Is It Complicated? Further Musings on the MLS

“No servant can serve two masters.”

- Jesus Christ, Luke 16:13

Judith Lindenau, a consultant to MLS and Associations with decades of experience, recently wrote a post in which she took up my modest suggestion of making brokers pay for the MLS. It’s worth reading the whole thing, as she presents some countering views both to things I have suggested, as well as to things I have not suggested.

I thought it worth musing on some of her points — as well as the points raised in the comments by luminaries such as Gregg Larson of Clareity and Victor Lund of WAV Group, men who have been in this industry far longer than I have, whose opinions I always take seriously.

In her post, she lays out two main counter-arguments:

  1. Making brokers pay doesn’t solve anything, and it’s been tried before and is being tried today by various MLS’s.
  2. The problems facing the MLS requires dynamic solutions, tackling complex issues such as governance, vendors, NAR policies, and the like.

As Gregg Larson puts it succinctly in the comments, “This is a lame discussion.” :)

Well, as much as I’d hate to extend a lame discussion, there is something worth exploring here, so I’m gonna indulge myself and do just that.

Making Brokers Pay

The first thing to address is the apparent uselessness of my suggestion. Judith did all of us a great service when she actually reached out to her vast network of contacts and asked about the idea. Here’s the result:

The response was a fairly resounding yawn. One industry analyst wrote, “I did read this (article) earlier, but I didn’t have a lot of interest in commenting on something that the industry talked about quite thoroughly 15 years ago or more.” An MLS manager said, “I wrote an essay on this topic back in 2004…nothing has changed.”  A former colleague reminded me: “I’m sure you can remember when many more MLSs were billing brokers rather than agents – we’ve been there, and we’ve done that and I don’t remember it making MLS more complicated when it changed. And brokers putting increasingly more responsibility on the agent for costs has been a trend that has only increased – a trend entirely initiated by brokers.”

Personally, I’m grateful to Judith for doing this.

But what strikes me about these responses is how the focus is on billing and cost-shifting, rather than the point of my post: Who is the customer?

The other thing that strikes me is the timeline: 15 years ago, the Internet was a little-known domain of computer geeks. In 2004, we were in the midst of the biggest property bubble the country had seen.

Am I alone in thinking that maybe things have changed a bit since those halcyon days, and that those changes force a re-examination of the question?

Re-Examining the Question: Who Is The Customer?

Thankfully, Judith goes on to provide some answers to that question. She interviewed a CEO of an MLS, and writes:

Bob, an MLS CEO agrees that the problem isn’t easy: “Fiduciary responsibility of an MLS is not as easy an issue to grapple with as it is in a traditional business. An MLS has many masters, all of whom must be served, sometimes to varying degrees at different times.

(1) Most are owned by associations, some of which expect a dividend payment (in a wholly owned subsidiary situation) or at least financial support (in a committee situation) from the MLS so they don’t have to raise dues;

(2) Brokers are the business owners that rely on the MLS to maintain a modicum of arm’s length control in an environment of cooperation between competitors;

(3) Agents on the street are the consumer of the lion’s share of the services the MLS provides; and

(4) Consumers are the beneficiaries of those services since ultimately they are the ones writing the checks (either to buy the house or to pay the commission). “

Bob’s final observation is one that all MLS administrators fully understand: “It’s the brokers who have the capacity to take their ball and bat and go home if they don’t like how the game is going. Because if they don’t like the practices of the MLS and no longer see a benefit but instead a liability, they will find another way to stay in business.” [Emphasis mine]

Reading that, I thought, hmm, I guess I was more right than I had thought.

I don’t know who this is (Bob Bemis of ARMLS? Bob Hale of HAR? Someone else?) but I readily grant that any of them have likely forgotten more about the MLS and the business than I ever knew. Let’s make sure we all understand that.

But sometimes, it does take a newbie unafraid (or uneducated) to ask seemingly obvious questions. So like a “highschool freshman who just figured out that pocket protectors and bellbottoms are oh, so yesterday” (to quote Victor Lund), I’m going to indulge further.

My proposal to make brokers pay had at its heart an attempt to resolve the distinction between customers and stakeholders. All of the above groups are stakeholders in the MLS to one degree or another. But not all of them are customers. It is this confusion between customer and stakeholder that lies at the heart of some of the biggest issues confronting the MLS (and the industry) today.

