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Unintended consequences of listing regulations

By February 4, 2015 One Comment

“Follow the drugs and you’ll find the drug dealers, but follow the money and you’ll be surprised where it takes you. – HBO’s police drama “The Wire”

Regulations governing the access, distribution and display of residential real estate listings changed many industry dynamics over the past 20 years.

Traditionally, brokers and agents paid dues to access and view cooperative listings aggregated by their local multiple listing service (MLS) organizations.

With the rapid commercialization of the Internet in the late 1990s, the money started to flow as technological change opened a direct display of listings to consumers, mirroring what was happening in other industries (such as travel).

The industry’s trade group, the National Association of Realtors (NAR), helped Homestore, the predecessor to Move and, thrive. In the beginning, paid MLSs or brokers for support and listings. An article in Realty Times stated the price could be up to $3 per listing. crashed when the first tech bubble popped due to a trail of accounting irregularities. NAR and those with vested interests helped eliminate these “pay by the listing” fees — but not the preferential treatment.

This free access to brokers’ listings for set a precedent for all of the portals and accelerated who won and lost value in the real estate space for the next decade. When the dust had settled, Zillow, Trulia and created billions of dollars of market capital value where none had existed. The portals did this by exposing listing data on a national basis and winning over consumers via technology platforms, product and marketing expertise.

In the portals’ wake, local brokers and their enterprise technology vendors were left to bear the brunt of local regulation and fees.

Although many MLSs provide free listing feeds to portals, they continue to charge access and display fees to brokers, agents and their vendors for similar Internet data exchange (IDX) feeds.

It’s important to note two-thirds of MLSs do not charge for data access to IDX feeds. The other third of MLSs charge the agent, broker or technology vendor (and sometimes more than one).

These fees can run over a million dollars a year for a single vendor and the vendor’s customers if it runs products on a national level for multiple clients.

Innovation is hard under this cost structure for listing products. To that end, there are only a handful of enterprise technology companies that have access to 400 or more MLSs across the country.

It’s not the intention of the MLS to stifle innovation by “taxing” their members and technology vendors — it’s an unintended consequence. Consider that if a technology company wanted to offer a base-level, free listing-related product in an MLS, it would be impossible without paying MLSs fees or negotiating a partnership or discount, one MLS at a time. It’s hard to create products when they are “taxed” 50 percent or more — for example, an agent might spend $20 per month on a product and pay a $20 monthly MLS fee, too.

Inman previously reported that large brokers and franchisors negotiate better rates for their agents and can pay six or seven figures a year to get their brands better exposure on portals. This can be a competitive advantage for the largest firms and their agents. Volume discounts are a standard business practice, but is this the intended consequence MLSs wanted for their members as they release a broker’s data for free to portals?

Could the 30 percent of MLSs that charge fees for listing data level the playing field?

MLSs need money to operate. If portals want 100 percent of the listings, without going broker to broker, then is it time for MLSs to charge Zillow and the same fees it charges its own members or their vendors? Or is it time for an MLS to charge portals $1 to $3 per listing to ensure 100 percent of the listing content?

Like all regulations, the power resides with the people — in this case voting MLS members and their MLS staff. It’s up to them to assess whether conditions have changed to warrant new regulation and think through the new set of potential unintended consequences.

Brad Blumberg is a licensed broker and the founder and CEO of Smarter Agent, the largest mobile real estate app company in North America.

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