There are arguments for repealing the MLS’s clear cooperative rules

The Rational Argument for Repealing the MLS Clear Cooperation Rules.

Does cc work? Do I benefit from it? Would I want it to stay in place? Yes.

Is it best for consumers (whom antitrust laws are supposed to protect?) It depends.

Are we comparing it to Compass’s gamesmanship that heralds a worst-case scenario where buyers have to go through twenty broker websites to see what’s available?

Or do we compare it to a mature free market where effective competition forces existing infrastructure to improve by simply opening the door to competition that could disintermediate it?

The MLS system offers transparency, but at what cost?

MLS is not capitalism in its final form. If the industry were to start from scratch today, there is virtually no chance that we would end up with over 400 MLSs, each with their own management team, data structures and rules.

Every year on my birthday I get a postcard from my MLS, My MLS pays for technology I will never use and they provide training that I rarely go to. Since I started writing this article, I have also discovered that I have paid my dues for dog watching services, while “volunteers” have earned thousand dollar Hamilton tickets. For me and most agents I know, the value of the MLS is in the database and few want to subsidize the programs that don’t benefit us, nor do consumers.

The costs absorbed by consumers can be measured in billions of dollars to maintain the current structure. The math is simple: I pay $1,200 a year in association and MLS dues and there are 1.5 million real estate agents who, like me, also have to pass these costs on to consumers.

Because of CC, practitioners are required to give their valuable data to both brokers and marketing intermediaries. Companies like Zillow, Reatlor.com, and leading companies of all shapes and sizes use this data to add billions in costs to consumers. If these companies had to collect their own data to attract customers, their business would look very different than it does today and this would likely benefit consumers more than if it were sold to agents with a 40% markup. I recently wrote in the article “Golden Goose of Real Estate” that explains the real estate referral fee problem that exists mainly because of CC.

As private equity works its way into owning our industry’s infrastructure, do we really want to protect MLSs as if they were an unregulated utility so conducive to transparency that it must be preserved at all costs?

MLS Benefits

I almost unanimously agree with all the benefits touted by CC supporters, which makes this quite a dilemma between choosing capitalism over the security and fame of the current system. Today, buyers see all the inventory and an agent’s job is easier without having to source it themselves. Transparency and access are the cornerstones of capitalism and the free market. No one can argue against these ideals, but to say they wouldn’t exist without the transparency CC provides is simply to express a deep distrust of capitalism. It’s almost as scary as saying that first-time homebuyers, minorities, and VA borrowers would never be able to purchase a home if cooperative compensation were removed from the MLS. It’s only been three months and most of those fears have been proven to be unfounded.

What happens if CC is revoked?

Sellers will still want to feel that their property is being marketed to the broadest group of buyers. The company that can deliver the best execution, which usually comes from the most exposure to buyers, will win. Robert Refkin won’t be able to convince sellers to limit their exposure and marketing so that Compass can attract more customers for itself. Even if he were that charming, I’m sure the industry as a whole would consider sharing offers with Compass. Would buyers want to go to Compass if they were missing out on inventory from ANY OTHER broker? A truly free market will sort through all kinds of ideas and iterations to arrive at something that gives consumers what they want, the best execution.

Agents should not be forced to choose between working inside the MLS or outside of it, and buyers and sellers should not be required to subsidize the MLS if they ultimately don’t use it. Any efficient marketplace must allow participation without prohibiting alternative fulfillment methods, otherwise it is anti-competitive. There is no incentive for the current system to improve and new ideas will never have a chance if brokers are excommunicated if they want to offer alternative execution methods to their clients.

Existing marketplaces provide a blueprint

The NASDAQ provides a strong example of how a marketplace can work for both brokers and consumers. NASDAQ has supported efficient, competitive trading for decades by allowing brokers to manage their own electronic communications networks (ECNs). NASDAQ was created out of inefficiencies in other markets like NYSE, where hand signals in a crowd of people were replaced by instant electronic execution. What if NYSE decided that brokers who place trades through their network could not place trades on NASDAQ or they would lose their membership in the NYSE? Would NASDAQ have been able to overcome a cold start problem and gain enough critical mass to become successful?

Brokers such as Morgan Stanley or Merrill Lynch have their own ECNs to process client trades internally, often resulting in lower costs for clients and higher margins for the brokerage. When a broker does not have a direct match for a trade, it is added to NASDAQ, exposing it to ECNs from other companies that might. Imagine if real estate worked the same way: Compass or another major brokerage could offer clients exclusive in-house listings with an option to list on MLS or an equivalent if the property doesn’t move. The benefits? Sellers get lower costs and privacy options, while buyers still get access to inventory.

Withdrawing clear cooperation would not eliminate transparency or destroy the real estate market; it would create new transparency standards driven by competition. Sellers want visibility, buyers want access to inventory and brokers want options to serve customers cost-effectively. In a competitive market, almost all listings would still be visible simply because sellers and agents want them to be. And in the real estate sector, where information is very local and diverse, competition ensures that service, quality and costs are in balance.

In this model, agents would thrive without being forced to subsidize an outdated MLS structure, and consumers would enjoy the benefits of true market choice. Capitalism thrives on competition, and when Clear Cooperation is shut down because it stifles free market exchange, the infrastructure will transform, and that’s probably a good thing. Capitalism will do its work and create a more efficient marketplace, resulting in more options for consumers and more opportunities for innovative agents, even agents who don’t license with Compass.

Dean DiCarlo is the CEO of Homing.

This column does not necessarily reflect the opinion of HousingWire’s editorial staff and its owners.

To contact the editor responsible for this piece: [email protected].