The Issue with Brokerage We Don’t Discuss: Oligopoly or Democracy?

Over the years, I have debated the question of “the brokerage community” with people like Ken Jenny and Sam DeBord. It usually comes in the context of MLS or portals or some such thing, where the claim is that “the brokerage community” demands X, Y and Z… and I end up asking, “Who is this brokerage community you speak of?”

I thought more about this over the weekend, especially since NAR Policy Statement 8.0 is a big topic right now in some circles of real estate, and I think there is an issue here that the industry needs to grapple with. I thought I would think through that issue with all of you and see if we can really get down to the nub of it.

Ultimately, the key question appears to be whether the industry ought to be operated as an oligopoly of a small number of very large companies or be operated as a democracy. There are arguments for both.

Real Life Data

To put this into context, I thought I would use some real data from a real MLS I am familiar with. I have modified the numbers to protect the innocent, but rest assured that these are (at least very much based on) real-world numbers.

Acme MLS (not real name) has 2,400 Participant Brokerages, and 16,000 agent subscribers. The average brokerage has 6.7 agents, 8.2 listings on market, $9 million in Sales Volume, and 45.8 Closed Transactions.

Now, here’s the deal:

I looked at the top 10 largest firms by agent count, then the top 50, then the top 100… and then the bottom 2,200. There’s a reason I chose the bottom 2,200: they all had 10 or fewer agents.

  • Top 10 largest brokerages averaged 409 agents, 362 listings, $660 million in Volume, and 2,879 in Transaction Sides.
  • The Top 50 brokerages averaged 160 agents, 170 listings, $257 million in Volume, and 1,159 in Transaction Sides.
  • The Top 100 averaged 97 agents, 110 listings, $152 million in Volume, and 710 Transaction Sides.
  • The Bottom 2,200 averaged 6.7 agents, 8.2 listings, $9 million in Volume, and 46 Transaction Sides.

I think the issue is clear.

If you are the MLS, whose interests matter more to you? The bottom 2,200 brokerages (who make up 91.6% of the total Participants) or the Top 100 (who make up less than 5% of the total Participants)?

Who is the customer?

The Unspoken Tension

This issue lurks in the background of just about every conflict between the MLS/Association and large brokerages. I said as much back in 2013 when Realty Alliance broke the conflict out into the open at CMLS Boise: it’s about governance. It’s about “who shall rule.”

Part of the problem over the past several years, however, has been the political maneuvering by the largest brokerages to adapt the term, “brokerage community” as if to suggest that there is a single organization or viewpoint that represents the perspective of all brokerages. That is rarely, if ever, true. And yet, evoking a “community” is powerful emotionally.

Plus, it isn’t as if there was another side to that linguistic maneuvering.

MLS governance is shot through with this tension, and even those MLSs who have adopted “broker governance” has had to do things like segregate their brokerages into tiers: large, mid-size, small. Such tiers automatically suggest that there is no such thing as a “brokerage community” and yet, the notion persists in our intra-industry dialogue.

So let’s actually discuss the issue.

To me, this is the case of two political systems in conflict: oligopoly or democracy.

Production & Performance (Oligopoly)

One school of thought — and I think this is clearly Ken Jenny’s perspective — is that the productive brokers and agents should be more important than the non-productive. Their opinions should “count more” than the opinions of the thousands of small brokerages. These are the companies who bring in the agent count, who bring in listings, who do the volume.

There is a strong pragmatic streak to this argument. Look at the numbers above. The top 100 brokerages in Acme MLS are the majority or super-majority of the MLS in every way that matters in business: subscribers, listings, volume and transactions.

One could argue convincingly that Acme MLS would cease to exist if the Top 100 brokerages broke off and went somewhere else. For that matter, one could probably argue that Acme MLS would cease to exist if the Top 50 brokerages (half the agents, 43% of the listings, 60% of the volume and over half the transactions) broke off and went somewhere else. The brokerages who are #51-100 might not really matter in comparison.

