Download the report (PDF 554 KB)
There is one thing that courts, regulators, online advertisers, and the real estate industry can agree on – that is, local multiple listing services (MLSs) promote competition between real estate brokers which ultimately benefits consumers. MLSs organize listing information in a common database resulting in lower search costs, greater exposure of inventory to potential buyers, and easy market entry for new brokers to compete. MLSs also provide a means for communicating unilateral offers of compensation to other participants and they provide rules and dispute resolutions processes to ensure the orderly functioning of the real estate brokerage market. That is what MLSs do. How they do it has garnered much less discussion – until now.
The National Association of REALTORS® asked independent, expert economist Frederik Flyer to explain how MLSs work in his new report, "Procompetitive Benefits of Policies Limiting Access to Local Multiple Listing Service Data." The report explains that the MLS depends upon participating brokers voluntarily agreeing to share their property listing information with and compensate other participating brokers for the sale of those listings. Quite simply, in order for the MLS to work to make listings available to consumers, brokers must be incentivized to participate; they must receive benefit from their participation. According to Flyer, "the MLS is not costless to build and constantly needs updating and new distribution to maintain relevancy, and so incentivizing those who 'build' the MLS and contribute the listings that it contains is important to the promotion of consumer welfare."
The report concludes that allowing brokers to determine the extent to which they will provide public access to their MLS information serves consumers because it incentivizes brokers to invest in the attainment, developments, and overall servicing of listings that are shared in the MLS. In support of this thesis, Flyer asserts:
- "By protecting broker listing investments, current established brokers have incentives to make their listings available and thus enable new entrants to more effectively compete and expand, as these new entrants gain access to these listings via the MLS."
- "Reserving to brokers the opportunity to determine whether to share their property listings for display on third-party aggregators in the end can benefit consumers of brokerage services, as maintenance and promotion of broker listing value encourages investment and expansion in the brokerage service industry. Obligating brokers to provide their information to businesses in different markets, without any explicit compensation or derived benefits in return, is not a sustainable economic model."
- "Much of the criticism of limiting information access stems from the concern that consumers of Internet-based data aggregators of real estate listings, such as Zillow and Trulia, will not have access to full MLS information. However, what’s important to recognize is that these websites compete in a different antitrust market, as neither Zillow nor Trulia broker real estate transactions (and so are not competitors of real estate brokers). There is nothing exclusionary from preventing third-party data aggregators from using MLS data."
- "Critics of information restrictions have openly wondered why the Internet hasn’t played even a more significant role in the provision of real estate brokerage services . . . effective brokerage services still require substantial personal services for which there are no computer substitutes (currently) . . . so comparing this industry to others with far less human capital requirements [such as travel industry] leads to misleading inferences on the level of innovation occurring in brokerage services."
As Flyer concludes , "policies that interfere with broker determination of how they will use and profit from their efforts, or that allow others to benefit from broker efforts (without compensation), means that brokers will face distorted incentives when making decisions on investments, including their investments in obtaining and sharing property listing information." Policy makers within and outside of the real estate industry should remember that the future of the MLS and the procompetitive benefits it confers, depends upon MLSs providing incentives for brokers to participate.
Download the report (PDF 554 KB)