In Part I of this series we looked at the MLS industry from a historical perspective, leading us now to a closer look at the particular problems the institution of MLS is facing.
In general, the problems the MLS faces today, that are not institutional, are strictly technology related and fall into two broad categories:
MLS systems are woefully inferior compared to other modern technologies. Compare today’s MLS system, used by licensed practitioners, to parallel systems in the investment community or the insurance industry, even the travel industry (both from the standpoint of those few remaining travel agents, but even more so from the consumer’s vantage point).
The lack of innovation isn’t the fault of the system vendors. They have been constrained by the downward pressure on pricing imposed by MLS operators demanding more and more but willing to pay less and less.
Lack of choice
The closed, single-vendor system in each market has stifled choice by agents, by brokers, even by the MLSs themselves. New main system entrants are effectively blocked from entering the market by the long ramp up times from inception to first contract — often years. Third-party application developers who might otherwise fill in the gaps in main system functionality are frustrated by the lack of standardized data layouts and the daunting task of licensing access from 800+ different system operators with different rules and contract stipulations.
Let’s look at each of those areas from the perspective of the major stakeholders – the brokers, the agents and the vendors.
As a broker
In October 2013, The Realty Alliance organization presented the MLS community with a list of “issues” they felt the MLSs had long ignored or refused to fix. They published their list through Clareity Consulting. Many of their concerns were tied to limitations in MLS technology:
- Inability to unbundle products and services – one package, one price, fits all
- Forcing brokers to pay for development of services that compete with their own
- Selling services in competition with brokers who use similar services as a competitive advantage (leveling the playing field)
- Subsidizing associations by overcharging for MLS services
- Making agents and brokers pay for services they don’t want or need
- Non-standard data feeds from contiguous MLSs
- Lack of back-office integration to MLS functionality
- Not doing enough to stop data piracy
As an agent
A real estate agent has a simple list of requirements: give me the tools to do my job and get out of my way. The unspoken expectation is that the tools provided would actually work together, and therein lies the rub.
According to a recent Inman News survey, a lack of integration among various agent tools was a frequent complaint about real estate technology.
Most agents said that at least some of the tools they use are integrated with each other, but which ones actually worked together varied a bit. Some involved the combination of two products, such as the MLS and a CMA tool. Many agents suggested that products leave much to be desired when it comes to integration.
“[There are] too many choices that do not work well together to provide seamless transactions for clients,” one agent said.
Another agent asked for a “true contract-to-close” system, combining lead generation, listing management and transaction management.
“All of our ‘stuff ‘ is either disjointed or takes a full-time, patient tech nerd to use,” an agent said.
Another agent lamented that they “waste so much time entering in [the] same information on different platforms.”
“I’d like all of them to work together. Email with CRM with Zillow with my website with the MLS and DocuSign,” an agent said.
The MLS vendors have no incentive at the moment to fix this problem, to bring together all the pieces of the puzzle onto a single development platform that would allow all of these ‘parts’ to contribute to a custom ‘whole’ as has long been wished for by agents across the spectrum. The holy grail of real estate technology, “front-end of choice” – the ability for data to be completely synchronized in real-time, across all of an agent’s or broker’s applications, with each application allowing input, as well as the display of listing data – will never exist as long as there is no R&D money to develop it and no profit incentive to maintain it.
As a vendor
The institutional system of one vendor/one market creates one BIG problem. Under the current system, one vendor is picked for one market. Once selected, the vendor has a three-year (more or less) contract on that market and no other vendor can get in to offer competition for even a portion of the entire system because the databases are incompatible.
The database drives every piece of MLS technology because without the central data repository none of the peripheral applications can operate. But industry technology has been architected from its very inception to be a closed, proprietary database system with specific applications created by the vendor that operate only on that particular database. Nothing is interchangeable between vendors. This makes up somewhat for having been bargained down to or even below the breakeven point for the core MLS service, and creates some other advantages (speed, single point of support) – but they are far fewer than the disadvantages.
