I’m back from the week on the road, but about to embark on yet another week on the road… so wanted to get this short post up for your weekend reading pleasure.
If you’re not already subscribed to the amazing Scratch That podcast series from Emily Chenevert, CEO of Austin Board of REALTORS, you’re missing out. Go subscribe. In her most recent episode, she interviews Glenn Kelman, CEO of Redfin, and it’s a great conversation.
As I’m listening though, I have a thought that popped into my head. It’s a controversial thought, and one that most of us (myself included) would resist. But what the hell, let’s put it out there and toss it around some, shall we?
TL;DR: Ban private listings in exchange for total data transparency. Why or why not?
Let’s get into it.
Glenn Kelman Worries About the MLS
In the podcast, Glenn starts talking about the problem of race and real estate, but then brings up a really interesting concern: he worries the most about threat to the MLS. The concern is pocket listings, that part of the market can see what’s for sale, and the rest of the market can’t. The way to fight that is with an MLS with really strict rules around pocket listings, doesn’t allow it at all, etc.
What Glenn worries about is that as big real estate tech, Zillow, Redfin, Opendoor, Compass, etc. would compete against each other to try and get website traffic and use pocket listings, private listings, etc. as a way to do that.
The value of the MLS is to have market transparency available to everyone, and a simple comparison of residential real estate experience with a commercial real estate experience should provide proof of that.
It’s a valid concern. I’ve spoken about how the MLS is under attack from within with the widespread adoption of Coming Soon and pocket listings strategies by brokers and agents.
The Problem: Power
I’m not going to get into a whole dissection of core issues and such, since that’s overly long and complicated, but let’s just agree that the issue with any solution is one of power. Does the MLS have the power to compel obedience to a rule that bans private pocket listings?
The short answer is that it kinda sorta does… but that power is entirely dependent on the value of MLS membership. For most of our history, the MLS was a required utility to be in business, so the MLS had and still has enormous power. If the MLS bans pocket listings, then its brokers and agents have to decide whether they want to comply, or leave the MLS, which really hurts their ability to do brokerage.
But the companies that Glenn mentioned are not necessarily in the same place as brokers and agents have been for decades. Zillow likely has 100% mindshare in real estate search; every conceivable home buyer has, does, or will go on Zillow to see what’s for sale. Redfin has almost 30 million monthly unique visitors; it’s not 100% market share, but if anyone can do the Southwest Airlines thing in real estate (Southwest doesn’t participate in travel websites), it’s Redfin.
For that matter, dominant local brokerages and teams are also in a position where they do want the MLS of course, but it isn’t actually clear whether they NEED the MLS anymore to stay in business. Think about what Jill Herzberg of the Florida superteam The Jills said about this when she was asked about what they would do if they were expelled from the MLS:
“Theoretically, if any agent, including The Jills, could not use the MLS we would have to do business differently,” she added. “I could go on to anyone’s website and pull up any information I need. Any top producer has a website. Or you could go to Redfin. There are many different sites you could go to that pull up everything you need. So we would just have to rely on different things. You don’t have to be a member of MAR to be a real estate agent.”
“You can be a real estate agent and not pay for MLS. And be a real estate agent. Sell and buy and represent people and do everything. And have a nice business. So I guess I would have to just figure it out,” Hertzberg said. [Emphasis added]
Whether she’s right or wrong is actually immaterial. What is important is that she believes that she and her superteam can do business, sell and buy and represent people and do everything without the MLS.
So let’s say that due to Glenn’s concerns, the various MLSs promulgate rules that bans pocket listings. No more Coming Soon, no private listing networks. The goal is to ensure that the entire inventory is exposed to the entire market so that buyers do not have to wonder if they’re left out of some special in-group and sellers don’t have to worry that their agents won’t be able to market their homes effectively as they’re not part of any private networks.
In theory, that should work. Brokers and agents might grumble, but they’ll fall in line. They always have. The MLS is too important, too valuable.
But… there is or ought to be that sneaking suspicion in the hindbrain of the MLS executive: What if they don’t?
