The MLS’s Guiding Star for Consumer Transparency: North by Northwest

North by NorthwestAn ever-present challenge exists for real estate’s Multiple Listing Service industry: provide transparency for real estate inventory, services, and costs to consumers. The MLS in North America has consistently met that goal and continues to improve upon its pro-consumer outcomes. It is the most transparent, liquid, and pro-competitive real estate market in the world. 

The MLS today has another opportunity to proactively strengthen that status. The current atmosphere is unfortunately clouded by negative storylines fueled by organizations sowing misrepresentations about MLS rules. But these mischaracterizations shouldn’t cause the industry to slow its efforts to create greater transparency and competition.

The MLS industry can coalesce around a slate of improvements to be moved forward. If broker and consumer transparency is the MLS’s north star, I’ll propose calling this the Northwest Star Slate, as many of its components have been pioneered and proven out by Northwest MLS in one of the most diverse brokerage environments in the industry.

Disclosures and Caveats

The author is biased. I’ve been a managing broker in Seattle for 20 years, working in the NWMLS market. I, my team, and the hundreds of agents I managed have worked under these rules. I’ve spent many years working with the National Association of REALTORS creating policy for MLS and technology. These suggestions are not a critique of current policy efforts by NAR, but rather a vote of support and an exploration of expanding current efforts. NAR is driving its membership toward transparency.

The Northwest Star Slate

There are a significant number of policy and rule changes which will propel the MLS industry forward in its consumer-focused efforts.

Many of these concepts are already proposed by NAR’s MLS Technology and Emerging Issues Advisory Board and will be considered by NAR at its annual conference in November

Currently proposed concepts for MLSs:

  • Advertise to consumers the commission that is being offered to buyers’ agents
  • Don’t filter consumer-directed listings based on the listing brokerage or commission offered (provide access to all listings for all consumers)
  • Be transparent about costs: buyer agent services are not free, and should not be advertised as such
  • Publish listing broker (and/or listing agent) contact information in consumer displays so they have more information and can choose who to contact

These efforts will be debated and adjusted by NAR’s Multiple Listing Issues and Policy Committee, according to feedback from industry stakeholders. They could go before the NAR Board of Directors for ratification.

Adding Weight to the Slate

Some additional concepts, which might be deemed more controversial, address consumer transparency and business competition head-on. Industry momentum toward adopting these practices would confirm that the industry has its full attention on these issues. Those include:

  • Provide sellers full exposure: Brokers participating in an MLS must provide full MLS exposure for all clients’ listings, outside of provably exceptional cases. Ensure consumers receive the full benefit of the MLS.
  • Allow sellers full choice in compensation: Brokers are not required to offer a commission to a buyer’s agent on an MLS listing. Let the sellers and brokers decide what works best for them.
  • Allow brokers to give full results in displays: Brokers are always allowed to commingle listings from multiple MLS and non-MLS sources in searches and displays. Give consumers an efficient experience with the most inventory.

NWMLS has already implemented all of these practices. The marketplace has continued on in a healthy fashion. Brokers continue to provide services to consumers at a high level. Consumer access to information and more efficient property searches has grown.

Breaking each of these concepts down will show why MLSs and brokers should not fear these changes, as they improve the level of service professionals deliver and the outcomes that consumers experience.

Full Exposure for All Listings

Almost every seller of real estate receives better terms on the sale of property when it’s exposed to the full marketplace. Whether that seller wants a faster sale, a higher price, an all cash offer, or some other specific result, a larger buyer pool provides more opportunity for a better outcome in all cases.

Celebrities and unique consumer situations can warrant limited exposure for a tiny sliver of the population, but these exceptions should be treated as such and only be granted upon scrutiny. Traditional practices of selling homes in-office or through word of mouth are demonstrably less effective for consumers. They’re also significant concerns for fair housing access.

The hurdle: Since the 1970s (don’t quote me on that), NAR has had a policy on its books that allows for what’s known as an “office exclusive” listing. Brokers use it to keep a listing in-house and only advertise it within their own brokerage. The policy existed because this was one variety of business practice that was believed to allow for competition in different kinds of services for different kinds of brokerages.

Its outcomes today, however, are a net negative. It ensures the ability for brokers to provide limited exposure services to almost any consumer, often to the detriment of the consumer. Without qualifying the extremely rare instances where a limited exposure service is warranted, this office exclusive model has become a default sales tactic of some brokers, increasing their in-house transactions, commissions, and captive inventory. All evidence points to it being a net negative to the seller, financially.

The solution would be for NAR remove the office exclusive provision, and provide for a rigorous exception process such as the one NWMLS employs. Participating brokers would be required to share their listings with the other brokers in the MLS, unless they can prove to the MLS staff that their client has a truly unique situation that warrants privacy. Those situations, in my experience, are rare. NWMLS almost never has listings that warrant a private sale. Those that do need some privacy often simply have the address and name anonymized, while the listing is shared across the entire brokerage membership.

