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This article was published on: 06/01/2006

FEATURE: The Great Debates

What’s next for the MLS?

BY MARIWYN EVANS

Note: During 2006, REALTOR® Magazine will explore some of the "great debates" in organized real estate. This month: the challenges facing the country’s 900 multiple listing services. Later in the year, we’ll explore the movement to expand private property rights and the flow of mortgage capital.

It may be hard to believe, but there hasn’t always been an MLS. Although the concept has been around since the late 1800s, it wasn’t until the 1950s that the industry saw its widespread use. Without it, consumers had to visit every brokerage office in town to be sure of seeing all available properties. Brokers had to spend hours negotiating cooperative agreements with other companies before showing a listing.

By creating a local MLS—first in the form of MLS cards, then in books, and finally using computer databases—real estate companies developed an almost effortless way to resolve these challenges. The MLS provided a fast, effective way to offer professional cooperation among brokerages. Consumers could easily view all available properties in a market. For decades, the system worked well—and still does.

Yet, like the real estate industry itself, MLSs are in a state of flux. Centralized listings and professional cooperation remain core to the mission of MLSs. But forward-looking organizations are reevaluating the value propositions of their system—fine tuning their offerings in response to broker needs and stretching the boundaries of the services and support they provide. Brokers are lobbying MLSs for more control and more flexibility in rules. And entrepreneurs from outside the industry are clamoring for more access to the data. All these factors are reshaping what the MLS is and what it will become. To sketch a picture of the MLS of the future, REALTOR® Magazine asked a variety of stakeholders what they envision for tomorrow.

MLSs will be bigger and fewer

If there’s one consensus among almost everyone interviewed for this article, it’s the need for the nearly 900 MLSs nationwide to consolidate further. Although more than 100 regional and statewide MLSs already exist, the 2006 MLS Technology Survey conducted by the Center for REALTOR® Technology found that 55 percent of REALTORS® surveyed would like to see more regional or statewide MLSs and 47 percent of the MLSs surveyed had discussed consolidation. The disagreement comes in the degree.

Pranix Inc. President Ann Bailey, who has advised numerous MLSs on consolidation and other business strategies, expects to see a time when there are only a dozen MLSs in the whole country. J. Lennox Scott, chairman and CEO of John L. Scott Real Estate, Seattle, sees statewide MLSs as the next logical step in most areas. “The fact that licenses, regulations, and forms are state-specific makes a state MLS easier to accomplish,” says Scott. This model has already been implemented in several states, including Maine, Massachusetts, and Rhode Island.

Chip Roach, broker-owner for Prudential Fox and Roach, REALTORS®, sees a mixture of models, with major consolidations around MSAs, states, or market areas that cross state boundaries, coupled with stand-alone MLSs in geographically isolated markets such as Las Vegas. He expects the number of MLSs to eventually drop to about 50.

“The small territories of most MLSs and REALTOR® associations were developed in the late 1940s to reflect the small trade areas of the time. That model has outlived its usefulness,” says Roach, whose company has 64 offices, operating in Pennsylvania, New Jersey, and Delaware. His brokerage was among seven companies instrumental in forming the TREND MLS, which serves 32,000 members in the Philadelphia/Southern New Jersey/Delaware market. Roach is 2006 chairman of TREND.

As brokers expand into regional market niches, their need to control costs on low-margin sales has become a driving force in MLS mergers. “Brokers want one set of fees, one system, and one set of data formats. There are huge cost efficiencies for real estate companies in MLS consolidation,” says Roach.

Consolidation will also benefit sales associates, who increasingly cover larger territories, says Steve Brown, CRB, CRS®, vice president and general manager of Crye-Leike, headquartered in Memphis, Tenn. The company, which serves Tennessee, Arkansas, northern Georgia, and Mississippi, currently must contend with 26 MLSs, adding about $200,000 a year to operating costs. “Our people have to belong to three MLSs within a 10-mile radius of Memphis to serve the metro area. That’s just not efficient,”says Brown.