Noncompliance and Enforcement by the MLS
So let’s say, just to take an example, that Compass decides it’s not going to comply and withdraws from the MLS. In fact, it sets up its own property database and invites all and sundry other brokers and agents to join. Compass can even say that they’re following their principles: if Compass agents want to practice Coming Soon and pocket listings for their clients, then Compass is in the business of allowing their agents to practice real estate as they see fit. Who the hell is Compass to tell its agents how to do business, and who the hell is the MLS to tell Compass agents how they can practice real estate?
[Please note that I am NOT saying Compass would do this; only using them as a hypothetical example of a powerful and tech-savvy brokerage who could do such a thing.]
We already know that Robert Reffkin’s goal for Compass is 20% of the top 20 markets by 2020. In many markets, Compass has hit that and then some. So Compass takes all of those listings and withdraws them from the MLS. They offer bilateral cooperation and compensation to those brokerages and agents who join the Compass Listing Club, but without the huge number of rules and regulations and policies and whatever that the MLS requires. While they’re at it, Compass Listing Club has the best “MLS” software platform with easy to use search, listing entry, CMA products, etc. etc. and so on.
Now what? How does the MLS enforce its ban on pocket listings against a group of brokerages and agents who are not members of that MLS?
The answer is, of course, that the MLS does not. It is powerless against someone who isn’t an actual member.
And obviously, once other brokers and agents start joining the Compass Listing Club, using Zillow or Redfin to get the MLS listings that aren’t in the CLC, the value of the MLS plummets even further, which makes even more brokers and agents join CLC and leave the MLS, which in turn…. You get the picture. Once you start losing network effect and get into a negative feedback loop, the MLS is doomed.
The assumption that all brokers and agents will comply with the MLS is just that: an assumption. It’s not a bad one since brokers and agents always have complied… but there is always that first time that catches people off guard… to disastrous consequences.
So… What If… Big Daddy Got Involved?
As it happens, we know that the Department of Justice is currently investigating the MLS industry for possible antitrust problems. We know that the DOJ is focused on two things: agents steering buyers on the basis of compensation, and limits on data distribution. I assume the industry will fight any kind of government overreach, and argue against any kind of new regulation around either issue.
But… what if… in light of Glenn Kelman’s concern, and the fact that the MLS only has power over its members… what if the industry made a deal with the federal government?
The deal would be: ban pocket listings or private listings via regulation or legislation, in exchange for total data transparency.
I have already written and gave presentations on the idea that the DOJ is unlikely to do more than require disclosure and transparency on the part of the MLS. That makes eminent sense since disclosure and transparency are exactly what the Canadian Competition Bureau forced on the Toronto Real Estate Board, and that regulation survived years of legal review.
So if it’s going to happen anyway, what if the MLSs went to the DOJ and agreed not to fight that transparency regulation, if the Administration would also require (or recommend legislation that requires) that all listings be entered into at least one “federally licensed” MLS?
There are a myriad of ways that the Administration can do such a regulatory move short of actual legislation, which takes a long time and is uncertain. It can, for example, prohibit Fannie, Freddie, VA, FHA etc. financing for any property that was not listed on a federally licensed MLS. It can bring lawsuits against agents and brokers who do Coming Soon or pocket listings under Fair Housing Act, alleging disparate impact, which does not require racial animus. It can withhold federal funding from states that do not require that real estate licensees enter all listings into a federally licensed MLS. It can skin the cat in a lot of ways.
And there is no getting around that for any agent or brokerage.
Overnight, Glenn Kelman’s concerns are wiped away. The entire inventory, including rentals, would now be visible to the entire market.
In exchange, the MLS would need to start sharing, distributing, selling, or syndicating all of its data that does not have a real justifiable privacy or other concern. For example, showing notes might be protected since it might contain alarm codes or what times the family’s children are home alone. For nondisclosure states, perhaps sold data would be held private.
Even though I am such a non-fan of government action generally — being a libertarian does that — from a strategery standpoint, that kind of a deal might make sense. It’s making lemonade out of lemons that the government hands you.
After all, should the DOJ hand down some regulation requiring that the MLS make public all of its private data (with exceptions as above), there’s very little that the MLS can do about that. I mean, sure, NAR can bring a lawsuit challenging that regulation, but we’ve already seen how that played out in Canada. And while not required under jurisprudential rules, American judges and regulators do give some credence to how their Canadian counterparts think about things. So that’s an iffy strategy of resistance.
