Bottom Line Up Front!

The National Association of Realtors (NAR) and its subordinate associations should not control MLSs.

NAR is one of the largest trade groups in America with approximately 1.3M members. But that membership is not earned. It is coerced, through NAR’s self-serving relationship with the multitudinous local monopolies – the MLSs.

The result is a “trade organization” that plays favorites with vendors, is unaccountable to members, and whose pocketbook is never affected by failure.  There is no other trade group in America structured this way to my knowledge.

I Don’t Hate NAR

I want to start by saying nothing in this article is meant as an indictment of NAR (or local association) leadership at any level. I have a high opinion of those leaders I know personally, and I think on the whole NAR and the local associations do a good job, with some minor quibbles.

Even after the transformation, I will still be a dues-paying member. There is value in trade organizations.

Really the only problem I have with NAR is the marriage between Realtor association and MLS.

What NAR Does Should be Illegal

The marriage between associations and MLSs was a massive mistake for our industry, and probably should be illegal anyway.

As it stands, MLSs are monopolies. There is no market-based reason that they should be monopolies, other than the typical affiliation between MLS and the local associations. Those local associations then carved out effective geographic regions for which their MLS is predominant and protected their turf by mutually (though unofficially) promising not to invade anyone else’s fiefdom, uninvited.

The result is a monopoly.

Then, monopoly firmly in hand, they require MLS member to also be members of the Realtor associations.

The result is that you have to become a Realtor in order to access the MLS in most parts of the country. Realtors are hostages of NAR, not members. It would be like if you owned every gas station in your county and used that leverage to require every customer to join your club before they were allowed to pump gas. Maybe you have a great club! But we would rightly be offended if a gas station insisted on any such thing.

Why aren’t we offended by NAR’s relationship with the MLSs?

What *Should* Happen

Realtor associations should divest completely from all the MLSs. Sell them all.

NAR doesn’t have to give them away. Put together numerous IPOs. NAR can keep its stake in the various MLSs as a non-voting shareholder, earning passive income from any dividends or distributions in the future. But the MLSs will finally be completely untethered from NAR, and allowed to focus on earning market share instead of demanding it from their small fiefdoms.

I think there is an anti-trust case to be made that could compel this to happen. But if the associations can do it voluntarily instead of forcing government intervention, all the better.

In theory, NAR would be crazy to do this. Doing this would voluntarily give up a significant portion of its dues-paying members and accept a future of much more limited scope (and money) than it has now. But NAR is a non-profit, anyway. It has no profit motive. Instead, it is structured to serve the interests of the members.

The inevitable result will be a mass exodus of agents from the associations. Instead of 90% of real estate agents being “Realtors”, it might be closer to 30%. But then, “Realtor” might actually mean something. Imagine a world where most of your competition are not Realtors. The few who are, making that commitment both financially and professionally to their craft, will have an actual selling point when advertising themselves to buyers and sellers.

That is the best future for brokers and consumers.

What *Will* Happen

NAR will never voluntarily do this.

But it won’t matter, because the same result will come about by other means. Specifically, I think MLS-of-choice is going to be a major catalyst that will spur innovation in the MLS industry, and eventually disentanglement from the associations.

Here is how it could play out.

A for-profit MLS seeks to improve their bottom line. How do you do that? Adding more members. What better way to add more members than expanding your market area? And how big a market area could you go under MLS of choice? Well, how about all of North America?

So then you have for-profit MLSs competing with each other for customers – the brokers. But brokers aren’t the only potential customers of the for-profit model. The MLS is just an offer of compensation to licensed agents who bring buyers. Why not let non-Realtors, just “real estate agents”,  join the MLS and expand membership? It’s all about the bottom line. Eventually, why not let FSBO homeowners join? (But that is another topic).

Suddenly, the most profitable and innovative MLS providers are A) providing better service to B) a wider service area that C) is decoupled from the associations.

No, that will never happen! Associations would never allow it.

They couldn’t stop it. Not in the free market. The only way to stop it would be interfering with the laws governing our industry and stopping it that way. Admittedly, that is NAR’s favorite way of dealing with innovation, and they’re pretty good at it, but the industry simply can’t sustain the stress for that long. It will break eventually.

The Future

I am writing this recently after Rob Hahn wrote a related an interesting take on the NAR/MLS relationship. Where Rob Hahn is wrong is his repeated use of “MLS” and “utility” in the same sentence. Rob seems to think that there is some room for the MLS space to simply be run by the government the way your water is – accessible to all.

However the MLS business is not a utility and bears no relationship to those industries in which we would normally use a utility model. It is not infrastructure. Nor is does it meet the economic definition of a public good the way that national defense or environmental protection does.

Then what would be the result of the changes I think are coming, with or without NAR?

A few for-profit MLSs will emerge on a national scale. You can join one or several. NAR and the associations probably will own no shares in any of them, their own backward MLSs long since driven out of business because they refused to change.

Forward-thinking MLSs like the Houston Association of Realtors (HAR) and Bright MLS could come out on top, multi-million if not billion dollar companies. MLSs could have the resources and corporate structure to innovate, competing against the major portals and protecting membership interests.

I for one look forward to this future.

Conclusion

The changes in the MLS industry are already the talk of the town. But we have not yet begun to see the sweeping changes take place that are going to in this space. Not just consolidation, but completely new business models will emerge and displace the dinosaurs that do not adapt.

The consequences for NAR are tremendous. It can happen in an orderly fashion, with NAR guiding the process and keeping a stake in the game. Or it can happen through the creative destruction of the private market, with NAR’s influence and control obliterated over time.

Either way, it will be an exciting new chapter for real estate agents (and Realtors!) and consumers.