MLS Path Forward: Further Thoughts

Those of you who attended the CMLS annual conference in Salt Lake City have already heard the presentation that David Charron and I did at the close of Thursday. Hopefully, many of you downloaded the free white paper that we released and have or will read through our ideas there.

If you did not attend CMLS this year, but you’re still interested in topics in the MLS, you’re in luck. As it happens, I know the authors of the white paper pretty well. 🙂

Please download the paper at MLSPathForward.com. It’s entirely free.

But I also wanted to further clarify a few things, as those came up in conversation at CMLS afterwards. Many of these ideas are already in various posts I’ve written, but I thought it might be helpful to pull them all together in one place.

I will caveat that these thoughts are mine and mine alone, and do not necessarily represent the views of my co-author, David Charron. He may have his own takes on some of these questions and issues. These views certainly do not represent those of any of my clients, partners, colleagues, friends, associates, or my barber. Actually, my barber agrees with me, or at least says he does.

Let’s get into it.

The Gist of the Paper

In case you don’t feel like reading a short (32 pages, with lots of pictures!) paper, the general gist of what we recommend is as follows.

The MLS is under attack, and specifically, cooperation and compensation which is at the heart of the MLS is under siege. Off-MLS marketing, rise of institutional real estate, the NAR lawsuit, and government regulations are the four main problems.

The issue is, what can the MLS actually do about these threats?

Most of what I’ve read in the industry recommend things like working together, collaborating more, cut out the politics, or some general appeal to use technology as the answer. If it comes to the specific issue of Off-MLS activity, there have been more fruitful discussions centered around NAR’s Policy Statement 8.0, but none of those address the concern of what the MLS ought to do if, let’s say, the plaintiffs in thee NAR lawsuit prevail.

David and I thought that what was necessary was both a longterm vision of the MLS sans cooperation and compensation, as well as short-term action items that set up that longterm vision.

The longterm vision, as we saw it, was for the MLS to become the invisible operating system for real estate which enables other platforms and other software as well as organize the user experience so that the real estate professional can get her work done efficiently and effectively. That’s longterm — five or more years out, assuming the MLS gets going on that vision today.

The short-term action items are:

• Declare neutrality
• Insist that the MLS be the Primary Marketplace
• Embrace buyer data

The bridge between that and the longterm vision is for the MLS to embrace open source software, because it is impossible from a cost and transparency standpoints for the MLS to become the operating system without that.

That’s the gist of it. Obviously, reading the entire paper will give you a lot more. I recommend it. 🙂

The Primary Marketplace

Most of the questions and comments were about the Primary Marketplace principle. That seems obvious since Off-MLS and Coming Soon were the topics at this year’s CMLS.

As you know, I’m slightly opposed to MLS Policy 8.0 even though it is a big step forward because I don’t think it goes far enough. I think that Policy 8.0 forces the MLS into a concession that it should never make: that properties can be marketed outside the MLS at all, even for 24 hours, or even in an office-exclusive.

Here’s what we wrote about the Primary Marketplace principle in the MLS Path Forward white paper:

Second, the MLS must insist that it be the Primary Marketplace in its market area.

Primary Marketplace does not mean that the MLS be the only place where property information can be exchanged, where homes for sale can be marketed, and sellers and buyers are matched. Rather, Primary Marketplace means that the MLS is the first place where such things happen. The key concept is priority in time.

If brokers or agents wish to use their own websites to market their clients’ properties, because they believe their websites are better than any other, they should be able to, as long as that listing was put into the MLS first, thereby alerting the rest of the members that a property is for sale. If agents want to use private listing networks to market listings to agents they know and trust, they should be allowed to do so, as long as that listing information was put into the MLS first.

If a listing appears anywhere other than the MLS first, then the MLS is not the primary marketplace, and that broker or agent has violated the Participant agreement. It’s a simple rule, and has the benefit of drawing a bright line that is easily understood, easily defined, and easily enforced.