I think the numbers suggest that the Top 10 would not break the MLS; them leaving would hurt the MLS profoundly, but I don’t believe it would mean the end. Top 50 is a different story, and if you extend out to Top 100, it really isn’t debatable.

This political system would clearly prefer that the elites govern, because the elites have the most at stake and (could be argued) know more, are smarter, and more capable than the non-elites.

But there is also an idealistic dimension to oligopoly, especially in the commercial context: meritocracy. Those whose hard work and talents have resulted in success ought to be rewarded. Furthermore, there is the idea that those who have the most to lose and the most invested in an organization ought to govern that organization.

Lest you think this is some evil scheme, let me point out that the original 13 colonies that made up the United States restricted voting to property owners under the same theory that those who contribute the most and have the most at stake ought to be the ones who make the decisions that affect the whole.

It is also the prevailing theory of corporate governance: larger shareholders have more votes, as they vote their shares. Small shareholders also get to vote their shares, of course, but in reality, it is the large shareholders who control a company.

Every Broker Counts (Democracy)

The converse is the idea that every brokerage, regardless of size, is a duly licensed brokerage who is a Participant and should have equal rights to every other brokerage. This is universal suffrage as practiced by just about every democracy on the planet.

It is also the current dominant form of governance and participation for REALTOR Associations and for MLSs, except for those who do the tiered brokerage governance model. Elections to the Board of Directors, for example, are one-person, one-vote, unless the organization has changed that in its By-Laws. I’m aware of very few who have.

There is a strong idealistic streak to the argument for democracy: just because you’re rich doesn’t make you more important than me. So, just because a broker is large doesn’t make that broker more important than another broker who is small.

There is also a pragmatic argument for democracy in the MLS or Association world: wisdom of crowds. The idea is that small group of people, even if they are experts, often get things wrong more often than a large group of non-experts. From Wikipedia:

The wisdom of the crowd is the collective opinion of a group of individuals rather than that of a single expert. This process, while not new to the Information Age, has been pushed into the mainstream spotlight by social information sites such as Wikipedia, Yahoo! Answers, Quora, Stack Exchange and other web resources that rely on collective human knowledge.[1] An explanation for this phenomenon is that there is idiosyncratic noise associated with each individual judgment, and taking the average over a large number of responses will go some way toward canceling the effect of this noise.[2]

Trial by jury can be understood as at least partly relying on wisdom of the crowd, compared to bench trial which relies on one or a few experts. In politics, sometimes sortition is held as an example of what wisdom of the crowd would look like. Decision-making would happen by a diverse group instead of by a fairly homogenous political group or party. Research within cognitive science has sought to model the relationship between wisdom of the crowd effects and individual cognition.

The idea here is that while the top 10 brokerages may be great at gaining marketshare, recruiting agents, and being successful, they do not necessarily understand the detailed needs of the thousands of small brokerages. As a whole, the MLS or Association would benefit more from the wisdom of crowds of many brokerages, rather than a few.

No Right Answer, Yet A Choice…

There is no right answer here. Nothing about a commercial enterprise — even one as non-profit as a MLS — says that it ought to be a democracy.

Using the numbers above, the top 100 brokerages of Acme MLS are responsible for the vast majority of agents, volume and transactions and over half of the listings. Why should they be told what to do and how to do it by the other 2,300 brokerages who are small and do not contribute as much?

At the same time, it isn’t actually clear that the MLS survives if the bottom 2,300 decide to take their balls and go home either: we’re still talking about 44% of listings and 40% of the agents. That’s a big hit.

Plus, there is something a bit… off-putting about allowing the few to make all of the decisions, isn’t there? Something in our American spirit rebels against the very notion of an oligarchy, even if it appears justified in every way.

So there is no right answer here. Yet, a choice must be made, whether intentionally or unintentionally in a series of small steps and compromises. Either the large brokerages rule, and the small brokerages submit, or the many rule and the few submit. That most of the time, there will be consensus across small and large does not change the fact that the MLS and the Association must decide whether it will be an oligopoly with democratic input, or a democracy with oligarch input.

