I’m back from the week on the road, but about to embark on yet another week on the road… so wanted to get this short post up for your weekend reading pleasure.
If you’re not already subscribed to the amazing Scratch That podcast series from Emily Chenevert, CEO of Austin Board of REALTORS, you’re missing out. Go subscribe. In her most recent episode, she interviews Glenn Kelman, CEO of Redfin, and it’s a great conversation.
As I’m listening though, I have a thought that popped into my head. It’s a controversial thought, and one that most of us (myself included) would resist. But what the hell, let’s put it out there and toss it around some, shall we?
TL;DR: Ban private listings in exchange for total data transparency. Why or why not?
Let’s get into it.
Glenn Kelman Worries About the MLS
In the podcast, Glenn starts talking about the problem of race and real estate, but then brings up a really interesting concern: he worries the most about threat to the MLS. The concern is pocket listings, that part of the market can see what’s for sale, and the rest of the market can’t. The way to fight that is with an MLS with really strict rules around pocket listings, doesn’t allow it at all, etc.
What Glenn worries about is that as big real estate tech, Zillow, Redfin, Opendoor, Compass, etc. would compete against each other to try and get website traffic and use pocket listings, private listings, etc. as a way to do that.
The value of the MLS is to have market transparency available to everyone, and a simple comparison of residential real estate experience with a commercial real estate experience should provide proof of that.
It’s a valid concern. I’ve spoken about how the MLS is under attack from within with the widespread adoption of Coming Soon and pocket listings strategies by brokers and agents.
The Problem: Power
I’m not going to get into a whole dissection of core issues and such, since that’s overly long and complicated, but let’s just agree that the issue with any solution is one of power. Does the MLS have the power to compel obedience to a rule that bans private pocket listings?
The short answer is that it kinda sorta does… but that power is entirely dependent on the value of MLS membership. For most of our history, the MLS was a required utility to be in business, so the MLS had and still has enormous power. If the MLS bans pocket listings, then its brokers and agents have to decide whether they want to comply, or leave the MLS, which really hurts their ability to do brokerage.
But the companies that Glenn mentioned are not necessarily in the same place as brokers and agents have been for decades. Zillow likely has 100% mindshare in real estate search; every conceivable home buyer has, does, or will go on Zillow to see what’s for sale. Redfin has almost 30 million monthly unique visitors; it’s not 100% market share, but if anyone can do the Southwest Airlines thing in real estate (Southwest doesn’t participate in travel websites), it’s Redfin.
For that matter, dominant local brokerages and teams are also in a position where they do want the MLS of course, but it isn’t actually clear whether they NEED the MLS anymore to stay in business. Think about what Jill Herzberg of the Florida superteam The Jills said about this when she was asked about what they would do if they were expelled from the MLS:
“Theoretically, if any agent, including The Jills, could not use the MLS we would have to do business differently,” she added. “I could go on to anyone’s website and pull up any information I need. Any top producer has a website. Or you could go to Redfin. There are many different sites you could go to that pull up everything you need. So we would just have to rely on different things. You don’t have to be a member of MAR to be a real estate agent.”
“You can be a real estate agent and not pay for MLS. And be a real estate agent. Sell and buy and represent people and do everything. And have a nice business. So I guess I would have to just figure it out,” Hertzberg said. [Emphasis added]
Whether she’s right or wrong is actually immaterial. What is important is that she believes that she and her superteam can do business, sell and buy and represent people and do everything without the MLS.
So let’s say that due to Glenn’s concerns, the various MLSs promulgate rules that bans pocket listings. No more Coming Soon, no private listing networks. The goal is to ensure that the entire inventory is exposed to the entire market so that buyers do not have to wonder if they’re left out of some special in-group and sellers don’t have to worry that their agents won’t be able to market their homes effectively as they’re not part of any private networks.
In theory, that should work. Brokers and agents might grumble, but they’ll fall in line. They always have. The MLS is too important, too valuable.
But… there is or ought to be that sneaking suspicion in the hindbrain of the MLS executive: What if they don’t?
Noncompliance and Enforcement by the MLS
So let’s say, just to take an example, that Compass decides it’s not going to comply and withdraws from the MLS. In fact, it sets up its own property database and invites all and sundry other brokers and agents to join. Compass can even say that they’re following their principles: if Compass agents want to practice Coming Soon and pocket listings for their clients, then Compass is in the business of allowing their agents to practice real estate as they see fit. Who the hell is Compass to tell its agents how to do business, and who the hell is the MLS to tell Compass agents how they can practice real estate?