Among the many difficulties of multiple MLSs are the wasted time and possible errors of entering data separately for each group and the difficulty of adhering to a variety of sometimes conflicting rules. Sales associates also waste time searching multiple databases to ensure that they show clients all appropriate properties, says Bill Hoyle, a sales associate with Shells Realty in Port Charlotte, Fla.

A bigger MLS generally allows for a larger, more diverse staff to support both technology and customer service functions. A membership of approximately 21,000 has provided Real Estate InfoLink, which serves California’s Silicon Valley, with the funds to support the development of a proprietary database. “We are less dependent on vendor solutions and are able to bring many more tools, such as mapping, to the table at a lower cost,” says Jim Harrison, REIL president and CEO.

Differences in property terminology, rules, and practices among even nearby markets remain one of the barriers to regionalization. “Creating a more effective regional MLS is a delicate dance,” says David Charron, president and CEO of MRIS, a regional MLS serving 58,000 users in the Washington/Maryland/Virginia corridor. For example, items about tide erosion and beach access don’t make sense in a listing for mountain property.

MRIS is developing technology that allows sales associates to input only those data elements appropriate to their market into the body of the listing. “Using the flexibility of the Real Estate Transaction Standard to present customized data entry screens with local nomenclature will be a business imperative for us going forward,” says Charron. RETS is an open standard for exchanging real estate information among industry participants.

The Southwestern Michigan Regional Information Center, which for a decade has provided a central database for the seven MLSs that own it, has found another way to marry consolidation and local custom. Each of the MLSs has its own rules, but the data is centralized, making it possible to acquire more sophisticated technology and offer common services such mapping and access to public records, says Gary Walter, SMRIC president and chief operating officer. “If we’d tried to consolidate the rules, the agreement never would have happened.” Walter hopes that a shared lockbox system will be the next step for the group. As is often the case with MLS vendor contracts, long-term agreements with differing end dates are another barrier to overcome in consolidating services, he notes.

Territoriality and a reluctance to change play a role, too. “A desire to preserve the status quo is a human trait so, unfortunately, the people and the politics often get in the way of business,” says Roach.

There’s also the money to consider. Consolidation is a game where the financial stakes are high. The more than 50 MLSs in California generate significant income for their local associations, a disincentive to consolidate, says Gary Thomas, CEO of RE/MAX Real Estate Services in Orange County, Calif. Thomas chairs a California Association of REALTORS® MLS Working Group charged with reviewing the MLS environment and coming up with a vision for the future.

Although consolidation can mean loss of revenue, it can also add up to significant cost savings. Scott estimates that when five MLSs in the Seattle area merged, they saved $900,000 in operating costs a year, not to mention the savings in staff hours when multiple data entries and downloads are eliminated.

No one knows for sure how far consolidation will—or should—go. Most of those interviewed didn’t believe a national MLS made sense from a market perspective. Yet, technologically, there’s little to stand in the way. As the use of RETS becomes more widespread among both MLSs and the vendor community, property databases could extend over many states, with individual users paying only for the data and features they use, says Harrison. The only limit is imagination—and a willingness to change.

MLSs will become technology clearinghouses

Since MLSs already have the listing data and the technology that allows for its dissemination, many consider it a logical step for them to expand their portfolio of technology and data storage services to users.

“There are tremendous efficiencies to be gained when an MLS uses its position in the market to leverage experts and deliver products and services that are interoperable with the MLS,” says Charron. Many MLSs are already offering services such as GPS and mapping, Internet data exchange, tax records, software to set up showings, and wireless connectivity. Charron says MRIS is also exploring options for data archiving, disaster recovery, technology consulting, and transaction management. “But we must be mindful that we don’t impinge on the brokers’ value proposition with their sales associates. Tough to do, but not impossible,” he says.

Already the IRES MLS, which serves 6,000 members in northern Colorado, is offering what CEO Lauren Emery calls “transaction lite,” a checklist for the life of the listing. Emery sees this as probably a first step to offering a transaction management platform.

