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shift happens-- the case for an open source MLSLet me preface this post by stating that I do not have all of the answers for what I’m about to postulate.  The concept is controversial, polarizing, sticky… the red tape kind… and I fully expect it to be met with extreme prejudice and/or trivial dismissal from long established, well funded institutions as well as a myriad of pundits.  A lot of jobs stand to be eliminated, repurposed… while others are created.

As a self described ‘Agent of Change’ around the real estate and mortgage space, I’ve sat in the shadows lurking, observing the discussions regarding ‘Raising The Bar’, IDX listing exchange equity, why it’s a bad idea to send listings to the aggregators and the such.  All conversations that, IMHO, root back to the 900 some odd MLSs across the nation.

So, what I would like to talk about is the concept of an Open Source Multiple Listing Service.

Prelude to a potential shift

The current MLS landscape is full of inefficiencies.  They are fragmented databases with little to no continuity between them.  Most MLSs do not allow the commingling of data between each other.  There is a severe lack of innovation.  Accessibility to insightful data is tightly regulated and heavily guarded.  MLSs engage in monopolistic practices.

Don’t believe me?  Try starting a new MLS where an entrenched player resides.  Economic and legal impracticality will quickly dissuade even the most determined potential entrant, if being blackballed doesn’t work first.

MLSs are typically comprised of boards that are typically comprised of brokers and some other figure heads.  In other words, the inmates run the asylum and are paid handsomely to keep this order in place.

And most importantly, an MLS’s primary paying customer is a licensed Realtor, since you must also be a member of the National Association of Realtors (as well as local Associations) to gain access to their walled gardens.

It costs money to belong to MLSs (and multiple Associations), ergo, MLSs make a lot money.  Therefore, it behooves the NAR and the local associations to keep barriers to entry to becoming a Realtor low–  very low.  More members equals more revenue.  Further, this overarching business model perpetuates, even necessitates, the baseline Realtor ~6% commission model… I know it’s not supposed to exist, but it does.

This will  not be easy and there will be blood.

I want to hone in on two main points:

  1. MLSs must cease to exist in their current iteration for the real estate industry to truly ‘raise the bar,’ and an open source platform is just the type of viral, agile technology that can make it happen.
  2. MLS’ primary revenue should be derived from consumers, not real estate professionals.

There have been many positive advances as far as increasingly open property data sharing (specifically, the creation of IDX rules forced upon the industry in the form of a DOJ antitrust suit).  However, IDX as we know it may be in real jeopardy.  VOW policy will survive and how IDX participation plays out really has no bearing on the fundamental issues that suppress the real estate industry as a whole.

As stated, MLSs are core to the reason for a bloated industry in both size and relative cost to the consumer and the Realtor.  Consumers do not care that the ~6% commission they see on HUD statements is split thrice and that agents have to pay fee upon fee upon fee, leaving them with a small fraction of that exorbitant commission that’s more akin to an increasingly prohibitive tax.  Prohibitive in the sense it consumes equity to the point that a seller may have to bring money they don’t have to closing.  Listing agent and seller incentives are nowhere close to being aligned from an economic perspective.

[pq]Conferences and data summits and committees and all the meetings in the world won’t change a thing…
An open source MLS platform, I believe, can.[/pq]

Central to open source projects is the idealism that no one entity owns or controls the tools.  Yes, there’s money.  Money is made in an open source environment by offering services around the technology.

Think: WordPress.  There is an entire economy around providing services around the platform, not by charging for the platform itself.  More on this later.

Architecting an open source MLS would require a community of willing developers.  Considering the agenda at hand, its overall potential and understanding the developer culture, I can’t help but think finding these folks wouldn’t be too difficult.   Knowledgeable peeps in the current MLS arena would need to sign on as well.  Some would probably require some compensation for their time… so a micro fund of sorts could be created to subsidize costs.  In any case, ‘Many Hands Make Light Work’.

Real, meaningful standards would be created.  Everything from data consistency and quality, to front and backend UI/UX, to eliminating the multitude of loopholes currently exploited in current MLS systems (i.e. manipulating days on market by removing and re-listing a property).

Legacy MLS vendors and the crony capitalistic landscape would be mitigated… forced to evolve or die.  An agile breed would thrive and new blood would blissfully be infused into an organism on virtual dialysis.

