I’m not wrong often (although Sunny might disagree) but when I am, I freely and eagerly admit it.
The MLS of Choice change may be one of the times when I was wrong. I thought it wasn’t that big a deal: don’t charge people when they’re not using your MLS? Isn’t that a no-brainer?
It turns out, however, that the changes might be important. It might have huge consequences for the future of organized real estate. Or it might not. But I figure, let’s at least talk about it.
For the TL;DR crowd: The future of MLS may be non-REALTOR as they have major cost and operational advantages. If you are a REALTOR MLS, it may be time to think about changing that.
MLS of Choice Rules
In November, NAR passed changes to MLS Policy Statements 7.42 and 7.43. Please go read the whole thing if you’d like; I think it’s too long to reproduce here.
The relevant parts for us is the complete de-linking of the MLS’s service area (no longer called jurisdiction) and the parent Association’s jurisdiction, combined with the requirement that the MLS grant no-cost waivers to agents who show that they are subscribed to a different MLS.
The first change frankly encourages the MLS to expand its service area. There’s some verbiage about natural market areas and such, but those are encouragements only with zero teeth for enforcement.
The second change is to make sure that the MLS is not charging agents who don’t use its services just because they belong to a broker who is a Participant in that MLS.
Seems reasonable. Now add the non-REALTOR MLS to the mix.
The Non-REALTOR MLS
In most of the country today, this is simply not an issue. There are no non-REALTOR MLSs nearby. So it’s going to be one REALTOR MLS competing against another REALTOR MLS by expanding their service areas.
But what if one of those MLSs is a non-REALTOR MLS, like Northwest MLS in the Seattle area, or MLS PIN in the Boston area, or FMLS in the Atlanta area?
Under 7.43, a REALTOR MLS must grant a waiver to any agent who subscribes to a non-REALTOR MLS. (I double-checked with Katie Johnson, General Counsel of NAR, and got confirmation.)
That means the non-REALTOR MLS has a built-in cost advantage equal to the REALTOR dues charged by the local Associations: local, state and national dues combined. That’s roughly $600 per year.
This wouldn’t be an issue, except for the fact that most people see no value from the REALTOR Association. Many join it just to get access to the MLS.
Conversely, a non-REALTOR MLS is under no obligation to grant a waiver under 7.43 for the simple reason that it is not beholden to NAR’s MLS Policy Statements at all.
MLS Across the Land
As we see from NYS MLS, a non-REALTOR MLS was never bound by the old versions of 7.42. But they didn’t go expansion happy, I assume because every other MLS in the country had the same jurisdiction boundaries.
After these changes, we can expect to see REALTOR MLSs to start expanding its service areas and start taking out their smaller neighbors. That is, after all, the whole point behind the changes to 7.42.
Doesn’t the non-REALTOR MLS have a major advantage though in that kind of fight?
Say you’re a broker in a small 400-person Association & MLS. Your neighbor is some 15,000-member regional MLS. Now that 7.42 is changed, that regional can and will start expanding into your “territory.”
Keep in mind that you and your fellow brokers have been resisting Mr. Regional for years for whatever reason. You’re unlikely to be thrilled about this new state of affairs.
What stops you and your fellow brokers from approaching (or being approached by) State Listings, Inc. to setup or be part of a private non-REALTOR MLS? The technology can be run from anywhere in the world — a database is a database, wherever it’s located. The rules and policies can be localized easily.
And you save $600 per year per agent. (Yes, I know about the principal REALTOR rules, but it isn’t as if brokers haven’t abandoned REALTOR status in the past.)
The assumption in the new 7.42 is that the MLS will create service areas based on “natural market areas” but that assumption isn’t backed up with anything other than encouragement. There is absolutely nothing that stops even a REALTOR MLS in Texas from going to New Jersey and offering MLS services. Why wouldn’t a non-REALTOR MLS be even freer to expand as it sees fit?
What is an MLS Anyway?
That in turn raises the question of what an MLS is anyway. Is it just a database of listings?
Well, NAR defines the MLS this way:
A multiple listing service is:
• a facility for the orderly correlation and dissemination of listing information so participants may better serve their clients and customers and the public
• a means by which authorized participants make blanket unilateral offers of compensation to other participants (acting as subagents, buyer agents, or in other agency or nonagency capacities defined by law)
• a means of enhancing cooperation among participants
• a means by which information is accumulated and disseminated to enable authorized participants to prepare appraisals, analyses, and other valuations of real property for bona fide clients and customers
• a means by which participants engaging in real estate appraisal contribute to common databases (Revised 11/04)
Based on that, the MLS is a database with unilateral offers of cooperation and compensation, plus property valuation. That’s it.
Doesn’t seem like a terribly high barrier to entry, does it?
Someone like Top Agent Network could become a MLS simply by offering coop & compensation. And then all of its members can get a waiver from the local MLS.
Seems like it might not be as crazy as I once thought.
It is clear that 7.42 wants more competition between MLSs. That will eventually lead to consolidation. Those are worthy goals, which I’ve been advocating for years now.
But if you’re going to have competition, you have to take competitive advantages and disadvantages into account. As of today, there is no question that non-REALTOR MLSs have the upper hand due to the significant price difference between them and REALTOR MLSs.
Given that, and given that human beings are rational creatures who adjust to changed circumstances, why wouldn’t a REALTOR MLS seek to become a non-REALTOR MLS as quickly as they could for both defensive and offensive reasons?
From a defensive standpoint, a non-REALTOR MLS is far more able to compete against an encroaching non-REALTOR MLS. And for the same reason, a non-REALTOR MLS can attack the market share of REALTOR MLSs wherever they are located.
The sole competitive advantage of a REALTOR MLS today is the E&O insurance provided by NAR. Let’s just say that such insurance is not exactly unaffordable.
Why would a REALTOR MLS continue to hold on despite this reality, except for the fact that its board members are also deeply involved with the parent REALTOR Association?
Become a Non-REALTOR MLS
It turns out that a “REALTOR MLS” defined as 100% ownership by one or more REALTOR Association(s) according to NAR Legal.
That being the case, seems to me that every REALTOR MLS in the country should consider selling 10% of its stake to participant Brokers or some such thing. Of course, that’s not the big step; the big step is allowing people to join without joining the REALTOR Association. Outside of the Thompson states, that’s up to the MLS itself.
But still, if you have all the disadvantages and none of the advantages, that’s not a competition I’d advise getting into.
In fact, I might build some business plans with that in mind, to preserve the cash flow to the Association while turning the MLS into a non-REALTOR MLS….
Because if we’re facing a future in which competition, not jurisdiction, is the key to success, then it’s not crazy to think that the future of the MLS is non-REALTOR.
Your thoughts are, as always, welcome.