data within the brokerage community hamstrings our brokerages’ and our MLSs’ competitiveness. We’re not the only entities in this marketplace. (There’s your softball, Rob.)
And I don’t have an answer as to who runs the data sharing operation. Nor can I answer how associations should pit the value/income of their locally-owned MLSs versus the potential service improvement of a regional takeover. This is too long already, and I haven’t even mentioned RPR or Upstream. Sometimes you have to toss a rough-looking kite up into the wind and see if it flies.
In (lieu of a) conclusion…
The 12-pack MLS is neither assured, nor likely, anytime soon. Great local MLSs may continue serving their marketplaces well. Data sharing agreements may render the need for much of the proposed consolidation moot, or at least influence more proactive innovation by MLSs in a massive consolidation scenario.
I’m leaving you with questions instead of answers, but they are important questions for us to ask early in the consolidation process. The casualties from the botched mergers and lawsuits happening today are a black eye on our industry. They are the definition of inefficiency.
Allowing massive consolidation to happen without a philosophy in place to guide it could lead to scenarios that most of us would prefer to avoid, with momentum that we can’t stop. It’s important that we plan for these kinds of scenarios before we start eating each other alive without forethought.
Imagine nationwide data share…it’s easy if you try…
No border wars between us…just list and sell and buy…
Imagine all the listings…living in efficiency…y-yyy…”
Most informed readers in real estate, give us your thoughts, and thanks for your time.
Sam DeBord is a guest contributor to Notorious R.O.B., VP of Strategic Growth for Coldwell Banker Danforth, and President of Seattle King County REALTORS®
16 thoughts on “MLS Without Borders: The Consolidation Endgame?”
Good stuff, Sam 🙂 I’ll think on it though I’m having fun with the debate over on the Zillow thread. 🙂
I don’t dare tread on that thread. Good luck.
Great post! The objective can never be “bigger”. It must always start with faster, better, smarter, cheaper all of which may/may not result in bigger. The important thing here is for contiguous markets to have the discussion. Invite all of the stakeholders (Associations, MLS’, brokers and agents) to chime in. Regardless whether the decision is to create something new or let the band play on, smart people get together, ideally suspend judgement and make the call.
That’s 2,000 words boiled down to one paragraph. Thanks, David.
The conversation should be about “different” — not “better”.
You guys just don’t get its over done the RE establishment is over you can slap each other on the back and console each other with your lofty conversations in this and other blogs,I suggest you all start looking for a job that you qualify for,good luck and good riddance.
Top o’ the mornin’ to ya!
The natural trend may LOOK like “faster, better, smarter cheaper” as David says above, but over the long history of American business, we often find that simple mass consolidation doesn’t always deliver on all of those promises. American fast food and big box stores are arguably faster, smarter and cheaper, but not everyone considers them to be “better”. Some like but more variety.
The technology of MLS can certainly drive down costs, provide more robust and higher quality services, and deliver more accurate and timely data, but a homogenized toolset that limits competition doesn’t always constitute “better”.
Responsiveness to the broad range of broker participants, big and small, still has to be in the mix. Facilitating the relationships between businesses, big and small, still has to be in the mix. MLS is BOTH a data and relationship business, and relationship, one of the reasons MLSs were formed, is inherently local. Some element of local still has to be in the mix.
I am a strong proponent of consolidation efforts, and also of free and open and competitive marketplaces. Artificially closed markets and protectionism make for lousy MLSs. The promises of quality, accuracy, timeless and real market insights are paramount in delivering successful MLS services.
But so is relationship. And we have to strive to deliver on all of these.
Great synopsis, Rick. Relationship/cooperation is still at the core of the organization. Thanks.
First of all, I’m not certain that your assumption that the MLS industry is not already a monopoly holds any water Rob. Give me an example (other than maybe ATL) where there is a competitive choice for MLS services amongst the 735 (?) plus of them still out there today. Zero choices = monopoly. And, I do not agree that having only one, puts anything on the radar of the government any more than the current state of what the DOJ and the FTC are monitoring currently. All thanks by the way too the NAR’s mishandling of that whole mess years ago. Does anyone remember why the DOJ and FTC got involved back then? It was because certain major MLS members wanted choice (selective opt-out of IDX / VOW), so others in the MLS complained and the brokers were ultimately denied the right to do so. The result, VOW for all, forever. So I suggest that the biggest assumption you make incorrectly is that the brokers and agents that actually do something, as in take listings and make sales – and that would be not the MLS committee members – all agree that the MLS with its mandated, antiquated rules and policies would be their choice if there was a viable alternative to the MLS’s “forced everything.” The key word here is “choice.” Maybe that is why it was reported in 2015 that as many as 20% of all the listings sold in the U. S. were sold outside the MLS by MLS members. Hmmmmm. And, by the way, these listings were NOT FSBO’s. Given all that, and lots more, I think a big shock wave may well be “coming soon” to the good old MLS near you.
Thanks, Ken–I think you’re right that serious change is coming to the MLS world. We may just disagree on what kind of change. Either way, we can agree that “choice” is good, and MLSs competing and providing alternative choices to is good for business in general.
Though I’ve long thought something big is going to happen with pocket listings (http://geekestateblog.com/using-pocket-listings-shift-balance-power-away-mls/), I hadn’t heard that 20% stat before. It’s higher than I thought; makes me even more bullish on a pocket listing marketplace existing at a fairly large scale.
I’d like to see stats on pocket listings in a down market. A business model that thrives in a hot market is attractive, but if the core value disappears in an extended downturn, it’s a risky proposition.
Great post, Sam. About 10 years, I called this concept MDX for MLS Data Exchange.
That post is a bit dated now given some technology and business changes, but the core concept still resonates.
I knew someone in the MLS world would have this concept already–10 years ago! Thanks, Michael.
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