[Please note that I am NOT saying Compass would do this; only using them as a hypothetical example of a powerful and tech-savvy brokerage who could do such a thing.]
We already know that Robert Reffkin’s goal for Compass is 20% of the top 20 markets by 2020. In many markets, Compass has hit that and then some. So Compass takes all of those listings and withdraws them from the MLS. They offer bilateral cooperation and compensation to those brokerages and agents who join the Compass Listing Club, but without the huge number of rules and regulations and policies and whatever that the MLS requires. While they’re at it, Compass Listing Club has the best “MLS” software platform with easy to use search, listing entry, CMA products, etc. etc. and so on.
Now what? How does the MLS enforce its ban on pocket listings against a group of brokerages and agents who are not members of that MLS?
The answer is, of course, that the MLS does not. It is powerless against someone who isn’t an actual member.
And obviously, once other brokers and agents start joining the Compass Listing Club, using Zillow or Redfin to get the MLS listings that aren’t in the CLC, the value of the MLS plummets even further, which makes even more brokers and agents join CLC and leave the MLS, which in turn…. You get the picture. Once you start losing network effect and get into a negative feedback loop, the MLS is doomed.
The assumption that all brokers and agents will comply with the MLS is just that: an assumption. It’s not a bad one since brokers and agents always have complied… but there is always that first time that catches people off guard… to disastrous consequences.
So… What If… Big Daddy Got Involved?
As it happens, we know that the Department of Justice is currently investigating the MLS industry for possible antitrust problems. We know that the DOJ is focused on two things: agents steering buyers on the basis of compensation, and limits on data distribution. I assume the industry will fight any kind of government overreach, and argue against any kind of new regulation around either issue.
But… what if… in light of Glenn Kelman’s concern, and the fact that the MLS only has power over its members… what if the industry made a deal with the federal government?
The deal would be: ban pocket listings or private listings via regulation or legislation, in exchange for total data transparency.
I have already written and gave presentations on the idea that the DOJ is unlikely to do more than require disclosure and transparency on the part of the MLS. That makes eminent sense since disclosure and transparency are exactly what the Canadian Competition Bureau forced on the Toronto Real Estate Board, and that regulation survived years of legal review.
So if it’s going to happen anyway, what if the MLSs went to the DOJ and agreed not to fight that transparency regulation, if the Administration would also require (or recommend legislation that requires) that all listings be entered into at least one “federally licensed” MLS?
There are a myriad of ways that the Administration can do such a regulatory move short of actual legislation, which takes a long time and is uncertain. It can, for example, prohibit Fannie, Freddie, VA, FHA etc. financing for any property that was not listed on a federally licensed MLS. It can bring lawsuits against agents and brokers who do Coming Soon or pocket listings under Fair Housing Act, alleging disparate impact, which does not require racial animus. It can withhold federal funding from states that do not require that real estate licensees enter all listings into a federally licensed MLS. It can skin the cat in a lot of ways.
And there is no getting around that for any agent or brokerage.
Overnight, Glenn Kelman’s concerns are wiped away. The entire inventory, including rentals, would now be visible to the entire market.
In exchange, the MLS would need to start sharing, distributing, selling, or syndicating all of its data that does not have a real justifiable privacy or other concern. For example, showing notes might be protected since it might contain alarm codes or what times the family’s children are home alone. For nondisclosure states, perhaps sold data would be held private.
Even though I am such a non-fan of government action generally — being a libertarian does that — from a strategery standpoint, that kind of a deal might make sense. It’s making lemonade out of lemons that the government hands you.
After all, should the DOJ hand down some regulation requiring that the MLS make public all of its private data (with exceptions as above), there’s very little that the MLS can do about that. I mean, sure, NAR can bring a lawsuit challenging that regulation, but we’ve already seen how that played out in Canada. And while not required under jurisprudential rules, American judges and regulators do give some credence to how their Canadian counterparts think about things. So that’s an iffy strategy of resistance.
So if the MLS is going to be forced to open up the kimono anyhow, why not get something out of it? Why not trade data transparency for a data monopoly? It’s an easy argument to make.
“Yes, we’ll agree to share all of the data with the public, but to do that, we’ll need all of the data…. I mean, you don’t want the MLS feed that only has 30% of the listings do you? So you need to ban these private listing clubs and pocket listings and all of those things that hurt the consumer.”
With that one move, we will have enshrined the MLS permanently as a feature of American real estate.
The downside… is that we will have voluntarily invited the camel’s nose under the tent. Once the precedent is set that the federal government can and should regulate the MLS, can and should regulate real estate data… well, there’s no telling where that stops.
So… what’s your take? Would you make that deal with the devil? Why or why not?