So if the MLS is going to be forced to open up the kimono anyhow, why not get something out of it? Why not trade data transparency for a data monopoly? It’s an easy argument to make.
“Yes, we’ll agree to share all of the data with the public, but to do that, we’ll need all of the data…. I mean, you don’t want the MLS feed that only has 30% of the listings do you? So you need to ban these private listing clubs and pocket listings and all of those things that hurt the consumer.”
With that one move, we will have enshrined the MLS permanently as a feature of American real estate.
The downside… is that we will have voluntarily invited the camel’s nose under the tent. Once the precedent is set that the federal government can and should regulate the MLS, can and should regulate real estate data… well, there’s no telling where that stops.
So… what’s your take? Would you make that deal with the devil? Why or why not?
17 thoughts on “Let’s Stir the Pot: Glenn Kelman and the MLS Issue”
With nationwide portals like Zillow, Trulia, Redfin and many others, do you think that the agents really need the rules and regulations of the MLS to get the exposure of their listings? Of Course NOT! As the commission fees are diminishing, the MLS will die a slow death. Pocket listings are everywhere within the brokerage offices. The agents who have those listings are exposing them to their own buyers, and to the agents in the same broker office.Those pocket listings are more attractive to buyers.The listings who are hard to sell, are listed in the MLS. The brokers love to have these pocket listings as it gives them the opportunity to double end the transaction.The MLS is an old business model who must be thrown to the garbage disposal and fast.
– I’m not sure the government can tell the consumer how to buy and sell an asset they own. There will always be paperwork (e.g. No Agency) that gives the consumer an option to do what they want, after all it’s “all about the consumer”. 😉
As far as Glenn’s concern about the MLS, IMO the Big Guys are trying to do a local business with big strategies:
“There was only a median of 12 miles between the homes that recent buyers purchased and the homes that they moved from.” NAR 2017
Mr. Kelman, you’re offering some great services, maybe think locally, then, when in control, roll out whatever you want. It’s a covert operation….
Run silent, run deep 🙂
Just my thoughts.
The government won’t tell consumers anything. They’ll tell real estate agents, all of whom have a job because of a license from the government, that they must do something. 🙂
Regardless of who tells who the “rules” – the whole mindset of telling the consumer how to buy and sell something – especially an asset they own, is contrary to the “consumer-first” push that I thought was the core problem to solve?
Maybe it’s not.
“ban pocket listings or private listings via regulation or legislation, in exchange for total data transparency” Sounds great, as long as it is not a NAR or MLS entity acting as the gatekeepers. They have never really earned the privilege in the first place. Just about all realtor tech originates outside of the realtor sphere, or is rented from a 3rd party vendor. They have lost any and all authoritative position over data, and it’s storage. And over and over, when there is a perceived threat to the industry, the typical knee jerk anti-competitive response is some idiotic “don’t let them have access to the data/restrict listing access”.
The Jill’s have the right direction in thought. Let’s be honest, most great agents/teams are hoovering up most of their buyers/sellers outside of the MLS, through social media and SEO. It’s not 1990 anymore… Putting some pictures online, with the deets of the property, and a “contact now” is stupidly simple. The ability to go on Fiverr and have some gig worker build out a bomb Zoho CRM/sales funnel, integrated with any social media site is …. what $200-$500? After that for listings, you create/clone a Fbook custom audience from every major regional broker/realtor/Reia entity. When you do that, for $15 you can create a bidding war overnight, non-MLS. Take your buyers fee and shove it.
Lockbox access? C’mon, a smart lock and an internet connected Rasberry Pi running local wifi solves that.
There are just too many other options for what the MLS provides.
REX is a shining example of that.
And let’s not forget, while Zillow, Redfin, Realtor.com are great for finding some of the active listings, if you are dead set on this, you still have to look at your underlying tax/assessor/sales data for comps and prospecting. Co’s like First American will sell you that, but will also supply much of the listing data like expired’s, canceled, ect along with the realtor notes.
“There are just too many other options for what the MLS provides.”
