Technically, the MLS industry was not on trial last October, as recent homesellers accused the National Association of REALTORS® (NAR) and big brokerages of conspiring to inflate commissions, winning a landmark ruling and a $1.8 billion judgment.
Effectively, however, the Burnett verdict was always going to have a major impact on how listing services operate. As the broader real estate industry absorbs all the implications on buyer-agent compensation and NAR policies, MLS thought leaders are also in the early stages of adapting their businesses to their own brave new world.
“We don’t believe that this is an extinction-level event,” says Art Carter, CEO of CRMLS in California, the nation’s largest MLS in terms of membership. “It’s always been about change, and the change that is being contemplated—that’s not unknown.”
Many of the potential changes are no secret to anyone—buyer compensation, MLS control and increased transparency in listings. At a high level, these changes are not necessarily bad for the industry, Carter says, even if some of them create “turbulence” in the short term.
Richard Haggerty, CEO of OneKey® MLS in New York, told RISMedia that in the end, the role of the MLS won’t “fundamentally change” based on the lawsuits and other pressures.
“At the end of the day, the role (of the MLS) is foundational,” Haggerty says. “The MLS maintains a database of accurate, timely and complete listing data, which benefits both the brokerage community as well as consumers. We must continue to focus on improving data integrity and the enforcement of uniform data standards. MLS’s play no role in determining compensation.”
At the same time, though, Haggerty says the industry “must always be willing to take a hard look at the structure of MLSs, and be willing to make them more efficient and effective.”
Importantly, nothing is set in stone yet. While the plaintiffs demanded an end to many NAR rules and broker practices, an appeal by the defendants could still reverse the current course—albeit not for years.
Brian Donnellan, CEO of Bright MLS on the Atlantic Coast, the country’s second-largest MLS, calls the verdict “misguided,” and promises his organization is not jumping the gun on any changes that might eventually become necessary due to the verdict.
“Bright remains one of the country’s pro-consumer leading MLSs. There is a lengthy appeals process that needs to take place, and we need to let the judicial process run its course before we make any decisions,” Donnellan says. “A knee-jerk reaction at this time wouldn’t be prudent, nor is it warranted.”
But what are these known changes that Carter acknowledges? How could MLSs eventually shift in their structure and function as consumers, NAR and the broader real estate industry are pressured by this verdict (or others down the road)?
In the Burnett trial, the plaintiffs revealed several criticisms and arguments likely to be taken up both in court and outside of it regarding the MLS. The fact that NAR membership (through a local REALTOR® association) is required to join the MLS was used to strengthen allegations of conspiracy and market manipulation, and the plaintiffs also claimed that NAR threatens MLSs to ensure they adopt policies—showing what appeared to be evidence of NAR saying that an MLS would lose its charter for not complying.
Donnellan says he is not aware of any cases of MLSs “being punished in that way.”
An expert witness also testified that MLSs are currently vehicles for “steering,” allowing buyer agents to prevent clients from viewing properties with lower commission offers, and displaying commission offers also prevents discount brokerages from gaining a foothold in the market.
Carter says that CRMLS has extensive contingency plans for a wide variety of potential scenarios. While he declines to get into specifics for the most part, he points out that the Department of Justice has been “rattling for” a removal of commissions from the MLS.
“There’s going to have to be a lot of education (in that scenario). A lot,” he says. “Hopefully things get pushed to the point where we have enough time to do all of that, in order to accomplish everything that needs to happen.”
Some of the alleged steering issues will fall on vendors, who provide the software or capabilities that allow things like sorting listings by commission offer. Carter acknowledges that involving vendors means that making potential changes could take more time and would be a more complex process.
Haggerty speaks generally, saying that policies need to be both well understood by members, and remain a positive force for consumers.
“We must also ensure, just as we have in the past, that MLSs are transparent in their policies and ensure that their policies are pro-consumer,” he says. “We are constantly communicating with our members about best practices, which includes complying with all applicable laws and regulations.”
Donnellan speaks in even broader terms, saying that the ruling so far “does not undermine the value an agent brings to helping consumers buy and sell homes.”
“Also, what doesn’t change is our mission—the MLS is the platform that powers the fundamental work for agents and brokers on behalf of buyers and sellers,” he continues. “We are most concerned about the potential negative effect on consumers.”
A united front
One of the specific challenges facing MLSs is governance. While the relationship between individual MLSs and NAR is complex, plaintiffs in the Burnett case were able to effectively tie the REALTOR® trade group and the hundreds of regional listing services together as part of their conspiracy case.
What would happen if NAR—its rules, resources and policies—no longer tied the MLS industry together? Would the already fractured MLS landscape grow even further apart?
“There’s a risk of that—everybody going their own way. We’ve seen it in the industry before,” Carter said. “And it is not in the agents or the consumer’s best interest to have that occur, and that’s why I think having some element of NAR involved in the process is important.”
The Council of Multiple Listing Services (CMLS), a somewhat loose association that claims most large MLSs as members, has been proposed as a replacement for NAR.
Carter expresses very little confidence that CMLS will be able to effectively serve that role.
“I think CMLS has utterly failed their charter to put MLSs into a stronger position,” he said. “They’ve become almost as political as any of the organized real estate entities that everybody’s always complaining about…CMLS has not gotten people on the same page.”
Many MLSs continue to “circle the wagons,” Carter claimed, fearful of both lawsuits and the portals, who have long been seen as a threat to traditional real estate.
At the most foundational level, though, MLSs need to remember they are providing a vital service for the brokerage community, and consumers, who Carter claims are “increasingly frustrated” with what is being offered by companies like Zillow.
“There needs to be some consistency across the board for the consumers,” he says. “You watch these reality shows and the biggest complaint people have is, ‘Why can’t I see that house?’ Well, because it’s no longer for sale. But then why is it still on these portals?”
Curating and verifying housing data is that foundation, along with effectively facilitating transactions for the brokerage community (something Carter says the portals are also not very good at). With the verdict shifting the focus away from this foundation, the real estate community at large must have a role in helping people understand the importance of these structures.
“Without question, there have been some unfortunate and negative headlines in the run-up to the Burnett hearing, and after the verdict was reached,” Haggerty says. “However, we can’t let those headlines, which I don’t believe were often rooted in fact, keep us from doing what is right by our members and by the consumers they serve.”
There is no other obvious way to ensure that consumers are being provided with quality listing data, according to Carter. State agencies are not built or equipped for this sort of monumental task, and there is no real appetite on any side of the discussion to try to make that happen.
In terms of education, Carter says that many CRMLS members are barely aware of the lawsuits and potential changes, with many of them always focusing on the next deal rather than trade headlines. Consumers understand even less, he says.
If the industry wants to avoid a scenario where disconnected MLSs are “picked off” by big-money players like the portals, and if they want consumers and agents to appreciate the important foundation they provide to facilitate housing transactions, something needs to change.
“Those things need to be figured out. If MLSs are going to be content to circle the wagons, then we’re screwed,” Carter says.