In the days before the Multiple Listing Service (and certainly long before the internet), finding homes was a complicated venture. Let’s say you’re looking for a specific home. You call your local broker (let’s call him Broker Bob) and tell him your preferences. If Broker Bob does not have any exclusive sale listings matching your criteria, he will spend his day calling around to other brokerages in the area to see if anyone is representing an apartment for sale that fit the client’s description.
In the early 1960’s, the National Association of Realtors created the Multiple Listing Service(MLS) based on unilateral cooperation among brokerages. This B2B tool helped brokers share information and search properties, benefiting consumers who could gain more exposure for their properties. The MLS was set up by brokers, for brokers.
In the beginning, the MLS was delivered in a book to all realtors once or twice per month. Want to know what’s on the market this week as a buyer or seller? You need to go into the broker’s office to ask! Brokers protected the data and treated the data as an asset when helping clients.
The first online property listings came somewhere around 1994 and were very similar to newspaper ads. Brokers would post pictures and addresses of the homes they listed, but buyers and sellers had no access to a repository of all MLS listings to check for comps or to look for better deals. During these early days, the MLS remained a proprietary, printed book to be shared only among brokers.
In the late 2000’s, some tech entrepreneurs in a few different markets started to challenge the information asymmetry between brokerages and clients. It doesn’t take a visionary to see that giving clients access to listing data would create a more efficient process when buying or selling a home. Broker-controlled MLS associations saw this transparency as a threat to the traditional value proposition of a broker and the steadfast 6% fee.
How did they combat this threat? The MLS would simply deny access to internet-based firms. Without membership in the MLS, these new online brokerages offering transparency and lower fees could not operate and compete with other brokerages.
In 2005, the Department of Justice’s Antitrust Division filed a lawsuit against the National Association of Realtors, ‘challenging a policy that obstructs real estate brokers who use innovative Internet-based tools to offer better services and lower costs to consumers.’ This suit forced a national discussion about the consumer’s right to access the MLS.
In 2008, the lawsuit settled. The NAR repealed their anticompetitive policies by requiring MLSs to guarantee equal treatment of internet-based brokerages. This should have been big news for entrepreneurs, ushering in a wave of technology-focused brokerages. Although the Attorney General at the time said the settlement prevents brokers from deliberately impeding competition, we still see legacy rules borne out of pre-lawsuit attitudes inhibiting transformative technology today.
So where is there room for innovation? The public face of the NAR is pro-technology, jumping in the accelerator game with narREeach and their venture arm Second City Ventures. But archaic restrictions on the ability to display listing information (requiring most MLS data to be behind a login wall) and resistance to lowering fees leaves the brokerage industry virtually unchanged from the early 90’s.
Of course, anyone who has searched for real estate online is familiar with listing aggregator sites like Zillow and Trulia. As broker advertising sites, MLSs have widely denied them access to proprietary MLS data feeds. Though they can be helpful in the home search process, they rely on individual broker feeds or postings and lack the data accuracy of the direct MLS database.
We believe the truly disruptive innovation is going to come from within a group of newly-established brokerages that view themselves as software companies as well as real estate companies. Just as Uber is changing offline transportation with an online platform, and Amazon leverages some of the most powerful software in the world to run the most efficient logistics company on the planet, software will have significant real world impacts in the real estate industry.
Brokerages can leverage technology to lower prices by giving agents superior productivity tools and empowering clients with transparent data to help them make more accurate and quicker decisions. It’s not easy for a brokerage to take the leap of faith and hire developers before real estate agents, but that’s what we did at Suitey, and it has made all the difference in allowing us to change the industry for the better.
Feel free to comment here or discuss the post on HackerNews.