The platform that’s developed would be made available to all licensed real estate professionals and brokers, not just the NAR or local association dues paying members.  It would be a central repository that’s segmented but not segregated by locality.  The ridiculous rules around ‘no commingling of listings’ would be eliminated.  FSBO’s and other property types could coexist on one platform in perfect harmony.  Cooperative compensation, supposedly the initial and pillar purpose of a MLS, would be maintained, although under the transparent lens for consumers to see and understand.

Buyers agents who specialize in specific local areas could be displayed (without advertising) to preserve single agency… ensuring buyers get proper representation.

Consumers would have access as well.  They could be given the ability to approve how their listings are marketed, ensuring a certain level of quality.  They could evaluate an agent’s value based on empirical data thats logically aggregated and displayed with proper explanations, rather than heresay.

Syndication could be opt-in and very specific as to where listings are sent.  Zillow, Trulia and IDX ‘yes’… and re-syndication ‘no’… for example.  Although I suspect that if something like this were developed, the syndicators would be negatively affected, and substantially at that.  They would need to quickly pivot to different value propositions, focusing on the visual display of information that would be in violation of Fair Housing on a real estate professionals website… things of that nature.

I could and will go on about form and functional benefits as well as ‘how’ in future posts, alas I need to address the other major component-  revenue.

Real estate agents shouldn’t be the only, nor the primary, source of revenue for an open source MLS platform.  Many wouldn’t want to participate and substantial revenues would be lost.  However, there is the potential for new products to be sold… to the consumer.

I mentioned above that consumers could evaluate an agent based on empirical data, aggregated and displayed in a logical format.  They would have to pay to access this information, like a car fax for agents.  This topic is fruitful enough to yield a 1500-word post in and of itself, and something I’ve written about in the past.

In an informal poll of consumers over the years, 100% of them said they would pay $30-$50 to access and assess an agent based on objective performance metrics.  Subjective reviews from past clients most certainly have a place here, too.  Do some quick and dirty math, ~$40 per transaction side..?  That more than makes up for loss of traditional MLS dues.

Offer a Freemium model for general access, but charge consumers a nominal fee for elevated access to the MLS for a fixed period of time.

An ‘App Store’, similar in nature to Apples  has created, would seem to make for a nice cultural fit here.  Vendors would share revenues with local associations to compensate their participation.  It appears there are already players lining up for such a place.

There are more than enough ways to monetize this concept, some good people who make a living supporting current MLS initiatives could transition themselves and their brain power to come up with additional ideas.

More about revenue sharing, specifically who receives the revenues from such supporting products and services.  Obviously the vendors and service providers would collect their share, and it would seem that local associations are the most logical industry beneficiary.  They could be used to offset association dues, improve continuing education and a number of other items that I can’t think of right now but wouldn’t be too hard to figure out.

[pq]We’re now at a hypothetical place where the real estate industry could really evolve as a whole by disintermediating the traditional MLS.[/pq]

Local association and MLS dues would be replaced by consumer-generated revenues.  Since revenue dependence would be shifted, the barrier to entry to become a Realtor or real estate professional could be dramatically increased.  The number of Realtors would surely decline under such conditions, maybe by as much as 40-50%… but that’s a good thing, IMO.

Commission-based compensation could/should be addressed as well.  As consumers become more comfortable with who it is they are actually dealing with (from an objective and subjective standpoint, due to the increased levels of transparency), real estate professionals may be able to command retainers and other more conventional forms of compensation.

In theory, there would be less gross revenues, but the allocation of those revenues would fall in the real estate agents favor due to less ancillary expenses to pay.

Yes, yes… I hear you.  There are still a lot of granular details to consider.  Data formats, API’s, user access and editorial control rights to levels of data, other revenue models, equitable revenue distribution. . .  rules need to be written.

Who writes these rules and how they are implemented requires a novel approach, moving away from the aforementioned traditional committees and organizations who get bogged down in the politics and self serving agendas.  Fresh blood must be infused using truly innovative methods like open source, agile, community-based development.

This post is simply an initial thrust is in line with the RETSO mantra of ‘Where Ideas Meet Doers’.

There are real ideas here.  The greater industry needs to change at foundational and fundamental levels if it ever hopes to ‘raise the bar’, ‘increase professionalism’ or any other euphemism that is today little more than lip service and noisy chatter in the social media echo chamber.

Oh, and lest you be left with the thought that no one would want to participate in an endeavor such as developing an open source MLS, watch this video:  The Surprising Truth About What Motivates Us

I look forward to continuing the conversation. . .