Let 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:
- 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.
- 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’… Realtor.com 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. . .
Imagine there’s no heaven
It’s easy if you try
No hell below us
Above us only sky
You may think I’m a dreamer
But I’m not the only one…
Jeff – really insightful post. I appreciate the thought you put into it and that you’ve put some tangible ideas into the discussion that can be acted upon; too often the public debate on this subject strictly focuses on vitriolic banter instead of potential solutions.
The idea of allowing the consumer to have a say in the marketing of their home is a concept that’s regularly overlooked and I’m glad to see you brought that into the discussion. The dialogue within our industry on this subject is focused mostly inward without consideration for the consumers needs/wants/expectations.
This topic deserves some thought and further discussion. Hope it gets some attention. Nicely done.
Very well written. It is certainly time to take our 1990’s technology and business models and shape them into a form relevant to today’s marketplace. Love this.
I remember another story like this called Frankenstein’s monster.
The integrity of the MLS system is dfficult enough with keeping correct information input into the system by licensed professionals and watched over by the real estate associations. Individuals are fined for incorrect information with increases after multiple infractions.
Turning the MLS system over to the public would create a monster that no justice league could ever stop.
The people whom you think you are helping would only be priced higher and higher from the folks that control the information. The IDX companies.
The information within the system would become corrupt by bad information.
I enjoy a good, outside the box thinker, you just got to look at the bigger picture.
The bigger picture I’m writing about, admittedly very generally so to provoke engagement, does not involve ‘turning the MLS system over to the public’ but rather creating an open source MLS initiative where universal standards are created and upheld with the help of a multitude of experienced practitioners and given to local associations for control.
Open source does not mean ‘open to the public to upload information’, rather a method of creating and retooling source code (MLS databases, User Interface & User Experience) using a decentralized approach to create a product that’s of better quality, more reliable, of less cost and end monopolistic vendor communities.
The public becomes the consumer rather than the real estate professional… and they are afforded protected access to information that they are typically not allowed to see so as to make confident decisions on who it is they choose to hire to represent them in their real estate transactions. Licensed real estate professionals would still be in charge of entering listing information and associations could enforce quality control provisions.
IDX companies don’t control the information, they simply redisplay information provided by local MLS’ according to the rules of those MLS’.
With the proper provisions and data integrity rules put into place, an open source MLS could thrive with more transparent, accurate, polished and easier to digest information for all.
I sure respect your passion. I hear what you are saying.
I like positive evolution in any industry as long as it does not sacrific the publics
protection and produces a stonger product for the greater good for everyone.
I will share that the current IDX folks and other websites that utilize the MLS information now, do not do a good job keeping information up to date. I as a Broker constantly get calls about homes that have been sold months or even years ago. These sites have a lack of integrity with the information being shared.
If there is a way to tighten up these IDX sites to have them adhear to a higher quality of information and keeping the information updated,that would be great. But currently no one is keeping them accountable with how they are bastardizing the MLS information they are sharing.
I just dont want to see this happen to the MLS system information.
Interesting post. I see both pros and cons. I think “open source” is the wrong term to use here though for a few reasons. First, you’re talking about data, not source code. Second, you’re talking about a *service* that would need to be maintained and run, not simply a codebase that can be downloaded or added to at will. There are necessary operational costs that someone would need to pay to keep such a service running at a high enough standard of quality that it is viable. Thus there is necessarily at least some minimal association that would require dues, even if minimal.
The biggest issue that I see would be who is going to run this nat’l data cooperative? I wholly agree this localized MLS approach to data mgmt is antiquated and is only allowed by the market, because of the powerful monied forces that keep it that way. So clearly that needs to change. But what happens when it does?
Who has the capability to run a unified open MLS platform? It was rumored Google was working on something like this back in 2009 but it never materialized. Listhub has Syndication which is currently the closest alternative. Zillow would do it in a heartbeat if they had access to the data. NAR recently launched RPR which *technically* is everything necessary to provide a national MLS alternative, though they backed off of ‘going there’ a couple years ago (stay tuned?). FBS is doing some interesting stuff with Spark Platform which *could* be a middle-ground solution to opening up the data and creating a standard API … but they’re doing it in cooperation with MLS not looking to replace them.
As much as everyone hates the overhead of all the middle men involved in the 6% commission structure, it is solely because of these middle men that Zillow hasn’t entirely eaten everyone’s lunch yet. Everyone fears them becoming a nat’l brokerage but currently they cannot because of their reliance on data sources and cooperation. But you know, they’re a public company now and if there’s a big opportunity to jump in work directly between consumers and agents at some point in the future, they’ll be all over it, regardless of what the current CEO may say; the board and stockholders will mandate it, period.