One issue MLSs face is whether to make these new services optional or wrap them into basic access. The Willamette Valley MLS in Salem, Ore., has moved away from offering add-on services and products to rolling everything into one base fee. “We used to charge extra for programming, additional pictures and virtual tours, online forms, and lockbox keys. Now we try to cover everything our 1,900 users need,” says Executive Vice President Jay Gordon. Offering something like transaction management “would be consistent with these services,” says Gordon, but thus far, he’s held off, concerned about “being at cross purposes with our brokers.”

Indeed, despite the potential benefits of being one-stop technology shops, quite a few MLSs hesitate to offer supplemental services for fear of alienating larger brokers. Companies that have purchased certain types of software don’t want to pay the MLS for a service they already have, notes Peter Shuttleworth, executive vice president of the Metro MLS, which serves southeastern Wisconsin. Nor do companies want the MLS to level the playing field and take away the perceived competitive advantage a particular service or software may offer.

“The MLS’s job is to bring data together, not to provide marketing tools or reconstruct resources members already have,” says Harley Rouda Jr., CEO of Real Living, headquartered in Columbus, Ohio, and serving 11 states with 4,000 plus sales associates.

Shuttleworth, whose MLS offers Web support and data management as well as core listing services, agrees that “the role of the MLS is not to make everyone equal.” At the same time, he notes, an MLS must “balance the desire to lead and provide effective service to all members with the economics of the larger companies.” One compromise would be to develop a basic and a premium package for members, providing extra services at a cost above the basic MLS membership fee, he suggests.

The Houston Association of REALTORS® MLS is well known for providing an array of services, including IDX Web sites for all 23,000 members and a consumer site (www.har.com) that delivers 400,000 leads annually to practitioners. HAR.com includes mapping, virtual tours, and multiple photos, says HAR President and CEO Bob Hale. Another of the association’s most popular tech tools is an Internet-based appointment system, Appointment Manager. Created by a team of brokers and HAR staff in 2004, the software has facilitated 551,000 home showings thus far. Now HAR is working to provide a member interface that would allow brokerages to access whatever transaction management software platform they choose, says Hale.

Despite HAR.com’s success, not every broker favors the idea of MLSs evolving from a traditional services platform to a “marketing co-op” that promotes property listings directly to consumers.

“Consumers should have access to the listings through IDX, but I want them to come to me or another broker, not the MLS,” says Mark Woodroof, GRI, partner and broker with Houston’s Prudential Gary Greene, REALTORS®. “And I don’t want my dues to pay for promoting the MLS’s site,” he says.

A sizeable percentage of REALTORS® agree. According to the CRT’s MLS survey, 43 percent of REALTOR® respondents said MLSs should not provide a public Web site.

MLS governance structure may change

As the services issue demonstrates, one source of tension for MLSs is their desire to reconcile the needs of diverse members. Large brokers that represent the majority of customers have somewhat different needs than the association’s members as a whole. This debate has promoted more brokers to become involved with MLS governance, either as shareholders in private MLSs or as board members on association-owned entities.

“Brokers stepped out of involvement with MLSs in the 1990s but are now recognizing that they have to be more involved, says Ed Krafchow, president of Prudential California, Nevada, Texas Realty, headquartered in Pleasanton, Calif., and an active participant in getting MLSs in the Bay Area to consolidate.

Private ownership often makes MLSs more flexible in responding to the changing demands of users and less bound by association rules and politics. It “eliminates one layer of bureaucracy,” says Pranix’s Bailey. At the same time, privatization under a limited number of broker-owners opens up the potential to alienate smaller brokers, suggests Larry Metzger, CEO of the Columbus (Ohio) Board of REALTORS®.

Even if an MLS is owned by an association, having a board of directors made up of brokers may allow for smoother operations and a tighter business focus, says Rita Johnson, president and CEO of TREND MLS. She believes TREND’s governance, which combines ownership by 10 associations with an independent board of directors made up primarily of brokers representing different size companies is “the best of both worlds.”

