Will Google Wave Mean The End of MLS?

by Val McMurdie

2 comments

1 alis { 06.26.09 at 12:46 pm }

Just to even mention a percentage as a “fixed” fee is against the law. And where does Zillow and et cetera get their information? From the MLS sites. The “experts” were predicting that real estate agents would fade away with the onset of the Internet. It hasn’t happened. Sellers do not want to throw open their doors to just anyone who wants in. Buyers want the expertise of knowledgeable real estate agents. I could write more but I am bored with your take on things. It sounded as if you disdain the COSTS of belonging to an MLS….and hope it will go away. If you are in commercial real estate, the MLS isn’t a necessity but in residential real estate, it is an asset. And I am a successful broker with years of experience and have my own company. And you???????

2 Val McMurdie { 06.27.09 at 10:23 pm }

alis:

You have been a loyal reader and have left fair comments to my posts. Consequently, I think I should respond, even at length, to your question.

I also appreciate you years of experience, and I especially respect you as a brokerage business owner.

Over time I’ve of noticed how defensive, even emotional, brokers can be when the subject of 6% commissions comes up or criticism of the MLS system. I hope you can read my answers here unemotionally. To quote my post, “as the 6% is actually a cost related problem, not price fixing as has often been alleged.” Your comment is that “It sounds as if you disdain the COSTS of belonging to an MLS…. and hope it will go away.” No so, alis, as MLS services are only one small fixed cost of being a real estate dealer. My point is actually the opposite. Without realizing it the MLS system LIMITS your income. I’ll explain this below. However, most residential brokers have no other experience than the MLS and have no basis for comparison. Further, the idea that the MLS might not be available is a little scary to most residential brokers which is only natural.

Of course, the MLS “makes the market” in the same sense that stock exchanges make stock markets. The MLS is valuable, and a valuable asset to the public. What I’ve often said to home sellers is that “your home would sell for substantially LESS if the MLS didn’t exist.” These are accurate facts. But there are related facts which are also true, and many brokers either refuse to acknowledge, just as sellers often don’t appreciate the value of the MLS to THEM, or simply don’t want to understand. One of those facts is that local MLS services are becoming less valuable than they once were. Further, because of advances in technology there is now room for more open electronic market much like the emergence of the NASDAQ. This is a big advantage for brokers. But they need to see it.

With regard to “And you?????

I became a licensed as an agent in 1973. At the time I was one of the younger agents in California I suspect. I was a real estate major in college, and graduated from Santa Clara University School of Law.

For 8 years I was a real estate trial attorney in San Jose. I’ve had many real estate trials including breach of contract (purchase and sale agreements), quiet title actions, deposit disputes, specific performance, breach of agency, CC&R disputes, title litigation, breach of fiduciary duty, and the like. I’ve also drafted commercial real estate purchase and sale agreements, sale and leasebacks, deeds of trust, promissory notes, been a trustee at trustee sales, prepared land leases, escrow instructions, title and deed documents, among many other services. There were two major West Coast hotel chains I was counsel for, as well as owners of shopping malls, apartment complexes, office buildings, casinos, and title companies, among others. Of course, I was familiar with the anti-trusts aspects of real estate practice as well.

In 1979, if memory serves me, I recall reading through the San Diego Board of Realtors case. As a result of this AGs anti-trust action MLSs were separated from local boards throughout California, and, although it was already the law in California, the court made clear in the San Diego Board of Realtors case that a fixed 6% commission rate was an anti-trust violation.

After reading the San Diego case, I recall reviewing the actual cost of operating a brokerage office and concluded the Attorney General has made a mistake. Six percent commissions were, generally, tied to actual costs over time and set a FLOOR that in poor market conditions may not be sufficient to keep most brokerages in business. The conclusion I came to 30 years ago has been born out over time. In good market condition, with homes selling in less than 90 days, particularly less than 60 days, 6% is profitable, but in poor market conditions, with homes over 90 days on market, 6% might not be sufficient to pay costs of doing business.

In 1979 I organized the first commercial real estate advisory business in Northern California to provide consulting services to distressed commercial real estate property owners. These services included high rise hotels, condominium and townhouse developments, historic buildings, R&D, office, shopping malls, and ultimately casinos in Nevada (where I was also licensed as a broker).

For 17 years I was a commercial real estate turnaround, takeover, workout, and distressed commercial property manager, and president of REx Realty Advisors, Inc in San Jose.

I should mention that during those 17 years under my direction, my agents sold hundreds of subdivision homes and condominiums I had taken over as distressed properties. This included construction of distressed subdivisions, phased developments, townhouses, condominiums, and industrial subdivisions. During those years I was a licensed General Engineering A licensed contractor.

Ten years ago I retired. I got tired of 17 years of being on airplanes and spending time away from home; I got tired of making payroll to pay 2-4 civil engineers, several lawyers, commercial mortgage brokers, supervising 5-10 commercial real estate agents, and administrative staff, monthly.