At first it seems like a great deal for real estate agents to have the middle layers removed and free them to work more directly and provide better value for the consuemrs. But what happens next? Think agents are pitted against each other in an open market place online. Without an NAR or local Realtor assoc, its only a matter of time before commission bidding wars break out and Realtors are squeezed to work for their lowest possible rate. Have you ever looked at oDesk for programmers? It is amazing to see a few American programmers competing for 3rd World wages, trying to get work. Those who participate in such a marketplace put all of the control in the hands of the marketplace and the consumer, and that necessarily means less power, control, and money.
All of the middle men associations, MLS and brokers are both a blessing and a curse for the industry. At first glance, it seems clear that the cost *should* be 3% like it is in the UK; 6% is simply too high and has a meaningful impact on home buyers/sellers decisions. But with that goes the protections Realtors currently enjoy such as standards precluding agents from lowering their fees in open market places.
So I’d say think twice before wishing too hard to collapse the market inefficiencies that exist in real estate. When the inefficiencies are removed, nearly all the addt’l value created, goes to the consumer … and everything else is commoditized in its wake; including Realtors and their commissions.
Great comment, with some outstanding points.
I chose to use the term Open Source as it pertains to source code, not data. The source code would, and I’m speaking from an idealistic standpoint, be written by a group of developers using an open repository to increase the speed and reduce the political friction in developing a platform designed for agents to upload & maintain their clients property information, compensation reciprocity etc. Open source is the method of development, whereas the subsequent (standardized) data could/would be greatly improved upon.
Yes, the platform would then become a service with operational costs. You hit the nail on the head by stating ‘minimal association’. If we go back to my WordPress analogy, admittedly not a perfect correlation, Automattic is the web development corporation that more or less maintains quality control and improves upon the core components of the overall WordPress platform. They are a relatively small outfit comparative to the number of users of the WP platform. I could see a similar type of a singular entity managing similar needs… the key being singular rather than hundreds of independent entities with their own sets of rules, data types, exchange policies etc etc. This would cut costs considerably over what exists today. I believe those costs could be substantially subsidized by offering consumer products, the type of which are generally discussed in this post and in links to other posts.
I’ve also heard the past Google rumors… they could easily pull it off from an engineering talent standpoint. I can only guess that the reason they would not want any part of this is that Googles business model is providing a superior search experience that transcends industry and providing advertising around that, not getting into the niche business of understanding and trying to manage real estate data and the politics that currently control it. Their advertising model just doesn’t fit within this arena.
The other examples you provide: Zillow & RPR, to include the likes of Trulia and Realtor.com all have an inherent conflict when discussing shifting how a MLS would aggregate, display and repurpose data… they depend on the current contingency of MLS’ to play ball in order to support their business models which are also driven by advertising. Piss off the MLS’ in their current iteration and face the possibility of losing your lifeblood. FWIW, I don’t believe that Zillow et al are remotely interested in becoming a brokerage, considering the typical profit margins of todays real estate brokerage.
Syndication is also coming under intense pressure with more and more brokers opting out. As this continues to happen, total available property coverage %’s fall and value right along with it.
I like what the Spark Platform is proposing, alas they are also dependent on the participation of MLS’ (in whatever form). Can’t help but believe that Spark and the innovations that could be advanced via such a marketplace would thrive at a much greater velocity under an ‘open source’ MLS platform.
The primary reason the ‘6%’ commission model exists, albeit in theory since admission would amount to collusion, is due to lack of transparent competition which causes bloat in order to feed many mouths. Many mouths = much $$ to potentially be collected by associations… national and otherwise.
Over time there would be less competition in the sense that underperforming agents could no longer covertly ride the coat tails of experienced agents (and their collective teams/businesses/brokerages) and perpetuate the bloated compensation model. So while there may very well be less money to go around in such a place, there would also be less fat to feed.
Those agents that can prove out their expertise and performance… both objectively and subjectively… stand to benefit financially. Consumers stand to benefit by being able to vet and align themselves with agents who have the demonstrated experience to guide them through the buy/sell process for homes of a specific price in a specific area, among other variables. It’s well understood that people will pay for something that they perceive has value. Lets turn veiled perceptions into transparent realities and afford the true professionals the compensation they deserve in both form and value.
Great post, Jeff. I agree that open-sourcing it in some form is a good idea; many industries have benefited from an open-source solution. However, it seems like the problem with real estate is the incentives. There are few real estate brokers who are also developers, and as you indicate, existing players want to protect their revenues. Further, as a developer myself, I can attest that MLS-type issues don’t seem particularly interesting as something to work on as an open-source project. Developers & hackers like cool, interesting technical challenges, whereas creating an open-source MLS is more of a bureaucratic one.
Solving the technical challenges would go a long way to solving the bureaucratic issues. I’m overdue to pen a follow up post addressing some of these more granular yet vital aspects for developers and end users to consider.
Thanks for the comment!
Well, you might have a point. From the limited amount of what I’ve seen of MLSs, I’m sure some decent UI/UX and mobile apps could go a long way.