Take, for example, the issue of syndication compliance. How is a MLS to decide what to do on that complex, thorny issue? Balancing the interests of the Association (shareholder), the broker, the agent, and the consumer is well-nigh impossible. The shareholder might simply want more profits, so encourage syndication compliance if it’ll generate more income. The broker might resist it or embrace it depending on whether they do their own syndication compliance. The agent on the street might resist if it means less exposure for listings. And the buyer and seller might want as much data dumped on them as possible. Who knows? And we haven’t taken into consideration the interests of stakeholders like national franchises, of NAR, of the state and federal government, of technology providers, etc. etc.

The wisdom of Solomon himself is inadequate to the task of unravelling all these tangled skeins of interest.

Hence, Judith’s blogpost title: It’s Complicated.

Uncomplicating The Complicated

In my view, one way to simplify complex situations is precisely to ask, “Who is our customer?” Businesses that fail to ask and answer this key question cannot avoid real problems (see, e.g., General Motors). It is also my firm belief, as per the strategy consultant Jesus of Nazareth, that no one can serve two masters for long, or have multiple customers whose interests do not align.

A company should be thinking about the customer’s customer — but only insofar as such concern benefits the company’s own customers. In my scenario, if the MLS’s customer is the Brokerage, and the brokerage’s customer is the agent… then how a brokerage decides to “pass on the cost of MLS fees” to the agents should not be of ultimate concern to the MLS. That’s the broker’s business how he wants to handle it; the MLS’s business is to handle the broker.

Conversely, if the MLS thinks of its customer as the agent (since that is who pays the MLS), then thinking about the consumer is important (the customer’s customer), but ultimately, it is the agent’s job to think about the consumer.

Judith is correct that the issues facing the MLS are not subject to static solutions; for one thing, new problems will arise that require new solutions. I think her mistake — as well as the mistake of others — is in looking at the “broker pays” model as any sort of a static solution to any sort of a dynamic problem. It is not. It is, rather, a proposal to force a rethink of the fundamental guiding principle of any business: Who is the Customer?

With that principle firmly in place, it is possible to navigate difficult issues much more easily. Take the syndication compliance example above. Suppose that a MLS decides that the broker is the customer, period, end of story. The issue then gets simplified down to: How does syndication benefit our customer, the broker? One can do a survey, call around or whatever and get answers. And the ultimate test would be from the market: did we make more money (i.e., customers were willing to pay more) or capture greater market share (i.e., we got more customers) or save expenses (i.e., more profitability) as a result of offering out this service?

In that analysis, whether the Association did or did not want syndication compliance is ultimately irrelevant: they’re not paying you. (Indeed, as per Bob’s point, the Association as the shareholder is getting paid by you, and should be pleased if the service resulted in higher profits, and displeased if it resulted in lower profits.) Whether the consumers would be unhappy or not is irrelevant: they also do not pay you. Whether the agent wants far more syndication or not is irrelevant: they are not your customers.

None of this suggests, by the way, that any solution would be easy. Not at all. Solutions are difficult, and the simpler the solution, the more difficult it is to implement. But they do have the virtue of cutting through the morass of complexity to get to an answer, even if that answer isn’t going to make your life any easier. Keeping things complicated often results in no answers at all.

Two Problems

The first problem with this approach is (or should be), well, all that hardheaded capitalist gobbledygook is fine if the MLS is a money-grubbing corporation like Apple, but many MLS’s are nonprofits operated for the benefit of its members. What now, brown cow?

To some extent, my answer doesn’t change simply because the MLS is a not-for-profit vs. a for-profit. All that profit status means is that the earnings of a company are distributed to its shareholders. The actual business discipline of figuring out who your customer is, delivering value to them, and making a difference does not change. It especially does not change if the source of funding for your non-profit is not some foundation or government grants, but the members being so served. (As a matter of fact, if a nonprofit is supported primarily by grants, then guess what? Its “customer” is the grant-giving organization. Said nonprofit is highly unlikely to do things that are going to piss off the foundation officers and result in funding getting cutoff.)

The principle holds.

The second problem, and this is the more applicable one for us, is that the issue of “who is the customer” simply doesn’t have as great a resonance when we’re talking about monopolies. Who is the customer? Why, everybody. It isn’t as if a monopoly has to compete all that hard on keeping customers happy, since they don’t have a choice to go elsewhere.

