Death of the MLS?

The edited version of this article appeared on Inman.com–and wow was I attacked; must have hit a nerve.  I often try to provide the Inman reader comments to my stuff here as they are often useful and entertaining.  This time there are just too many.  Honestly the comments are 5-6 times longer than my entire article.  Please visit Inman (link above) if you want to see villagers chasing me with torches and pitchforks.

 

Death Of The MLS?

(Buyers Don’t Need It, So Why Would A Seller?)

If the real estate industry were invented today there would be no NAR or MLS, and perhaps no franchises; there may not even be real estate brokers.

The MLS was built for three reasons:

1) placing all information on homes for sale and sold into a central location for brokers,

2) to create a percentage of sale price payment agreement between brokers, and

3) to divine NAR and the MLS companies with monopoly power.

The marketplace now demands a system built on their desires not those of NAR.

How would you build a system for selling and buying homes based on market desires with today’s technology and market dynamics?  You would offer an open-source international database (website…portal).  Let’s visualize just the American portion of the open-source system.

Obviously it would be user-friendly for inputting home information on and easy to search homes for sale on.  But who are the users?  Users are home sellers, home buyers, and intermediaries (third parties who provide some kind of value-added service or information to the process).

The website’s purpose is based solely on the two most sought after needs of sellers and buyers.  Sellers most desire assistance in marketing their home to buyers.  Buyers most desire finding their perfect home.  That’s it.

There are two steps for home sellers to “market” their home to buyers.  First is knowing what buyers most desired in their particular neighborhood and preparing the home to meet those needs better than the competition does.  Here’s an opportunity for an intermediary service, but no need for the MLS.

To properly market a home sellers need a list what buyers most desired and what the impact on sale price was as you add or subtract these qualities to the subject home.  This intermediary could be a seasoned professional providing this counseling for a set fee.  Or it could be some artificial intelligence based software doing the same for a lesser fee.  The first offers intuition, the other scientific facts.  Neither requires the MLS or a “listing broker”.

The second service needed is the advertising portion of marketing.  Once the home is made as perfect as it can be relative to what buyers most desired, you now need to tell them about it.  Obviously our open-source website does that, in collaboration with any other highly used websites.  But here we need a specialist who can capture the emotional triggers of what the buyers most desired.  We need inspiring photos, videos, and written descriptions.  This is an additional opportunity for a skilled professional or professionals in each of these areas.  There’s no need for the MLS or a listing broker.

The home is prepared based on market desires and advertised based on market desires for anyone on the planet to find.

Now our buyers, whether they are living next to the home just advertised or 180 degrees on the other side of the planet wish to find this home.

Here the website could provide those search tools.  But right now all search functions on the internet suck.  Tell us your price range and bedroom and bath count: here’s your list of undifferentiated homes, good luck.  Every website on the planet works just like this.  But that is not how buyers choose a home.

Buyers choose a home based on how aspects of the home trigger envisioned future life events.  The more triggers, the more they desire the home.  Whichever portal offers these kinds of search tools will dominate the internet.  Here’s another opportunity for an intermediary with a technical search innovation, but probably short-lived, as the portal will buy out this superior technology to give themselves a market advantage.  No need for the MLS or a buyer’s agent.

But wait, eventually the buyers will want to see some homes.  This is the next opportunity for a fee-based professional service.

Then somebody’s got to write up an offer!  Yes, who do you as a buyer trust more to complete this task: an attorney or a broker?  It may come down to who will do it for the least cost or who can offer some kind of legal guarantee of their work.  In either case the whole offer, negotiations, amend/extends, addendums, etc will probably be fee-based or hourly.

Isn’t it easier just to hire an intermediary to do all this as a percentage or single fee?  Maybe, but that will be up to the marketplace to decide what works best for them.  However it turns out there will be a lot more options for them.  Perhaps some single-fee do it all for you options, and for others pay only for what they need options.

But we need to focus back on the topic of the MLS, not the ancillary services.  The marketplace desires open-source information on homes, for both sellers and buyers.  This will eventually kill the MLS companies and greatly empower the portals.

But we the brokers won’t let this happen!  We’ll put all of our listings in the MLS first, and then decide which outside portals to advertise at.  Maybe, for a while, but the marketplace of sellers will either start doing it all on their own or hire intermediaries providing services better meeting their own desires, not yours.

Both of the last two years 43% of buyers have found the home they actually purchased by themselves on the internet (NAR survey 2013 and 2014).  Another 9% found the home they purchased by seeing a yard sign (same NAR surveys).  That’s 52% of buyers who did not need the MLS or a broker to find the home they bought.

Only 33% of the time did buyers buy the home the broker found via the MLS (same NAR surveys).

When you add in to our initial 52% of buyers finding their own home to the buyers who purchased directly from builders or for-sale-by-owners, the percentage of buyers not needing the MLS is two-thirds of all sales.

If home buyers don’t need the MLS why would a seller?

A home does not need to be in the MLS to sell; it only needs to be on the internet.  The market has already tipped.

Buyers know this; soon home sellers will figure it out and will refuse to pay a “listing commission” to be in the MLS.

Oh yes, I am fully aware that brokers were still used 88% of the time to write up the contract and “work the deal” (same NAR surveys).  So over fifty percent of the time brokers were paid a commission for not finding the buyer a home.  And that proves my point.  Buyers and sellers want to do the stuff they can and will hire specialists to do certain other aspects of the transaction.  Many will probably pay someone else to “work the deal”—the stuff they want help with.  But with new options the old MLS/NAR means of selling and buying real estate is listing fast (a ship sinking, not the archaic term used to place a home in the MLS), and will go under within just a few years.

We don’t have the opportunity to “invent” the real estate market, but we do get to re-invent it.

 

Comments

  1. says

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  2. Richard says

    Great article. You hit the nail on the head.

    Many of the comments on the Inman website concerning your article and this issue are analogous to passengers rearranging the deck chairs on the Titanic as it is going down.

    • demon says

      Hi Richard, thanks for the feedback. Yea, since the MLS article, where not only the brokers but the head editor at Inman attacked me, you have many new sites where brokers place homes for sale “not in the MLS”, you have Project Upstream–designed to keep properties out of the MLS and Zillow, and you have the Brokers’ Public Portal–again designed to keep properties out of the MLS and off portals. Brokers are funny. They’ll defend the MLS system and attack anyone suggesting change, yet run after any alternative they perceive will give them a double commission.

  3. Demon says

    Hi Sue, yes, brokers may be around for a very long time as the market does often want someone else to take the negotiation heat and keep up on all the paperwork. I think they’re role will adapt to the circumstances, well unless they refuse to.

    I do think that specialty niches (between MLS input only and full everything at a set percentage commission) will greatly expand over the next year or two. Much fun to be had :)

    Thanks for commenting

  4. Sue T says

    Creed, this was a great article. Again, for realtors to understand that things are changing and we must continue to keep abreast of the changes and decide on what steps we will need to take.. I do believe that the realtor/broker will still have a place (for a while), because real estate transactions are complicated. Very different from the travel agency business and yet, there still are travel agents around (but the successful ones specialize and charges fees for planning) But there has been a slow change and shift of mindset…and once someone or something takes the place of the traditional realtor, the realtor model will end…Just don’t have a crystal ball on that one..

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