Then I went elk hunting! And fishing! And telmark skiing!! Yippie!

Now I have a new Rule in Life: Rule One– if it isn’t fun, don’t do it!

Seven years ago I decided it would be fun to be a “regular Indian” and be a “Broker Associate” in a residential brokerage office, but limit my clients to just young college educated singles and couples buying their first home. I was right, it was really fun! I had a great time. Now I have over two dozen adult “children”, wonderful young adult friends, and now there are “tiny tots” and I’m “Uncle Val”. I get invited to weddings all the time, and buy baby shower gifts!

While you may not agree with me, I believe I have enough education, experience, and knowledge to voice my own opinion regarding real estate brokerage practice in California, the MLS, and CAR forms.

As kind of an aside, when I drafted a RE Purchase and Sale Agreement, lease, even promissory notes, I would always write at the top of the page in bold “STANDARD FORM” in the hope that some idiot would believe fiction and sign. And ha! I was right! Some people did! Yeah, it was my Standard Form.. that morning. :) Every time I see “Standard Form” on a CAR form I want to laugh. Very funny.

After 40 years in the real estate industry; as real estate attorney licensed in multiple states, General Engineering Contractor, land use planner, and California, Nevada, Oregon and Montana licensed real estate broker, I have acquired enough experience and knowledge to comment on the MLS.

The point of my post is that, you as a broker, and the public, might be better off without the MLS as it exists today.

I know the MLS and CAR limit the opportunities and income of knowledgeable and capable real estate brokers.

Here is how:

a. “Buyers [and sellers] want the expertise of knowledgeable real estate agents.” In fact, there is a vast difference between truly knowledgeable and diligent brokers and agents, and those not so knowledgeable or diligent. The Effect of the MLS being assessable for all practical purposes only to agents, and CAR approved forms, is to FLATTEN THE FIELD of competition. If no MLS existed and there no approved forms, these differences would instantly become apparent to buyers and sellers.

Imagine “just putting the house on the market” would not be as easy and new agents would be streaming into your office, along with their clients, wanting to know exactly how, who, when the home would be marketed. If this is scary to you, if you are knowledgeable as I believe you to be, you would have no trouble with the marketing problem. The vast difference between knowledgeable, successful, and diligent BROKERS would be reflected in home prices, days on the market, practice closing results, and due diligence.

b. Brokers with a track record of sales successes may be charging 10% commission; marketing costs would be discussed with clients; commissions would vary depending on experience and cost, just as in commercial brokerage, brokers of record with successful businesses would attract dozens of agents, and agents would be supervised much more carefully than at present.

Heaven forbid, but what if the broker of record had to prepare, that is draft or approve, their own listing agreement? Then they would actually have to KNOW the various types of agency and understand them. They would also have to understand their own fixed and variable business costs.

It totally escapes most residential brokers that the current CAR listing agreement with its fill in the blank commission percentage or amount is a big red anti-trust flag to any attorney, and especially anti-trust attorneys. If you combine the CAR listing agreement with other CAR approved “forms” as a sole source for any MLS or board, or individual brokerage office, there is, in my humble opinion, a ready made anti-trust case. The unfortunate part of this is that these contracts actually limit the profits of the most knowledgeable and capable broker owners.

c. If MLSs disappeared, profits would probably increase for the most capable brokers, and agents and brokers who presently lean on the MLS to sell homes, and flatten the sales capabilities of buyer’s agents and perform less than diligently for their clients, would be gone from the market or work under the supervision of capable broker owners. The public would be better off, and Realtors would be better off. I realize such a change in real estate practice would be scary at first for broker owners, but they would adjust quickly, find their businesses growing rapidly, and they would make a lot more money.

I agree that it is unlikely local MLSs will disappear this year. But if you look at the pace of technology change, the expanding geographic coverage of MLSs, MLS consolidations from county to regional MLSs, and online services you can easily visualize there not being a MLS, or listings NOT exclusive to the MLS, the practical effect of these being to exclude public participation. Further, I don’t see a state wide MLS developing for obvious anti-trust reasons. Although CAR may try, and hope its political influence with keep the AG at bay.

I don’t believe my opinion is going to carry much weight in changing or maintaining the MLS one way or another. I believe the market will move on its own. The State legislature in California is unlikely to enact legislation to enforce a MLS closed shop with CAR in command.

I’m not going to take whatever happens too seriously (or even my own blog posts!) because I still obey Rule One: if it isn’t fun; don’t do it!

I think what you would find if there were no MLS or CAR forms that other business models would be available to you, and some of those would be more profitable than the existing model residential brokers are squeezed into without realizing they are being squeezed.

I think the new Google Wave may open up many opportunities, more efficiencies, and hopefully, higher income!

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