Home MLS & Associations Will Non-REALTOR MLS Be the Norm?

Will Non-REALTOR MLS Be the Norm?

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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?

Or even something like New York State MLS, which is owned by State Listings, Inc., a privately held corporation with (as far as I can tell) no ownership by brokers or Associations.

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.

Competitive Advantage

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.

-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.

12 COMMENTS

  1. I am always interested in your perspectives of the dynamics of the Realtor organization, namely the Realtor owned MLS’s and the value they present to its members. There is no question that the Realtor organization (MLS’s and Associations) have a huge challenge on their hands in trying to establish value to its members. Our membership is evolving and the status quo is no longer acceptable to many. The only hinge to your analysis is that MLS owned by Realtor organizations subscribe to set of ethical standards that govern themselves. An open forum in which sharing of data and offers of cooperation and compensation that are subjected to little or no standards of behavior is destructive. Every slimeball that exist in the real estate industry will be attracted to such a venue. No rules, no standards. Lovely. As a broker with over 100 agents cannot see value of practicing in that arena. All I see is headaches galore. No question the face of MLS’s across the country will change dramatically over these next few months or possible years. We will see. Keep up the good work. Its enjoyable to venture out with you in outer space.

    • As much as I want to agree with you, John, since saving the REALTOR brand is sorta one of my things, I can’t as it comes to non-REALTOR MLS. Fact is, there are rules and standards of behavior for non-REALTOR MLS: it’s called state law.

      One of the questions I ask during Association Strat Plan meetings is this: What do you require, whether via Code of Ethics or something else, that your state law does not?

      The answer I most often get is: you can’t criticize other REALTORS. If that’s it, then… well… ain’t much now is it?

      The other, related, issue is that as much as Associations talk about the Code and these rules and standards of behavior, enforcement of such is… let’s say “problematic” in many ways. I think Associations really need to tackle the ENFORCEMENT part of things before it becomes something of value even to those who adhere to the Code and take it seriously.

  2. Hi Rob,

    I don’t mean to be dull. Is there somewhere I can read more information on 1) WHAT the actual definition is of a non-REALTOR MLS and 2) more related reading on this?

    • Hi Taylor,

      You’re not dull. 🙂 AFAIK, there is no written definition of “REALTOR-owned” — although perhaps someone from NAR can provide links? I got my definition from NAR Legal directly.

      As to more related readings… can you be more specific? What are you looking for?

  3. Here locally we have what I consider a GREAT association/mls I say this as I ‘hear’ so many who don’t see any value in their association what so ever. Without an association who keeps us informed, offers continuing education as part of membership, maintains and repairs relationships with affiliates, stays on top of the latest and greatest to keep us current and competitive and the list goes on…..If an Association is not doing these types of things for their membership then I can certainly understand why a REALTOR would not want to pay…

  4. Was expecting to see more responses to this 🙂
    In either case, a non-REALTOR MLS could spring up regardless of the NAR policy change.
    We’ll see what happens. If anything, everything that’s going on these days certainly indicates that we’re getting closer to that potential reality.

  5. Since Upstream is stalled by politics, I bet that Zillow or Google will come up with “Google MLS” or “World MLS”. Zillow already has MLS feeds so adding FSBO listings, as Facebook is already doing, is the next step. It’s not hard to reproduce an MLS database. The hard part is advertising it to the public as THE Home Search source. FSBOs could even offer a Co-op commission. Enterprising agents could offer a “FSBO Package” including lockbox, custom sign, pictures for the World MLS, negotiation and contract analysis for a small, fixed fee. Also a referral to a “Virtual Assistant” and an escrow. Makes a 3% Listing Commission a hard sell. And Zillow already attracts Sellers with their Zestimate. Just like stockbrokers and travel agents, Sellers can go “direct”. Technology finally hits real estate!

  6. (WARNING LONG REPLY)

    Rob, Sam,
    This has been a very interesting discussion and I commend you both for bringing forward some great points. If one wants to see a functioning example of what a “non Realtor” MLS environment looks like, take a moment to examine the commercial real estate marketplace. The vast majority are not Realtors, have no interest in becoming Realtors, and will never belong to an MLS. Into this MLS-less void stepped several Commercial Information Exchange players over the years, Co-Net/Net-Star (aka Costar/Loopnet), Xceligent, etc. Equity saw a need and created a product for those who would pay to play. NAR has tried to compete a bit over the years with their various products, however they represent, at best, a miniscule amount of the commercial properties available for sale or lease.

    These CIE’s have no compensation/agency/ethics/arbitration agreements, it’s just information. Caveat Emptor rules the day. No geographic boundaries, anybody who wants to subscribe pays their money and accesses the information. There is none of the 1 joins, we all have to join mentality. Also missing is the patchwork of thousands of little geographic fiefdoms of controlled information that require membership. State law still applies, and brokers who are licensed “must” adhere to it (or hope they don’t get caught if they do something shady). FSBO/FRBO listings are often allowed.

