True Gotham

We don't have a multiple listing service here in Manhattan, so I'm not terribly familiar with it. But with the recent talk here of an open-source MLS, I thought it was only fair to pass along this insightful comment from Brian Villanueva on the Inman blog that could be a big obstable to any Open MLS system:

As both a RE broker and an IT consultant for many years, I've looked into the "Open MLS" concept many times in the last decade. The problems have never been technical (those were solved 7 years ago with IDX); they are social and legal.

From an advertising perspective, the MLS is just a really big Internet ad database. There's been nothing special about it since IDX came out. However, the MLS is much more than just an advertising medium.

The MLS provides a legal framework to enforce the the coop rates that are posted. Buyer's agents don't need to negotiate with every seller individually, and the agent who sells a house knows she has a solvent individual (the listing broker) to charge her commission against.

That's the hidden problem with any "Open MLS" system: buyers don't pay their own agents. That may be an inefficient, antiquated convention (I certainly think it is.) But, for better or worse, it is the social structure of real estate for most of America. Sellers pay both sides.

All of the free, public MLS proposals fall down when they approach this issue. Data is free. Access is free. But buyer's agents still need to get paid. Any agent who tries to charge buyers (instead of sellers) faces an uphill battle, and a seller who lists homes with no commission gets ignored. Hence the massive inertia of the current MLS system. Both parties have an incentive to change it, but those incentives are all divergent.

I applaud Mr. Barry for his attempt. I would gladly post my listings on his database, or on any other medium that I thought would get me a buyer. However, it is not accidental that all previous efforts in this area have fallen flat. Until the real estate commission structure changes, this will remain an unrealized dream.

Because NYC has no MLS, much of this is an education for me as well. I too would welcome Mr. Barry’s concept of an open “non-profit” MLS but there appears to be many obstacles and according to Mr. Villanueva, the very structure by which real estate agents are paid could be an insurmountable one.

Here's one idea. I have been a proponent for change in commission structure for years and believe that the market would become much more efficient with less conflict of interest if buyers paid there side of the commission and sellers only had to pay their side. Imagine the industry with bona fide buyer’s brokers who were dedicated to the often exhaustive process of finding their clients a home. Certainly, the buyer would win as would their agent. The seller obviously wins too because they don’t have to pay the full commission (often 6%). With the majority of transactions involving two brokers anyway, this structure would greatly alter the dynamic of the industry and in my opinion, create a much more cooperative and pleasant real estate market for all involved, especially consumers.

What's interesting to me is how you phrased your comments - i.e. that the buyer's agent has to get paid. The problem that buyer's agents have is that if they don't show their clients everything, FSBO, with the advent of the Internet, most people will bypass an agent when it comes time to buy. And in NYC, for really hot properties, seller's agents don't even want to deal with people who have their own agents. My prediction is that the real high-end trophy properties will always be represented by agents, ditto "high-end" clients. Everything below that point, I think companies will emerge that gather your data, take pictures, help you with escorted openhouses, all that for a much smaller fee that the current x%. And for a small fee, buyers will sign up to receive comps, get listings, etc.

I absolutely agree with you about current market dynamics and agents not showing all properties. That is an ethical dilemna that agents must address by showing ALL properties. I also believe that FSBO's would be much more likely to cooperate with agents if they were only paying half the current commission rates.

And I want to be clear that I wasn't making a "prediction," rather I am suggesting a radical change to the way real estate is bought and sold. I still maintain that my system would work but the main obstacle is the industry itself in that most don't want to see commission structure or who pays it change. Change is coming, whether the industry likes it or not and I believe that with cooperation, we could make the transition to a new model a smooth one.