But even monopolies have a limit. Bob’s last statement — that brokers do have the option to take their balls and go home — illustrates that at least for the MLS, an organic local monopoly, there is a limit to what they can do before one of their key stakeholders elect to do something else. But of all of the stakeholders, in reality, only one has the actual ability to break the MLS: the broker. The Associations that own the MLS might fire the management, but won’t destroy it; the agents might complain, but (assuming the copyright issue is settled in favor of brokers, via contract or other means) can’t actually destroy it; consumers can affect the agents and brokers, but they don’t even know what the MLS is most of the time.

For that reason, I feel it makes sense to make the broker the customer, the focus of the MLS’s concerns, and go from there.

Answering Judith

With that out of the way, let me comment further on Judith’s ultimate conclusions. She writes (and my response after each one):

1. It doesn’t make any difference who pays the bills, Rob. MLSs will never act as an efficient technology-based business service as long as the decision-makers (i.e., the board of directors) are neither business oriented (as opposed to being guided primarily by the profit and loss statements of their individual companies) nor technology proficient. User groups and technology-based business decision-makers are not the same thing.

As long as the decisionmakers behave this way, nothing makes any difference. I’m all for reforming governance, but if that’s her point, I wish she would state it much more directly and start working towards making that happen: convincing the existing Associations and Board members to step down, and change how the MLS is actually governed.

Having said that, should the decisionmakers one day become business oriented, they will certainly benefit from having clarity on who is the customer of the MLS.

2. There are only so many resources in any one organization’s bucket. We’ve spent most of our resources chasing after diversionary issues like this one. Real Estate is an industry in peril. Get used to it and address what we can of the real problems we’re all facing. Examine the dead elephant in the room—the corpse is getting smellier and smellier.

I’m at a loss as to why a simple, modest reform proposal would require some huge investment of resources. I’m also at a loss as to why failing to address the question of who is the MLS’s customer (and far more broadly, what role each entity serves in the industry-in-peril that is real estate) is a benefit to examining the dead elephant in the room. For that matter, I suppose I’m curious what the dead elephant is.

3. The current MLS dependency on single vendor relationships is one of our biggest weaknesses. Our vendors need to stay in business, sometimes at the expense of innovations which members require and technology makes possible. Data collection and information extraction, interpretation, and presentation are different things. It’s best if MLSs are not tied to a one solution provider for all of these functions.

I can agree with this 100%, but see nothing in my post that suggests MLS should only have a single vendor. Furthermore, I see no reason why a MLS can not both understand who its customer is, and go reduce reliance on a single vendor.

4. As MLSs, some of our most pervasive problems come from the NAR organization itself. The issues of who should be members of the real estate business community is tied to licensing structures and job descriptions which are outdated at best, and NAR’s insistence on antiquated geographical boundaries for servicing members’ professional needs has consumed an inordinate amount of our collective resources.

Again, I can agree with this 100%, and see no reason why “broker pays” is incompatible with reform in NAR. I assume this is an issue Judith is passionate about, and wish her much luck in addressing it. I can only imagine improvements here would help everyone out.

That Didn’t Help Me At All, Rob

A final note. I did not set out in my first post, nor in this one, to provide actual solutions to actual issues a MLS might be dealing with. Instead, I set out to suggest a method that might help organizations come up with actual solutions to actual problems. To me, clarifying the difference between customer and stakeholder, and then aligning the customer with the one stakeholder who has (I thought) the copyright to the data, provides the framework for thinking through the actual problems to find actual solutions.

But to the extent that anyone was seeking direct answers to their burning questions — as Victor Lund points out, “discuss something with a little more meat – how about Associations that pay NAR for ghost members to keep votes and seats at convention” — I apologize for failing to be helpful. I admit freely that I have no answers to ghost member corruption problem at NAR. But then, if you’ve been around a bit, you know I write this blog for myself, not for you, right?

And even to those MLS’s that do currently bill only the broker, that sets the groundwork for the real conceptual work ahead. Billing the broker certainly helps clarify who the customer is, but it doesn’t mean much if the MLS organization itself does not recommit to thinking of the broker as the customer, rather than just the administrative means by which it collects payment from its real customers. No, the conceptual framework necessary is just answering that question: Who is the customer? Then using that answer to think through complex issues and problems to see if answers can be found.

Much appreciate the discussion and debate, both here on Notorious and elsewhere.

-rsh