I have to be on an airplane in the not-too-distant future, but I really wanted to share this with everyone, because I think it’s so interesting. So fascinating.
Recently, I asked a hypothetical question in one of my favorite Facebook groups:
If you click on over, you can read all the comments. What I was after was whether, in the age of Internet-is-King, the MLS remained relevant to practitioners for the purpose of advertising a property. And if so, just how relevant.
The responses are illuminating.
REALTORS <3 MLS
Not that 50+ people in a self-selected group is a scientific sample, but the responses are simply undeniable. A quick count shows 19:3 in favor of the MLS over the Internet. Yes, some of the answers kind of hedge things a bit, like saying “the MLS, because then it gets syndicated” or “the MLS, because without it, IDX is not possible”. But that violates the hypothetical in which one must choose either the MLS or the Internet to advertise a property for sale. (It is a hypothetical, of course, designed just to draw out how people think about thing.)
These responses, however, understand perfectly the hypothetical:
No matter how important the Internet is for consumers (studies by NAR, by companies, by consultant types all talk about 70, 80, 90% of consumers use the Web in searching for a house), these REALTORS make it perfectly clear that the MLS is what “gets the listing sold”. They make it perfectly clear that it is the MLS that get exposure for properties.
Show Me The Money
So the mystifying thing is why the MLS is so cheap.
Zillow just reported its 2013 results, and one of the key metrics they report is monthly ARPU (Average Revenue Per User). For Q4/2013, Zillow’s ARPU was $271. Trulia’s ARPU was $196 for Q4/2013. (Note, that’s Trulia standalone, not including Market Leader). That’s monthly.
So the average Zillow Premier Agent paid $271 per month for Zillow’s advertising services. The average Trulia Pro paid $196 for advertising services. Meanwhile, the average MLS in the United States charges about $25 per month.
There is a serious mismatch here.
On the one hand, as the responses above make perfectly clear, the MLS is seen by virtually every single real estate agent as the most important advertising channel for properties. And, the MLS has the virtue of guaranteeing cooperation and compensation, not merely advertising. Nonetheless, the responses are crystal clear on just the advertising impact: the MLS brings real exposure, brings ready buyers, brings real business. The Internet is important, but nowhere near as important as the MLS as an advertising platform. [Note: Bill Lublin objects to classifying the MLS as an advertising platform, which isn’t how economists, courts, and most importantly, other REALTORS appear to view it.]
When a superior product is being sold at 1/10th the price of an inferior product, something is wrong.
Furthermore, consider the fact that the $271 per month is just for Zillow. Many brokers and agents spend a whole lot more than $271 per month on Internet advertising/marketing. They could be advertising on all major platforms ($271 + $196 + whatever REALTOR.com charges). They’re paying for at least some sort of an IDX website, which can range in price from $10/month to thousands of dollars per month for custom, managed sites like those of Boomtown. Still other agents are buying even more cutting edge Internet marketing tools, such as custom mobile apps, social media marketing, paid content, and so on.
One agent I know recently spent $18,000 on a custom website. That amount alone would have paid for 60 years of subscription fees for her MLS.
Alternative Explanation & Reason to Raise Prices
Of course, it is entirely possible that the respondents off Facebook are a tiny, tiny minority of real estate agents. It’s possible that most practicing REALTORS might pay lip service to the importance of the MLS, but reach into their wallets only to pay for Internet advertising and web marketing, not for what they claim is the single most important source of exposure for their listings.
I choose to reject cynicism here, and believe in the passionate testimony of the good people of Facebook real estate community.
So, the MLS should be charging far, far more for its services. Why should it? Since many MLSs are setup as a non-profit, why should it make more money than today? Isn’t it more important to keep costs low as a member benefit?
There are three reasons to raise prices to market levels.
First, more money = more investment. Technology may be a commodity, but good technology is expensive as all hell. Take a look at what Zillow and Trulia spent on technology in 2013. Being starved of funds, most MLSs in the U.S. simply cannot invest in R&D, in great user experiences, in customer support, etc. etc. If the MLS truly is the most important channel for advertising, and the most important tool in the real estate agent’s arsenal, it needs to make the kind of money to keep up the investment to make sure it retains pre-eminence.
Second, there is greater fairness with market prices. Both Zillow and Trulia, as well as every Internet-marketing vendor out there, scale their prices by usage and/or by level of work required. A templated IDX website with zero changes might be $10/month; a custom website with hundreds of manhours of design, development, and ongoing management is most certainly not.
The MLS, in contrast, is a flat fee service whether you use it once a year or use it once an hour. If you never call Customer Support, or call it six times a day, the price is the same. Like health clubs, the low-use members are subsidizing the high-use members. Talk about unfairly leveling the playing field… in favor of those with more money, more resources, more production!
Third, virtually everyone who isn’t drawing a paycheck from a small MLS agrees that the industry needs more consolidation. Maybe not a single National MLS, but certainly, fewer than the 800+ we have today with its myriad of rules. Trouble is, there is precious little financial upside in mergers & acquisitions of MLS, because they don’t make enough money. A 15,000 member MLS trying to absorb a 1,000 member MLS is looking at all of the costs of acquisition vs. a piddly $25,000 monthly revenue increase. Why go through the hassle?
With market prices, that 1,000 member MLS is generating (let’s say MLS prices can get to $300/mo) $3.6 million in annual incremental revenues for the acquirer. That makes cost of acquisition, buyout of existing contracts, and the pain of trying to get it done worthwhile.
Given the above, the inescapable logic is that MLS services are drastically underpriced. Given the overwhelming response in favor of the MLS as the single most important advertising platform for the working REALTOR, and given market prices for similar property-advertising solutions, MLS subscriptions should probably be in the $300 – $500 per month range on average, with some power users spending significantly more and less-frequent users spending significantly less.
The people have spoken. The MLS is more important than the Internet for advertising properties for sale. Price it accordingly.