Yet, MLS’ persist. For decades. The only thing that will change that is if the core incentives are fundamentally shifted.
“Yet, MLS’ persist. For decades”
We’re already seeing the shift…. “for decades” there were not readily available tech options to be able to openly compete against an MLS system. Or the data. With a generational swing happening in real estate, and the new generation realizing that the average member of the previous generation is not that tech literate… or even literate to what “data” is out there (if it’s not already provided by an MLS) that is easily purchased/scraped, this will only intensify.
But hey, that comes from an industry where you do not even need to prove you that you completed the 6th grade…. just fall victim to any one of the recruitment funnels of a broker (recruit!recruit!recruit!), memorize the test, and you are now a LICENSED PROFESSIONAL. (just make sure whatever broker funnel you fell victim to does not include some scummy, anti-competitive ‘no compete’ attached to it for training you for the test)
This swing is already on prime display with the “disruptors”. They know most of the data is already out there, cheap and wholesale. After that, it’s just about being able to manage the data. Any broker/entity with a wholesale data feed from any number of aggregators, along with a quality database admin, will run circles around the competition without the same.
You could see it totally on display during the Brookings panel Mr. Hahn recently linked to, with Jack Ryan from REX. There were moments when … you could totally see him start to geek out, when talking about data at different points. There is this “zomg, this is so easy, and they can’t see it…” feel from them.
Pocket listings (and any relative restriction of distribution) are difficult to defend from the simple fact that those listings are not made available to ALL buyers — which seems to me to be a huge violation that the Broker/Agent requirement to operate in the best interests of their client: The Seller. While the occasional seller might want heightened privacy for some reason, most sellers I know what the widest possible exposure to increase the possibility of multiple offers. I’d love to hear the rationalization agents use to forego maximum exposure so that their brokerage obtains maximum profit.
You’ve touched on a topic that has always given me troubles; “all buyers”as a synonym for using the MLS. Sure there is a good case for exposure via the MLS, but why does MLS exposure necessarily transmit into maximum value and favorable terms for the seller? It’s a tough one to calculate with all the unknowns – like would the results have been different if I sold it myself? We don’t know that until the sale has closed.
ROB, since you wanted to “stir the pot” – let’s go for the highest temperature. The only reason anyone (in the biz) cares so adamantly about the MLS is because it’s essential for survival. If the players had a means to collect “all buyers” and a value proposition strong enough to attract the sellers – they wouldn’t need anyone but themselves to get the customer a fair deal.
That’s the conundrum – how to collect “all buyers” and attract sellers on your own? If that can’t be done the MLS is a great choice for clearing listings through the market. But, as we know, the Internet has changed the game and with it has come change – some will like it and many won’t.
It looks like, in this case, Carnegie Mellon was wrong when he said “put all your eggs in one basket and watch the basket” – of course, Mr. Mellon wasn’t around for the entrance of the Internet.
We’ll see 🙂
Interesting post with many points that agents in Bright MLS footprint have been discussing.
1) Does the MLS have the power to compel obedience to a rule that bans private pocket listings?
2) The fears of MLS systems(Boards that provide the local MLS service) are far different from those of the need-to-be-UNfragile Registered, Insured on-the-ground Buyer/Seller practitioner
3) Look again at the forced-evolution of the R E Sales Business(it’s NOT an industry) in Canada. Two big decisions/threats by BigBrother separated the Buyer Broker into a distinct service/function and distanced the amount of the BB’s seller-paid fee from being part of the Listing Broker’s liability. Recently Toronto Real Estate Board was scuppered at the Appeals Court by their own poorly played Defence of yet another Competition Bureau attack on the MLS-as-public-utility (which it isn’t).
I wish TREB had made the point that in the USA sold data IS released to the public, but only once the transaction completes – “pending transactions” are not.
The aggressor won/forced TREB to the release of private (Buyer & Seller) contract data to the public (with a very flimsy email data-membership prerequisite)
Well, I think you know how aligned I am on this thought pattern, Rob.
Just so happens that I’m hosting a webinar tomorrow about what happens when companies (like Compass or any other major brokerage/tech company) reach a certain tipping point in market share and unleash superpowers (ie: Network Effects) like the ones you wrote about. For an invite, aflachner at realscout dot com.