The effect for other MLSs would be that in coordination with NAR’s pro-consumer Clear Cooperation Policy, brokers would no longer engage in limited exposure marketing gimmicks to close transactions quickly in-house at the expense of their sellers’ outcomes. This is essentially how NWMLS’s rules work, and they work unbelievably well.

Brokers Not Required to Offer a Buyer’s Agent Commission

Is a $1 commission offer really different than no commission offer? Philosophically, it is. Materially, it isn’t.

“Cooperation and Compensation” has long been a way of describing the core tenets of MLS. Participants must cooperate in transactions, and offer compensation to one another for cooperating.

But what happens when an MLS doesn’t require an offer of compensation from a listing broker to a buyer’s broker? In practice, very little changes. 

About a year after NWMLS instituted this change, I pulled down the most recent 1,000 listings from the MLS database. Three listings had no offer of compensation. A quick glance today only shows a few listings for new construction without a firm commission offering. As it turns out, the average homeowner understands that the average agent likes to get paid to work.

The Seattle market has had every flavor of service level, business model, and pricing scheme for brokerage services over the decades. It’s been great for competition and consumer choice.

What you might call “traditional brokerages with full service agents” still dominate the sales landscape. Consumers know as they look at billboards crossing the West Seattle bridge that they can “list for 1%”. They know they can “list for nothing” as they listen to local radio ads.

And yet local and national brands with full service agents are the most popular model employed by consumers. Consumers know they can negotiate commissions. Agents know that the compensation offered to them on MLS listings will vary greatly. The market continues to function efficiently.

While some might point to the boogeyman of the MLS no longer being the place for compensation, in reality very little changes when an offer of compensation is not mandated. The free market works. And, importantly, the industry and the MLS are not hampered by arguments of a forced, tied pricing system. Choice and transparency rule.

Brokers Can Give Consumers the Unified Search Experience They Demand

Most brokers have seen their connection to consumers online erode quickly over the past decade. Fear-induced restrictions on display of real estate information to consumers has allowed non-broker entities to continue capturing a larger share of consumer eyeballs. 

NAR has an optional policy rule that says an MLS can require a broker to segment the listings they display on their website: the IDX listings from that MLS must be separated from listings via other sources.

This rule is employed by some MLSs and not by others. When it is, the consumer experience is sometimes degraded. Just running a website with multiple MLS feeds, for example, might require a consumer to view different pages or tabs of listings per MLS. Consumers don’t care which MLS has the listing. They just want to see homes.

I’ve run multiple websites in the Seattle market, as a broker participant in NWMLS. We displayed listings from MLS brokers, and had a custom integration to allow FSBOs to submit listings to us as well.

We listed them side by side. There was one search for all properties. Buyers want a home with X bedrooms and Y square feet. They don’t care who it’s listed by.

Of course there’s more disclosure needed on a FSBO, and that should be displayed to consumers. And some brokers fear that FSBOs on broker websites will erode their business. History has shown that’s not true.

The FSBOs on our websites were often initially poorly priced and/or presented because they didn’t have professional representation. The buyers who inquired wanted to work with an agent to manage the process. The FSBO sellers often turned into seller clients when their properties didn’t sell right away.  

Everyone in the process had an opportunity to work with a professional advisor, and consumers saw the full spectrum of homes available for sale. They were fully informed.

Freeing up brokers to deliver the best consumer experiences, guided by policy that ensures disclosure of facts and access to professional guidance, is the path to empowering brokers online in the future.

Is There a Second to the Motion?

Nearly every conversation I’ve had recently about MLS rules, transparency, and litigation has had an element of confusion or concern. The MLS leaders I talk to seem to be generally supportive of these transparency initiatives. But outside of closed meetings between smaller groups, the collective seems to be moving forward with trepidation, unsure if an organized consensus will find its clear voice.

Are the initiatives outlined in the slate the accepted solutions to enhance consumer choice, business competition, and transparency for the MLS? Are MLSs ready to accept these pivotal changes in the short term? Is NAR ready to make these dramatic, wholesale changes in an environment where litigation is not only plentiful but virtually assured to continue?

Is the Northwest Star Slate a goal worth pursuing to push the MLS toward a stronger foundation during turbulent times?

If this is the path, who will step up and take the torch to lead it forward?

Author

  • All opinions expressed herein are personal opinions and do not constitute the position or views of any organization. Sam DeBord is CEO of Real Estate Standards Organization (RESO). He has two decades of experience in the real estate industry, spanning real estate brokerages, mortgage lending, and technology consulting. He has served as President’s Liaison for MLS and Data Management with the National Association of REALTORS®, a REACH mentor, and on the board of directors for NAR, Second Century Ventures, and California Regional MLS. Sam began his career as a management consultant for PricewaterhouseCoopers. He is a recognized real estate industry writer for publications including REALTOR® Magazine, Inman News, and the Axiom Business Books Award-Winning Swanepoel Trends Report.

Discuss!