Home MLS & Associations Dear Realogy: What's Stopping You?

Dear Realogy: What's Stopping You?

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This is a brief note that I would have put on Facebook or something, except that such things get lost in the tides of time and Facebook’s rapidly scrolling updates. I want to be able to refer back to this at some later point.

At the recent NAR Leadership Summit, there was a panel of major brokerages and franchises. All of the panelists apparently expressed dismay at the number of MLS’s there are in the United States. Then Alex Perriello (my old boss, back in my CBC days) suggested that consolidation happen through acquisition.

From the Realtor.org story on the event:

Talk of a common platform quickly segued into a discussion of how many MLSs each of the large brokers had to join—and each of the panelists, at some point in the discussion, expressed support for MLS consolidation.

“It certainly makes sense for MLSs to start consolidating,” Peltier said. He suggested several smaller MLSs from the same region could partner to create “a consumer site that does not pick winners and losers,” referring potential clients back to the listing broker’s site.

Perriello caused a stir in the audience when he suggested that MLS consolidation should happen “through acquisition,” with larger MLSs taking over smaller ones that aren’t able to adapt.

“It is an exit strategy for some of them,” he said. “People won’t voluntarily say, ‘Well I think we’ll just close up shop.’”

Perriello reminded brokers that they can leverage a history of cooperation that real estate professionals in other countries can only dream of.

“The majority of brokers around the world do not have the benefits of MLS,” he said. “Competitors don’t even talk to each other much less cooperate with each other.”

Well, as someone who has actually spent time and energy and taken major professional risks to drive MLS consolidation via acquisition, only to run into the brick wall that is MLS governance in the 21st century, I have a suggestion in the form of a question.

What’s stopping Realogy from making offers to MLS systems today?

In Q2/2014, Realogy posted $1.5 billion in net revenues, with $269 million in EBITDA and $68 million in net income. Realogy also posted $198 million in free cash flow in the three months from April through June. It’s also a public company, who can offer stock in any acquisition.

I’ve heard Alex and others from Realogy complain about the MLS, about how many there are, about the need to consolidate, etc. etc. for a few years now. So here’s my suggestion.

Start buying the MLS yourself.

You have the cash. You have stock to offer in any deal, so the seller (usually an Association) has upside to look forward to. You’re part of the industry. You have deep talent in managing businesses. Go make an offer, especially in those large metropolitan areas where the NRT is active.

Start with MRIS in the DC area, which is a for-profit entity owned by twenty-some Associations. Offer them $150 million in cash and another $150 million in restricted Realogy stock so that those shareholder Associations can enjoy the upside of Realogy’s stock price rising.

Why not? What’s stopping you?

To those who say that the MLS can’t be owned by a brokerage, since its competitors would flee… there are three major MLS systems I know of (and others likely exist) that are broker-owned: MLS PIN in the Northeast, FMLS in Atlanta, GA, and NWMLS in the Seattle area. All are broker-owned, and the competitors have not fled the system. But if competition is going to be an issue, that’s easy to solve as well.

Offer to sell to brokerages in the affected MLS area shares in a new company that owns the MLS. So Realogy invests $300 million (in the hypo above), forms RealogyMLS to own MRIS, then sells $200 million worth of shares in RealogyMLS to other brokerages. Done.

If you need someone with actual experience in trying to do such a thing, I’ll be waiting by the phone. Or not, as the likelihood of actual action is probably in the neighborhood of the Jets winning the Superbowl this season with Geno Smith at quarterback.

The fact that this seems fanciful should alert us all to just why MLS consolidation remains a favorite talking point, but not an actual action point. We might all wonder why that is.

-rsh

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Rob Hahn
Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.