Note that the difference between the Primary Marketplace rule and Policy 8.0 is that there is no 24-hour grace period, there is no allowance for office-exclusives, and no allowance for one-to-one marketing. It’s a fairly black-and-white rule: if you market a property anywhere before it is entered into the MLS, then you’re in violation.

Thing is, and we didn’t include this in the paper, what we envisioned is that the initial entry into the MLS would be fairly minimal: whatever the minimum is that is required by the local MLS. We also advise the MLS to keep the minimum requirements very low, to make it easier on people to comply. Maybe address, bed/bath, and price would be enough; not even a photo should be required. Maybe not even price since some Coming Soon properties might have a range of prices instead. That should be fine.

The idea is that the Primary Marketplace rule lets other subscribers and Participants know that a property is or will be for sale. That avoids any embarrassment with clients who might call asking about 123 Main St. and the agent doesn’t even know that 123 Main St. is for sale.

If that agent wants to find out more information, then she is free to contact the listing agent/broker to get more information. Without knowing that a property is or will be available, she can’t even do that.

The Importance of Waivers

Closely related is the issue of waivers. I got a lot of questions on this, because people kept insisting that there are times when the client really does want to keep the listing information private, or does really want to “test the market” to see if he wants to sell at all.

Here’s what we wrote in the paper:

Waivers and Flexibility

Finally, the MLS will need to put into place some level of flexibility to allow Participants and agents to deal with the exceptions where off-MLS and Coming Soon are both justifiable and necessary.

The typical situations invoked are celebrity clients, divorces, or other sensitive situations where the client’s desire for privacy trumps considerations of wide exposure. We agree that there are situations where advertising on the MLS is against the client’s best interests.

However, we must stress that such situations have historically been rare, and usually involved high-end luxury properties and unique consumers. There is no consumer privacy justification for systematic and programmatic off-MLS marketing strategies involving exclusive inventory.

Therefore, the waiver process must be such that the exception does not swallow the rule. This is effectively what has happened to current Coming Soon processes. Be vigilant.

If a REALTOR has a celebrity client, she can request a waiver. If the client really wants only qualified buyers for a super-luxury property, go ahead and get a waiver. However, “testing the market” doesn’t really qualify for a waiver from the Primary Marketplace rule; letting other agents know that a property will be coming to market with minimal information would go further in testing the market than keeping it off the MLS.

To further clarify, I favor a flexible-yet-robust waiver process here. By that I mean the agent has to do real work to get a waiver.

Today, all that is needed is that the seller sign some standardized form. That’s not good enough in my book; it allows for too much leeway and ultimately, the exception swallows the rule.

I would rather see something more like this process for waivers:

• Agent files application for waiver along with a written explanation of why the waiver is warranted. Client must sign off on that written explanation. The essay portion is not a standardized form.
• MLS reviews the application, then contacts the client to make sure he understands what he’s asking for.
• If the client is fully aware of the pros and cons, issue the waiver.
• If the client is not fully aware of the pros and cons, issue a disciplinary notice to the Agent. At a minimum, that Agent needs additional training on fiduciary duty and informing clients. Repeat offenders get booted from the MLS because that implies trying to get around the rules rather than ignorance.

At the same time, if the same Agent or the same Participant brokerage is submitting a waiver on 40% of listings… that warrants a closer look. If the reason is that 40% of the Agent’s clients are celebrities, fine, no problem. If it isn’t… well… we have a clear attempt to circumvent the rule.

The Open Source Issue

I also got a few questions on this, because we intentionally kept that part of the paper short. We didn’t think we could get into the intricacies of open source software for an audience primarily of MLS business people and volunteer directors. So instead, I thought I would leverage previously created content.

This is a video I made of a presentation I gave at Clareity MLS Executive Workshop earlier this year.

If you would spend half an hour watching that, you should get a much better sense of why open source is the future of MLS software: cost, transparency, flexibility, etc. etc.

