So Greg Robertson and I did a thing – a podcast, to be a little more specific – and I’m pretty excited about it. Industry Relations with Rob Hahn and Greg Robertson just went live this month. Each episode is about 30 minutes, and stuffed full of our particular brand of wit and insight and stirring shit up. Give a listen, and if you like it, subscribe on iTunes.
In the inaugural episode, “The Troubled Marriage of Associations and MLS,” we tackle a topic I’ve been vocal about for years – the need for the Association and the MLS to get a divorce.
Although it isn’t easy for most MLS executives and Board members to wrap their head around what I’m talking about, but very few people actually disagree that the relationship is in trouble.
Since I discuss the issue in the Industry Relations podcast, I’m not going to get too deep into it here. But there are a couple points that I wanted to highlight and explain.
Divorce Means Letting Go of Pricing Power
The first point is that “divorce” here has a specific meaning: fixing the governance and allowing the MLS to operate as a strictly for-profit business for its shareholders.
MLS governance today is premised on the idea that the MLS is a “member benefit” of the local Association. Therefore, the primary goal of the MLS is to provide tools, technology, and rules to enable cooperation and compensation at the lowest possible cost. This core belief about the MLS has all sorts of negative consequences for the industry.
The Association and its heavy involvement in the governance and operation of the MLS keep prices artificially low. That in turn leads to razor-thin margins for the MLS, which in turn means the MLS is unable to invest in products and services that its customers — the brokers and agents who pay the actual bill — want and need in the 21st century. When the MLS is kept artificially poor, it has no choice but to squeeze its vendors, who, as a result, don’t have the margins to invest into technology, user interface, product, and services.
In addition, because the MLS can’t raise prices without it becoming a major political fight with the Board that is appointed by/elected by the Association, the MLS is often obsessed with “non-dues” revenue. That leads to the MLS doing all sorts of things that encroach on what its brokers want to offer as a competitive differentiator. That whole “level the playing field” business stems from the MLS’s lack of pricing power.
The solution then is for the Association, the brokers, and the agents to let go of the governance of the MLS as a business operation. They need to remain involved in the policies, rules, and even some product decisions as the actual people on the ground trying to use the MLS to do business every day, but they need to remove themselves from the financial, operational, technological, and marketing decisions of the MLS.
I bring this up because in past talks, people say things like, “Well, our MLS is a separate corporation, so it’s already divorced.” That’s a necessary first step, but it really isn’t enough. True divorce means changing the governance — and the ownership structure — of the MLS. We can determine the true liberation of the MLS by a single question: Can the MLS charge the price that the market will bear, without interference from its owners?
Today, it cannot. To survive, the MLS of the future must have that power, which means divorce from the political world of the Association of REALTORS.
Divorce Is Good for the Association
One of the things that Greg and I debated is “What is the big get for the Association without the MLS?” My answer was that advocacy is the “big get” for the Association, and that the Association can never be relevant as long as it is reliant on the MLS for its membership. Greg thought this was circular logic and got lost, and I don’t know that I did a great job of explaining myself.
To me, it’s pretty simple and straightforward.
The single biggest problem in the industry today is that there are too many crappy agents. This isn’t me saying this, but NAR through the DANGER Report which recognizes the problem.
At the same time, the single biggest pain-in-the-ass for the working REALTOR is… the agent on the other side of the transaction. Widespread incompetence, unethical behavior, and even outright corruption mean that the honest professional REALTOR has to deal with crazy shit on the other side all the time.
The crazy thing for the true REALTOR is this: every single one of those incompetent, unethical, marginal agents on the other side is a card-carrying, dues-paying, Code of Ethics-having, REALTOR.
And why are these incompetents actual REALTORS? Because they need the MLS, and becoming a REALTOR is the way to get access to the MLS.
The Association cannot be relevant to its real members — those who give a crap about the Code of Ethics and political advocacy — while giving away the REALTOR brand to every Tom, Dick, and Mary who can fog a mirror. As I said on the podcast, “At some point, the true REALTORS are going to get sick and tired of being lumped in with a bunch of unethical, corrupt and incompetent morons.”
The only way that the Association can do anything about that problem is to reduce the number of members. If you think about it, this is the only way the Association remains relevant to its real members — as opposed to the members-in-name-only who are actually just buying the MLS through the Association.
The point of divorcing the MLS proactively, before you are forced to do so by outside powers, is to arrange for a financial arrangement in which the Association can continue to get funding while reducing the number of members down to those who actually want to join, who care about the REALTOR brand and who take the Code of Ethics seriously.
Look, divorce is never pleasant. Unlike Louis CK, I don’t recommend it. Then again, as Louis CK once said, no great marriage ever ends in a divorce. But here’s the thing: the marriage between the Association and the MLS is NOT a great marriage… at all. It’s a dysfunctional, co-dependent relationship that hurts both parties.
Divorce does have its upsides, namely freedom. In this case, a divorce grants the Association the freedom to be selective, which paves the way to tackle the crappy agent problem, which ultimately improves the industry at large.
It’s time to move on.