So, Which Do You Favor?

Oligopoly/Meritocracy or Democracy/Equality?

Why?

-rsh

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11 Comments

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  1. Ken Jenny?? Really?? The only fucking thing he believes is that Realtors are money grubbing weasels and that brokerages as they are currently constructed will die an excruciating well deserved death. That is his constant mind numbing refrain on Inman. I’m sure he’s a nice guy but JFC, enough already! We get it. Pick a new subject. He hates Realtors. Believe me there is nothing else to be gleaned from his tedious droning comments. I think I would rather a have honey enema and sit on an ant hill than run across one of his comments. Geez, hope I wasn’t too nebulous. I’d hate to intrude on Jenny’s territory.

    1. Don’t hold back Roland. Tell us how you really feel. Go ahead. Just let it all out. 😉

    2. Let’s be fair Mr Estrada,

      Ken Jenny is right 100%

      What real estate agents really do anymore to justify their commission nowadays? Open house? writing the offer?

      In my own past, I’ve put in offers for roughly a dozen different homes , and never have I really felt that a real estate agent negotiate for me.Do real estate agents help with financing? NO!

      Buyers nowadays are showing to the agents the houses they wish to make an offer.There is no real work on the real estate agent’s part to do this.

      It really comes down to the justification of value of the agent. Most are giving me the feeling they care only for their commission check and nothing else. Are you one of those real estate agents Mr Estrada? It not , please tell me what makes you different.

  2. “there is something a bit… off-putting about allowing the few to make all of the decisions” — Yes. The term elitist prick come to mind. Not one in particular but I love that term. And while the story about the 13 colonies was interesting, they evolved into something better in terms of national representation, with the electoral college. Whereby, major population centers don’t ride roughshod over the rest of the country. “The needs of the many outweigh the needs of the few, or the one.” — Spock, The Wrath of Khan.

  3. How about Democratic Republic? It’s worked pretty well for over 200 years.

  4. We really like MLS governance that has Large, Medium, Small Broker, plus a team owner and an producing agent or two on the board. It balances the conversation and seems to work really well. Some boards have too much decision control assigned to low producing agents or Assocaiton executives. Great decisions come from great boards that balance the needs of everyone.

    1. Yes Victor, but the true voice of the membership is not being heard on such MLS committees if each of these varied sized brokers only get a single vote as an MLS member.

      Large brokers represent in some cases hundreds if not thousands of agent members and yet their collective opinions and choices are weighed the same as a small or medium sized broker representing far less of the membership.

      That needs to be fixed because until it does, as Chip Roach said many years ago in his key note address at a CMLS meeting in Seattle, “why bother.”

      1. While I am very much in favor of governance changes to give larger brokerages more of a say in the MLS, there’s a significant problem with assuming that large brokers “represent” hundreds or thousands of agent members.

        For starters, one of the major tension points between large brokers and the MLS is the fact that the MLS makes it easier for their agents to move from brokerage to brokerage. A strong case could be made that the large brokerages often want choices that their agents would oppose, if it were offered to them.

        If agents were W2 employees of the brokerage, I think this argument carries a lot more weight. As it stands today, however, there’s a real problem with saying that brokerages represent their agents. More often than not, the interests of the brokerage and the interests of their agents are at odds with each other.

        FWIW, I prefer moving away from “headcount” as the basis for governance. So in that sense, I take a different stance than does WAV Group.

  5. Great job presenting both sides of what is occurring now in our industry here Rob. Very important issues, unfortunately yet to be fully vetted or resolved.

    And for the record, and in sharp contrast to the personal opinion of a total of one other person, I am Ken Jenny and I approve of this article.

    1. I think Roland’s comment about Ken Jenny is inappropriate. It is obviously not professional and furthermore Ken is an important voice in the industry. You don’t have to agree with him, but he, and anyone else quite frankly, deserve more respect than that. Obviously, Rob and many more knowlegable professionals respect Ken’s opinion. And he is a nice guy.

  6. I like top producers, however, in the MLS I belong to the dues are the same for each member.

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