    One significant difference between residential and commercial transactions that makes this sort of “Wild West” environment function is the array of support the principals have in making final purchase/lease decisions. When a pair of first time buyers walk into a perfect HGTV kitchen, eyes agog, hug each other, and envision themselves owning the home, they write the offer and away they go. Yes, there is usually an inspection/review/appraisal to work through; however, the primary connection to housing is visceral and emotional.

    A company relocating its headquarters can spend years of financial and human resource analysis, with committees and stakeholders having buy in on the process. Once a potential site is identified, it usually has to be approved by many layers of internal departments, as well as the financial and legal teams. Then there are potential governmental/zoning issues, along with build out and construction approvals, and a hundred other details that need to all align.

    It’s important to understand the role of the broker in the two transactions. In the residential model, the broker is (or should be…) fairly central to the process. They will put in a great deal of legwork in negotiations, inspections, etc. as homeowners are generally ill-prepared to handle this process on their own (regardless of how many youtube videos they watch…). Consumers often think that our primary task as brokers is marketing, but the more challenging part is getting things closed and jumping through the hoops to get there.
    In the commercial model, the broker is much more central to the process in its earlier stages, but loses some relevance as the transaction progresses. They initially control the inventory (aka pre-Internet MLS days), and some aspects of the negotiation, but then the final approvals are usually out of their hands. The timelines and process are more protracted and their ability to influence the final decision also wanes as things progress. Fees and GCI potential is much higher in commercial; however, the time required to find and actually close a property, along with the large amount of internal brokerage infrastructure can also add costs.

    Some CIEs are consumer facing, some are industry facing, yet one thread runs through all of them, proceed at your own risk. If the non-Realtor MLS model were to become common in the residential marketplace, brokers might actually find themselves being MORE central to the transaction, as nearly anybody who wanted to could put a listing up for sale/lease. Consumers would rely on the broker to navigate the transaction and discern wheat from chaff since the data may not be as “verified” as it is now with our current MLS rules/regs departments and their ability to fine/enforce standards.

    Speaking of rules/regs, a big downside would be a lack of transparency in listing information. Sellers with a “sort of” 3 bedroom house, that’s actually a 2 bed/loft combo would be free to list it however they wanted. That basement dungeon you have? Yep, it’s now called a bedroom…. So, while there may be cost savings for the agent initially in not joining NAR/MLS/etc, the additional time/resources it would take to verify things in the listings may far outweigh these savings.

    Another side effect might be a dramatic change to the way exclusive buyer representation agreements are used and handled. In commercial real estate, engagement letters are common, and expected. In residential, I’d be amazed if 5% of Realtors use them. Since agents know that if they show up with a buyer the MLS agreements will carve out some compensation for them and they usually refrain from using an EBA and just roll with it. If it’s X% or Y%, then that’s what it is. If there was no offer of compensation from a non-Realtor MLS, agents would need to VERY specifically lay out their services, fees, and compensation method when first engaging with buyers or risk not being paid at all. This could be a good thing, since we are already supposed to be doing that.

    I realize this has been a long reply, and hope nobody fell asleep prior to getting down here. Since it seems to be the trend to end these with a youtube link, and it’s Christmas/Chanukah, , I’ll toss one out here. Thanks again Rob and Sam and I look forward to continuing this dialogue.

  7. As a long time Association Executive and MLS Administrator, I can tell you that 75% to 80% members view Realtor dues with varying degrees of disdain – a vehicle to valued MLS participation/subscription. This isn’t germane to my locale and may come as a shock to some association junkies. Opening MLS participation, with no barriers, to non-Realtors would hurt Realtor membership but it makes perfect business sense. Rob, I would love to see your transition business plans.

  8. And now this: “Upstream will be available to all brokers (not only Realtor brokers),” NAR spokesperson Sara Wiskerchen told Inman.
    NAR directors surprised to learn Upstream not just for Realtors
    Board members say they would not have funded tech tool had they known it would be open to all brokers
    BYANDREA V. BRAMBILA Staff Writer DEC 12

    When I first proposed ending MLS Policy Statement 7.42 and creating “MLS of Choice” to NAR in 2016, my intent was to make MLS more attractive to more Agents. Ending forced membership through “Territorial Jurisdiction”, is a major improvement in the MLS.
    However, an unintended error is 7.43, where a REALTOR MLS must grant a waiver to any agent who subscribes to a non-REALTOR MLS. This is wrong. I believe this should be changed only granting a waiver to an Agent that belongs to a MLS that requires the member be a REALTOR.
    The intent of creating MLS of Choice is to allow REALTORS to join a REALTOR MLS that best meets their needs.

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