Problems with Open MLS, and My Idea for a Healthier Industry

We don’t have a multiple listing service here in Manhattan, so I’m not terribly familiar with it. But with the recent talk here of an open-source MLS, I thought it was only fair to pass along this insightful comment from Brian Villanueva on the Inman blog that could be a big obstable to any Open MLS system:

As both a RE broker and an IT consultant for many years, I’ve looked into the "Open MLS" concept many times in the last decade. The problems have never been technical (those were solved 7 years ago with IDX); they are social and legal.

From an advertising perspective, the MLS is just a really big Internet ad database. There’s been nothing special about it since IDX came out. However, the MLS is much more than just an advertising medium.

The MLS provides a legal framework to enforce the the coop rates that are posted. Buyer’s agents don’t need to negotiate with every seller individually, and the agent who sells a house knows she has a solvent individual (the listing broker) to charge her commission against.

That’s the hidden problem with any "Open MLS" system: buyers don’t pay their own agents. That may be an inefficient, antiquated convention (I certainly think it is.) But, for better or worse, it is the social structure of real estate for most of America. Sellers pay both sides.

All of the free, public MLS proposals fall down when they approach this issue. Data is free. Access is free. But buyer’s agents still need to get paid. Any agent who tries to charge buyers (instead of sellers) faces an uphill battle, and a seller who lists homes with no commission gets ignored. Hence the massive inertia of the current MLS system. Both parties have an incentive to change it, but those incentives are all divergent.

I applaud Mr. Barry for his attempt. I would gladly post my listings on his database, or on any other medium that I thought would get me a buyer. However, it is not accidental that all previous efforts in this area have fallen flat. Until the real estate commission structure changes, this will remain an unrealized dream.

Because NYC has no MLS, much of this is an education for me as well. I too would welcome Mr. Barry’s concept of an open “non-profit” MLS but there appears to be many obstacles and according to Mr. Villanueva, the very structure by which real estate agents are paid could be an insurmountable one.

Here’s one idea. I have been a proponent for change in commission structure for years and believe that the market would become much more efficient with less conflict of interest if buyers paid there side of the commission and sellers only had to pay their side. Imagine the industry with bona fide buyer’s brokers who were dedicated to the often exhaustive process of finding their clients a home. Certainly, the buyer would win as would their agent. The seller obviously wins too because they don’t have to pay the full commission (often 6%). With the majority of transactions involving two brokers anyway, this structure would greatly alter the dynamic of the industry and in my opinion, create a much more cooperative and pleasant real estate market for all involved, especially consumers.