No interaction with main database
In the single vendor technology scheme, only applications built by the database provider will interact with that database because of proprietary access methods. Some third-party applications can use MLS data but only by exporting the data to the application’s data server or by downloading the data to the user’s computer. This adds an element of lost control and is a continuing concern for MLSs seeking to manage distribution of their listing data outside of the MLS-IDX-VOW-Broker-Agent-Client pipeline.
Changing systems nightmare
The single vendor system made changing MLS vendors a monumental undertaking requiring months of planning, training, parallel operation, and headaches. Every agent must learn a new system and do so in a fairly short period of time while trying to maintain a continuing book of business. Consumers easily jump from one portal site to another with no training whatsoever, but ask a group of agents to change from one MLS system to another and you have a six-month training program to roll out while simultaneously handling the storm of social media protest on Twitter. It’s insane.
Because the two MLS vendors never use the same database structure or field specifications, data conversion from one to the other has been a nightmare. Somewhere along the process, data is nearly always lost, either because some data is impossible to convert (saved searches in one system don’t work in the other; the contract manager of one doesn’t export data in a form that can be read into the other; or templates for presentations and email campaigns all lost) or because there was just no place in the new database to put the old data. The industry is rife with horror stories of MLS conversions having gone badly. In the end, many ask if it was worth the effort. As much as an MLS may want a new vendor with shinier new baubles and beads, the pain and suffering involved in changing is a huge detriment to progress.
No new core players
The single-vendor system institutionalizes the current vendors and stymies new entrants with innovative ideas and newer, more versatile and competitive products from even trying to break into the business. Because most MLS contracts are multi-year, and vendors often try to renew them before the current term is up, it takes years for a new MLS offering to get into the vendor supply chain to even be considered. And in this business, no one wants to go first. So cracking the first contract is a huge hurdle. Finally, unless the new vendor is self-funded, they will find it hard to attract venture capital because the timeline from first investment to first contract and then to first profit can be five years or more, an eternity in the high-tech world.
Besides, in that amount of time the new product would probably be obsolete anyway.
No new applications developed
This structure also blocks independent application providers from entering. App developers quickly find there are just too many MLSs with too many data layouts and too much data to download and normalize to make their product work. While third-party developers can offer products under a license that usually involves exporting data from the MLS because the primary vendor won’t allow an outside application to query the vendor database directly, no matter how much more efficient that might be. (That, of course, introduces other problems of distribution control and copyright management, but we won’t get into that right now.)
And let’s face it. Real time access through the RETS interface just doesn’t work fast enough to satisfy the ‘get it now’ mentality of most agents.
MLS vendors have not fared well in the current system either. Competition is fierce and MLSs are notorious for pitting vendor against vendor in a bidding war at contract renewal time to get the absolute lowest possible user fees, in many cases a price that produces no profit for the MLS vendor but may indeed be a loss leader for other portions of their business (e.g. data collection, aggregation, analysis, and derivative products). With vendor profit margins cut to the bone, one wonders why some of them decide to stay in this business. Yet with minimal margins, MLSs are quick to complain that those same vendors do not do enough R&D work to stay current with changing technologies.
Without profit the MLS vendors have had no money to invest back into product development, market research, usability studies, or technological innovation. Read any number of stories in any of the trade press and you’ll hear a constant theme – the MLSs are losing the beauty contest to the portals because of the lack of reinvestment into their core technology.
So the vendors aren’t making any money; there are no innovations coming out of their R&D efforts because there are no R&D efforts; and there are no new players coming on the scene to give them a reason to innovate. THAT is the perfect formula for disruption and disruption is exactly what I see on the horizon.
The Institution of MLS is in trouble.
I base this conclusion on the amount of turmoil that seems to be swirling around the MLS business lately.
The NAR Core Standards Initiative
NAR launched an initiative in the summer of 2014 to consolidate smaller associations into larger ones. The premise was standards of service that all AORs would have to meet to maintain their charter. Many small ones who cannot meet these standards by mid-2015 would risk being disenfranchised.