I’d just like to explicitly draw the line from open source MLS software to MLS as operating system.

See, to be the operating system, you need everybody else to trust you. After all, they’re going to be building their products, their platforms, and their software on top of what you have already built out. Sure, in theory you can have proprietary software (see, e.g., Microsoft Windows, Apple MacOS) then expose what you need to so developers can build on it, but in real estate, it’s difficult to imagine that happening. It certainly won’t happen with actual platforms by actual competitors in the marketplace, like a brokerage.

The MLS can be neutral, but by embracing open source, it further reinforces that point: you can’t really screw anybody over when your software is open source, which means anybody who can read code can go in and see exactly how you’re doing whatever it is that you’re doing. They can make sure that you’re not building in some backdoor security flaw, or shuttling data to some place they don’t know about, because they can read the source code.

So on top of all of the other benefits of open source, I think it’s important for the MLS to embrace it because then it has a far better chance of being the trusted non-competing party in the industry. KW isn’t going to build its platform on top of Realogy’s open platform, or on Zillow’s APIs. But all three might build on top of an open source MLS system knowing that they’re not going to get screwed.

There are other far more expert people in real estate who can advise you on open source software, but I just wanted to point out that we pushed open source as that interim middle step between the short term action items and the longterm vision because we didn’t see another way for the MLS to become the invisible operating system.

Finally, Timing

I also got some pushback on my strong stance towards the Primary Marketplace. I already debated Greg Robertson on this on our Industry Relations podcast. But I had more than a few late night conversations about this, so let me reiterate my point here.

It isn’t that MLS Policy 8.0 is bad; it’s actually pretty good. I have my reservations, but those are not the only important factors.

I don’t think the MLSs have a lot of time to mess around on this issue. I think the time is now, and the November NAR Convention is the place. I believe that the MLSs have to make a real push to get the Primary Marketplace rule or something very similar to it in place in November. If they fail, then maybe (maybe) settle for MLS Policy 8.0, but I think the MLSs should go for it all.

Why?

Because time is not on their side. Today, the MLS remains important enough that insisting that it be the Primary Marketplace — with appropriate actions to suggest to brokerages that they will change and become even better for brokers and agents in the near future — will work. Brokerages might grumble, but they’re going to stay in the MLS. Today.

I don’t know that remains the case a year from now. Two years from now. Compass has taken the lead in exploiting Off-MLS activity, and now companies like Howard Hanna are doing the same. With 8.0 in place, the feeling will be, “We did this issue already; let’s give it some time to see how things work.”

Problem is that the incentive in 8.0 is for all large brokerages to launch in-house systems that take maximum advantage of the 24-hour rule, as well as the “office exclusive” carve-out. If just the top 20 largest brokerages in the country go down that path, it isn’t as if the MLS is going to have more leverage. Once the largest brokerages decide that the MLS is a secondary marketplace at best, the leverage that the MLS has today evaporates.

Then we’re in a very different environment.

So as I told a number of people in Salt Lake City, I hope that the MLSs line up at the microphone during the NAR Multiple Listing Issues and Policies Committee meeting and push hard for the Primary Marketplace rule. I know it’s kind of a long shot, but I think they ought to try real hard to get that through.

Yes, it means talking to your largest brokerages, talking to other MLSs, talking to all your Participants, talking to the Board, talking to everybody to try and build that momentum. So be it. The time is now, and this is the hill to die on.

So, MLSs… get busy. You only have about three weeks. Get busy. Don’t sweat it, don’t get agitate, just go on rotate… anything you want you know you must get it.

Any Other Questions? Thoughts?

Let’s leave it there for now. I had a number of other conversations, but none are as pertinent as those four topics. If you have questions or comments of your own on the paper, or on anything I wrote here, please feel free to respond in the comments.

Thanks, and hope you found the paper useful.

-rsh