Rethinking MLS Support for Broker Innovation: A Win-Win Approach

As we traverse the dynamic terrain of the real estate industry, the bond between Multiple Listing Services (MLSs) and brokerages and agents stands as a critical element. Amidst the flux, I aim to shed light on some crucial issues and propose potential solutions to foster a healthier, more progressive relationship.

1. Shifting the MLS-Brokerage Dynamic

There's a growing sentiment that MLSs could be unintentionally hampering brokers' and proptech’s ability to innovate. The MLS’s current focus on providing free technology to participating brokers and agents may not be as beneficial as intended. It risks undermining the unique value proposition that brokers offer their agents and it allows the MLS’s to monitor broker behavior performed within their broker tools.

Brokers perceive MLSs as gatekeepers, controlling access to the industry's data – the lifeblood of real estate. By selectively granting data access, MLSs inadvertently increase their own power, raising concerns about potential monopolistic tendencies and threatening broker relevance.

2. A New Brokerage Model on the Horizon?

Brokers feel increasingly challenged by the evolving landscape, which some see as trending towards their extinction. The solution is not in offering more technology "carrots," but rather in a radical rethinking of the data rights landscape.

Typically, It's best to learn from history, instead of repeating it.

Just like California's water rights system, the current structure of Multiple Listing Services (MLSs) and their control over real estate data can present several downsides. Let’s compare the disastrous water rights scenario to real estate data.

1. Complexity and Uncertainty: The water rights system in California is based on a complex mix of riparian rights, appropriative rights, and groundwater rights, each with its own set of rules and priorities. This can create uncertainty and potential for disputes over water usage, particularly during periods of drought when water is scarce.

   • Real Estate: 

     The rules governing access to MLS data can be complex and varied, leading to uncertainty for brokers and other real estate professionals. This can create a barrier to entry for new players and stifle innovation in the industry.

2. Seniority-Based Allocation: The system of "first in time, first in right" means that those who have held water rights the longest (senior rights holders) get priority. This system can lead to inefficient water use, as senior rights holders may use water excessively or wastefully simply because they can.

   • Real Estate:

     Similar to the "first in time, first in right" principle in water rights, access to MLS data can sometimes favor established players who have had long-standing relationships with MLSs. This can make it harder for newer brokers or startups to gain a foothold in the industry.

3. Lack of Oversight and Regulation: Groundwater, which is a major source of water in California, has historically been poorly regulated. Although the Sustainable Groundwater Management Act of 2014 aimed to address this issue, progress has been slow, and over-extraction of groundwater remains a problem.

   • Real Estate:

     There may be insufficient oversight over how MLSs distribute and allow access to real estate data. This lack of transparency can lead to allegations of unfair practices and monopolistic behavior.

4. Impact on Environment: The over-extraction of water, both from surface water bodies and groundwater sources, can have significant environmental impacts. These include reduced flow in rivers and streams, which can harm aquatic ecosystems, and land subsidence due to groundwater extraction.

   • Real Estate:

     MLSs' control over real estate data can influence the health and diversity of the real estate market. If access to data is restricted, it can limit competition, restrict consumer choice, and potentially inflate prices.

5. Inequitable Access: The water rights system can lead to inequitable access to water. Wealthier areas and industries may have more resources to secure water rights, while disadvantaged communities can end up with inadequate water access. This issue has come to the forefront during droughts.

   • Real Estate:

     Just as in the water rights system, the current MLS structure can lead to inequitable access to real estate data. Larger or more affluent brokerages might be able to secure better access to data, putting smaller brokerages at a disadvantage.

6. Inflexibility in Response to Climate Change: As climate change leads to more frequent and severe droughts, the rigid water rights system makes it difficult for the state to adapt and ensure a sustainable and equitable distribution of water.

   • Real Estate:

     The real estate market is continually evolving, with new technologies and consumer preferences driving change. An inflexible MLS system can hinder the industry's ability to adapt to these changes.

The California water rights scenario is mirrored in the real estate industry's data rights - an increasingly monopolized field with a few dominant MLSs. This makes it essential for brokers to act, developing their own national listing tools and compensate agents for their data.

To stay relevant and maintain control, brokers should lead the charge in creating the "Spotify of agent listing data."

3. The Demand for Change

Agents, the primary victims of the current system, need to voice their concerns and demand change. There is an opportunity for MLSs to adapt and offer fairer solutions, like creating a data-sharing platform akin to Spotify. The race is on to see who can implement these changes first - MLSs or brokers.

4. Envisioning a Fairer System

To encourage broad-based adoption, the industry needs to clarify third-party data usage, limit MLS equity ownership, and regulate MLS acquisitions. Agents should receive compensation for their data, and brokers should not bear the cost of MLS data when building internal tools. A national API/LLM model, equitable for startups, should be created and sold to third parties. This Spotify-like model would ensure proper compensation for both MLSs and agents.

5. Short-Term Pain for Long-Term Gain

While the proposed changes could initially impact MLS revenue, the long-term benefits are promising. As GPT models become more widespread and more proptech companies build on them, any initial loss would diminish. MLS’s could freely build any SAAS they want, creating a win-win scenario for all.

We're at a pivotal moment in the real estate industry, and change is inevitable. Let's move towards a future where innovation and fairness are the cornerstone of our practices.

- Steven McCloskey

P.S. On June 14th I will be on a panel speaking to the top MLS executives in the country fighting for Broker and Agent rights. If you have an opinion or strategy that you would like me to consider and voice, reply to this email!