The small associations are now figuring this out and looking for alternatives to continue their existence. I’ve been getting calls from very small associations who think they can meet the core standards requirements simply by creating a regional MLS and letting the MLS carry the load of providing the services they need to comply. Such moves are not solving the core problem that core standards were meant to fix – small associations that can’t provide equitable Realtor benefits to all. They’re merely putting a Band-Aid® on the wound when it needs sutures. In the process of trying to improve the industry, the core standards are having the unintended effect of creating issues on the MLS side without fixing the main problem of small AORs.
I think it is highly probable that we will see a flurry of activity in May and June in small associations scrambling to meet the standards, and when they fail to do so, the AOR and its association MLS will shut down rather abruptly (unless, of course, some sort of extension or amnesty is offered).
MLS usage is dropping – pocket listings:
We started to see this phenomenon grow a couple of years ago and now it’s becoming more pervasive to the point where it’s been institutionalized in some MLS systems and ostracized in others.
Some MLSs felt the need to reinforce their relevance in the sales process so they embraced “Coming Soon” listings to offer subscribers a way to load their pocket listings and expose them to the other participants. Other MLSs created rules and penalties for such pocket business practices. This did little more than make some brokers angry because the MLS was now interfering in their business affairs.
The central issue of the Pocket Listing phenomenon is the desire, actually the demand, by agents and brokers to control where, when, and how their listings are not just advertised, but marketed and managed. The home seller hired the brokerage to facilitate the sale of the property as quickly as possible and at the highest possible price. They do not feel compelled to obey arbitrary rules set by a listing system that interfere with their professional opinion about how best to accomplish that sale. They feel if holding the listing off the market in order to expose it privately to a subset of buyers that, in their professional opinion, have a better chance of making an offer at an acceptable price before going to the general market, then they should be able to make that call.
Likewise, brokers take that requirement to a higher level, looking not just at individual listings but also at entire listing inventories. Should they put all their listings into the MLS if the MLS is not working in their best interests? Or should they collect their listings in their own private network and feed them to the MLS only when the MLS is ready to receive them – read: when the MLS will do business their way?
Thus the concept of Project Upstream was born. At its core, Upstream is a more organized, more widespread, more grown-up version of pocket listings.
It was conceived by brokers who were angry. And they’re not just angry about listings, they’re angry with a lot of stuff.
We can all remember where we were in October 2013 when Craig Cheatham, CEO of The Realty Alliance (TRA) spoke to the CMLS convention in Boise about the growing unrest within the brokerage community. He detailed disillusionment brokers had with the lack of responsiveness from the MLS community in addressing their needs. He highlighted (and later published the list of grievances TRA had accumulated over the years. He gave the MLS community a deadline – “You have 10 days.” – to fix the problem or he/they would.
He disclosed Project Upstream, where the brokerages would combine their resources into a national aggregation that would/could displace the MLSs by reversing the flow of listing data. The members would share information with each other first, before sending it to the MLS. It is the “office listing” or “pocket listing” taken to a new level by having large companies involved and cooperating in the effort.
Listings would start on Upstream and then be distributed only to MLSs who complied with the brokers’ demands for more voice in governance. Upstream would also control the flow of listings to the portals (Zillow, Trulia – even <gasp!> Realtor.com) by distributing listings only to those that met their demands for display and lead routing.
It’s not just the TRA Brokers.
TRA is an alliance of non-franchise mega-brokers (although its complexion is changing with the expansion of the Berkshire Hathaway HomeServices brand). But Upstream is supported by not only the independents but also most of the major franchise brands. For example, at the annual KW Family Reunion, Gary Keller, CEO of Keller Williams threw up this slide in the middle of his keynote:
“What should have happened 10 years ago.” That’s how out of touch the head of the world’s largest real estate brand (by agent count) considers the MLS to be. And any MLS that thinks he’s talking about someone else should take a good look in the mirror.
Project Upstream, the broker/MLS co-owned public portal project, the syndication debate, the recently passed AVM data policy, etc. all point to deficiencies in the MLS system. The statement by Mr. Cheatham that his members no longer regard the portals as the main threat, but regard the MLS as the main threat, is easily understood in the context of the heightened awareness of these issues
The list goes on, but you get the idea. In Part III of this series we will look at how most of these issues can be addressed through a new approach to MLS technology.
This post first appeared on Procuring Cause blog.