Similarly, in North Carolina, the association-owned Triangle Regional MLS avoids the politics by operating under a separate board of directors and relying on member focus groups rather than association officers to provide input, says Ray Larcher, executive vice president of the 5,600 member MLS. Association ownership also gives Triangle the protection of errors & omissions insurance through NAR.

“Although there’s a lot of debate about the ownership of the MLS, much of it is driven by frustration,” says Rouda. “If the MLS is managed well and the users see the value proposition, ownership is not that much of an issue.”

MLSs may no longer be MLSs

One of the largest and most difficult-to-combat pressures on MLSs today is the misperception among many consumers—and some regulators—that the MLS is a public utility, nothing more than the advertising arm of the real estate industry instead of a platform for industry collaboration.

To some extent, this confusion has been fostered by the industry itself, says Bailey. “If you look at real estate brokerage and sales associate sites, you see thousands that say ‘Search the MLS.’ That creates a perception among consumers that they already have access to the MLS,” she says.

Some MLSs, such as TREND, have rules prohibiting buttons designating “MLS” searches on members’ Web sites, says David Staebler, manager of industry relations for TREND MLS, but policing sites is a monumental job.

One way around the nomenclature confusion is to find a new name for the MLS and then register the new term as a trademark. The Canadian Real Estate Association has done just that with “MLS” in Canada, where the term carries a registered certification mark. (REALTORS® in the United States would have to seek a new term because an attempt to trademark “MLS” here was rejected.)

Perhaps the ultimate way to demonstrate to consumers that the MLS is a private exchange among real estate practitioners was the strategy adopted by the privately owned Real Estate Information Network MLS in Virginia Beach, Va. In June 2005 the MLS began charging consumers a nominal fee ($4.95 for one month) to do in-depth searches of local listing data and receive updates that meet their criteria. The cost is waived if the consumer is working with a real estate practitioner, says Carlos Rodriguez, director of business development. The charge isn’t about making money but about getting valid contact information that can be passed on to a broker, he says.

Some large brokerages and franchises are so concerned about the possibility of granting the public unrestricted access to MLS data that they’ve floated the idea of creating their own listing networks to replace the MLS. In a white paper published in February 2003, Parsippany, N.J.-based Cendant Real Estate Services Division foresaw a future in which “local brokers will seek to avoid sharing their listings with the applicable MLS in order to prevent otherwise unauthorized incorporations of the listings . . . . Such a situation would weaken and ultimately cause the failure of the local MLSs.”

The fact is, technology for creating a private MLS is relatively inexpensive compared with a decade ago, and some larger brokers might actually save money going that route, suggests Saul Klein, e-PRO®, GRI, president and CEO of Internet Crusade. Brokers could also negotiate private deals with search engines and sales sites such as Google, eBay, and Amazon to promote all their listings to the public and generate buyer leads, notes Klein. Prudential Real Estate currently has just this sort of arrangement with Yahoo! to link searches directly to franchisees’ IDX sites. And don’t forget Craigslist, which is already providing a way to share listings, he says.

A model that might reflect how private MLSs could work is the new RE/MAX national listing IDX that began initial rollout in March. When the project is done in March 2007, it will link to brokers’ sites that display listings from some 800 MLSs, says RE/MAX Co-founder and Chairman Dave Liniger. But Liniger sees the effort as advertising, not a replacement for the MLS. “The last thing we want to do is to get involved in building an MLS,” he says.

Others echo Liniger’s sentiment, saying they aren’t looking for a way to replace the MLS, whatever its problems. Even if brokers adopted private MLSs or an alternative such as peer-to-peer networks (sort of a Napster for real estate), eventually they’d find some need for rules on how to cooperate and share compensation, contends Staebler.

“When I got into real estate, center city Philadelphia didn’t have an MLS, and it was a Wild West atmosphere run by the needs and desires of the brokers,” Roach says. “The MLS made life much easier for brokers, their sales associates, and clients. If we didn’t have an MLS, we’d probably have to create one.”