I spent quite a bit of time digging into pocket/off-market listings last year. For those interested in a landscape view (publish date was August, pre Pac Union-Compass merger): https://geekestateblog.com/the-2018-pocket-off-market-coming-soon-landscape/
I agree with Brian Hickey regarding the pocket listing, Brian said:”I’m not sure the government can tell the consumer how to buy and sell an asset they own.” I work in a rural area where I have read somewhere every potential seller knows 4.6 real estate brokers. I cannot count how many times I have had a potential seller tell me, “I don’t want to list my property yet but if you find a buyer that wants one like mine, I will pay a commission for a willing buyer.” That potential seller probably told a least 2.6 other agents the same thing. I think a “pocket Listing” is something that does not benefit the broker OR the mls, it something a seller thinks will help him or her sell quicker. Good, Bad, or Nothing, I think it is a sellers choice and the government has no business telling them how to get the job done.
Making it simple, makes sense.
The problem with the entire matter of whether or not the MLS should exist or will exit or can exist or may exist is overly complicated by the extremely antiquated rules and policies Rob refers to here.
This industry needs to simplify the way overcomplicated world of the MLS. And it needs to do it quickly.
Choice in the way the data is managed and the property is marketed is King. Never should there be a professional Association of an industry which is entirely fixated on membership growth with involvement in regulating the very competitive structure of how listings are marketed and who is allowed to sell those listings. What is needed now is a very flexible data management platform not an industry disciplinarian-driven system to assure the mandated cooperation and compensation of all members like the MLS. Things have changed and it’s time to move on.
Each listing is unique, it is taken under unique circumstances and the ONLY parties that should have any say in how the listing is distributed and managed by the data management platform are the listing broker and the Seller. No one else should have any jurisdiction or policy to mandate how a property is listed and who is able to sell it.
I get that 1.3 million Realtors need something to sell if they are incapable of getting their own listings but that is no reason to force those that do have listings to share more than 50% of the commission with a disparate buyer broker who just so happens to belong to the MLS.
The data management platform for residential real estate should provide a wide selection of options, NOT a narrow set of rules and policies.
If the Seller and the listing broker feel they need the assistance of the entire MLS to sell the listing, then so be it. If they decide that the listing broker is capable of selling it themselves, because they can, then so be that. And if those decisions vary with each listing and include a combination of assistance and no assistance or compensation or no compensation, then SO BE THAT as well.
The notion of assuring the payment by the Seller of the Buyer broker fees is also an example of a twisted, antiquated “custom.” And quite frankly, it has been so for years. Think about it. If a buyer wants or needs representation in a transaction, then they should search, locate and pay for it. And if they do not, they should then be provided with the ability to make an offer direct without a buyer broker or to make an offer through the listing broker. The Seller has no role is this assignment of services or for the payment of toe services.
So what now?
Change has a funny way of surfacing the inequities of antiquated systems. Those systems like the MLS that were designed years ago around entirely different business rules and now fall far short of all of the business requirements of a fast-changing industry.
And here’s the real problem and while the data management services should be freed from the grips of organized real estate and the MLS industry.
History has proven that whenever the world of organized real estate gets involved in the business of real estate you should expect an absolute and certain train wreck. And the MLS industry, as it is structured today, is a prime example of just that.
Its a real issue Rob and I’m glad you’re bringing it into the light. Redfin and Compass have standardized the practice of putting their listings on their sites before taking them active in the MLS. So, I think Mr. Kellman’s speaking out of both sides of his mouth.
I have spoken to MLS leaders in various states (CA, IL, DC Metro) and have not heard any real solutions. In fact, one MLS exec in the Bay Area told me his organization felt hamstringed to do anything about it because a Compass agent leads their board of directors.
This is a content war (a la Disney and Netflix) and is the new normal.
Coming Soon and Pocket Listings aren’t the same thing. They’re actually the opposite (one is transparent, the other is not). The confusion is why so many hate Coming Soon statuses, erroneously, in the MLSs, when they are designed exactly to battle the (actually evil) pocket listings.
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