As is somewhat normal, Brian Larson has a thought-provoking post on the future of the MLS up on MLS Tesseract. I gather it’s just one part of a series that he wrote a while back on Inman. In this particular post, Brian argues that interbroker compensation (aka, “Offer of Cooperation and Compensation”) is an anachronism and should be abandoned. He cites a number of factors — decline of sub-agency, restraining innovation in brokerage models, unfairness, and possible legal problems — to argue for getting rid of the Offer.
Brian ends the post, which was written in 2005/2006, with this:
So, other than references to some old reports from 2005 and 2006, I think all of this still makes sense, perhaps more so… What do you think?
Well, I think you’re making a ton of sense, Brian. But I do have a question about compliance, and data integrity.
The Offer and Compliance
Let’s assume, for the sake of discussion, that I agree with all of the policy reasons that Brian brought up four plus years ago. Let’s also assume that the industry can get around the “MLS” ceasing to be one under NAR rules if it gets rid of the Offer. Finally, let’s assume that eliminating the Offer would mean all sorts of wonderful benefits vis-a-vis brokerage models, fairness to sellers, price-fixing problems, and so on.
One thing we would need to tackle is the issue of compliance.
Four years later, one of the key things that we’ve learned about the MLS is that everybody wants the data that the MLS holds. RPR, First American, LPS, Move, Inc, brokers, associations, government, and likely aliens from outer space. The reason, of course, is that the MLS has the most accurate and up-to-date information about housing anywhere. We all sort of take that data accuracy and data integrity for granted.
But you have to ask why it is that the MLS has the most accurate data, and how it got to be that way.
The answer, of course, is tied to the Offer.
The challenge with any set of data is in the initial collection. Garbage In, Garbage Out is an iron law. Start with crappy data, and you can’t help but end with crappy data and bad conclusions. The MLS has managed to create a scheme in which millions of individual data collectors (i.e., real estate agents) take the effort to ensure that the data in the system is accurate and up-to-date. Is it perfect? Of course not. People make mistakes, and agents get lazy and fail to update the data.
And… that’s where Compliance comes in.
Is Compliance Possible Without the Offer?
What Brian’s post raises is the question of whether Compliance is possible without the Offer. If it is, then sure, by all means, let’s get rid of the anachronistic, anti-competitive, anti-innovation Offer of Cooperation and Compensation. My gut tells me, however, that Compliance without the Offer becomes a toothless hound of war that can only gnaw, rather than bite.
Say a MLS sends out a Compliance violation notice. The agent ignores it. It then fines the agent; the agent ignores that. At the end of the chain, since the MLS is a private, non-governmental entity, the power that the MLS holds over the agent is excommunication. The non-compliant agent will not be allowed to access the MLS.
The question is, why would anyone care about being declared a pariah by the MLS?
I believe that the reason why people care today is the Offer. Without the MLS, if I bring a buyer to the table, I’m not guaranteed anything at all. Maybe the seller would cut me a check, or maybe not. We see this all the time in commercial real estate, where the Offer does not exist. Commercial brokers have to open discussions with, “So, if I bring you someone, what are you gonna pay me?” Suppose the listing broker simply violates the private agreement. As a commercial broker, your only recourse really is to sue them in court for breach of contract. A residential broker who is part of a Offer-driven MLS can bring the issue to the MLS itself.
None of this is compelling argument to keep the Offer in place, necessarily. However, what it does mean is that the individual agent, who is going out and getting listings, ensuring that the data is accurate and up-to-date, because she doesn’t want to get kicked out of the MLS, is motivated by the security and the certainty that the Offer provides. Without the benefit that the Offer provides, losing MLS membership might not be all that painful.
Look, for example, at the lack of data accuracy in places like Zillow or Trulia, which are, in many respects, just like a MLS. Shouldn’t we wonder why that is?
Unintended Benefits, Unintended Consequences
I don’t for a moment believe that the MLS started with the specific goal of ensuring data integrity. I don’t believe that the Offer was created by all of those brokers back in the day because they cared so much about putting some teeth into Compliance. Data integrity was, and remains, the unintended benefit of the Offer.
As a result, if we are considering the elimination of the Offer of Cooperation and Compensation, we have to think about the issue of compliance and data integrity. Again, this is not an argument against Brian’s position; I can see why the Offer causes some of the problems that he mentions. But it is to raise yet-another-thing to consider.