Trying to see tomorrow

The crystal ball may be a little cloudy in predicting exactly what the MLS of tomorrow will look like, but the issue is receiving increasing national attention. In March NAR President Thomas M. Stevens appointed a presidential advisory group to explore how multiple listing services could evolve. “The MLS is at a crossroads, with technology driving change at a faster pace than ever. That’s why I’ve asked the group to start with a clean sheet of paper and ask themselves, ‘Is there a better way to do this?’” says Stevens.

“The PAG will try to look at how you’d design an MLS today from scratch if one didn’t already exist,” says PAG Chairman Gary Thomas.

Stevens has asked the group to report on its progress at the 2006 REALTORS® Conference & Expo in November.

“It’s in our members’ best interests for NAR to help ensure that the MLS of the future serves all members of all sizes and business models to help them better serve consumers,” Stevens says.

Building the case for listing ownership

A related issue to the MLS’s role in the future is the ongoing debate over listing data. Who owns it and how do those owners protect the value that the listings represent?

Perhaps the first step is to stop using the term data and to replace it with “content,” suggests David Charron, president and CEO of MRIS, a regional MLS serving 60,000 users in the Washington/Maryland/Virginia corridor. “Data are the specific facts of the listing—the number of bedrooms, baths, etc. Content is the entirety of the listing—the data, the listing price, salesperson remarks, images. There’s legal precedent that content can be copyrighted, but trying to copyright data won’t stand up in court.”

Although 70 percent of MLSs copyright their compilations of listings, only 6 percent of brokers copyright their listing content, according to a January 2005 survey conducted by the National Association of REALTORS® Marketing Department. The result is that brokers assert ownership of the data—a position supported by NAR—but may not have all the pieces in place to successfully defend that position in court.

The key, suggests Charron, is to include specific intellectual property language in both the listing agreement and the subscriber agreement that ensures appropriate transfers of copyright from consumer to sales associate to broker, and, as appropriate, to the MLS. MRIS has required such language in its agreements for several years. Says Charron, “We wanted to be sure that the value of the asset the listing represents is maximized and ensure that value accrues to the rightful owner.” MRIS developed an extensive white paper on this topic in 2005. (To read it, visit Current Links at REALTOR.org/realtormag.)

To help other MLSs and brokers establish legal ownership rights to listing content, NAR’s Legal Department is working with outside counsel John Rees of Callister Nebeker & McCullough in Salt Lake City to develop several sample documents. The intent is to provide a tool kit MLSs and brokers can use to put a listing content structure in place. Documents will offer the option for broker, MLS, or joint ownership of listing content. Specific documents will include an agreement photographers can sign to assign copyright to an MLS or broker and a document brokers can use to license content to an MLS.

Another key to controlling content is to educate brokers and sales associates about the need to monitor its use. “I’ve seen the enemy, and it is us,” jokes Rita Johnson, president and CEO of TREND MLS, which serves Philadelphia, Delaware, and southern New Jersey. She notes that too often, brokers, sales associates, or MLSs release content to a newspaper, magazine, or software vendor without recognizing that they are signing away access for other uses.

Yet, even with legal language in place and education underway, the battle to control the content is a losing one, says Ed Krafchow, president of Prudential California, Nevada, Texas Realty in Pleasanton, Calif. “Arguing over who owns the data is like two men fighting over a block of ice in the sun. While they’re talking, the asset melts.”

“Consumers should be able to get as much information as they want,” says Century 21 Real Estate LLC President and CEO Tom Kunz. Once consumers have data, they’ll still need real estate professionals to help them get through the process, he says. “I use the Internet to find all sorts of information on illnesses, but that doesn’t mean I won’t go to a doctor for a diagnosis,” he says.

The need to protect their position with consumers led the travel, automotive, and insurance industries, among others, to become the trusted source and integrator of information, says Jack Horton, managing partner of the Secure Content Group in Reston, Va. “Industries that are winning the battle for the point of sale and control of the transaction process are driving toward trust and insight, not control. The MLS is beautifully positioned to do this.”


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