Below is an excerpt of the 2023 Swanepoel Trends Report chapter: The Future of MLS. To access the full chapter, purchase your report at t3trends.com. If you have already purchased a report, you can access it digitally here.
The Future of MLS
Multiple listing services have been critical components of the American real estate system for nearly a century. They are, however, facing some significant changes and challenges as the industry matures into an increasingly scaled, well-capitalized enterprise, with advanced technology and new data capabilities and practices.
A host of change factors have taken root as the real estate industry makes its way into the heart of the 2020s that are forcing MLSs to adapt to remain relevant and evolve into a sustainable future.
Regulation and Litigation
A series of high-profile class action lawsuits challenging the MLS-mediated real estate commission structure and an ongoing investigation by the US Department of Justice into NAR practices have increased legal costs, consumed staff time and spurred discussion about how the compensation structure could change. At this point, it is unclear how these actions will play out, but it’s likely the status quo will not stand.
Potential National Competition
Large, well-funded, national real estate organizations are building data-enhanced platforms and software solutions that could effectively serve as national listing databases and real estate data warehouses if they chose to pursue these services. Some of these companies also have massive, national consumer brands, meaning they hold essential keys to developing real estate marketplaces independent of the MLS.
Each of these companies have access to billions of dollars in capital, have smart, aggressive leadership and have many of the pieces in place to build a national listing database if they chose to approach brokers directly for listings, and the consumer brands or experience to execute a public listing play or to power one.
MLS Market Expansion
MLSs have evolved to serve, with a few exceptions, exclusive geographies of real estate brokers, agents and consumers. Exclusive MLS markets are a legacy of local Realtor association territories, and as brokerages, and more recently MLSs, expand their service areas, these boundaries are creating friction for MLS subscribers whose businesses transcend them.
When MLS boundaries get close or begin to overlap because of growth, MLS subscribers must join multiple adjacent MLSs, which breeds frustration as not only do they often pay two separate MLS fees but must manage two different data systems and different data sets, which add costs and duplicative work. Brokers that support agents in multiple MLS markets also face the challenge of having to support and normalize multiple data feeds for their tools that use MLS data. Often, adding another market requires brokerages to move to different technology providers that can more readily handle multiple market data feeds.
Homes sold but not marketed to the full swath of MLS participants remains a challenge for MLSs and erodes one of their core value propositions: the central repository of a market’s homes for sale and past sales data.
The percentages vary by market, but as many as approximately a quarter of home sales in some markets are completed without full marketing in the MLS, either on private databases or as office exclusives, as allowed in the Clear Cooperation Policy. For example, a 2022 Bright MLS study using its data found that 29.2 percent of Baltimore home sales in 2021 were completed outside of the MLS.
A New Era for MLS
All of the pressures and structures outlined above are catalyzing a new MLS era in which innovative MLSs are forming national and regional collaborations to facilitate investments in technology, achieve economies of scale and share data to execute business-minded strategies that will allow them to evolve and meet the future needs of the industry.
In some cases, these MLS collaborations offer complementary organizational or technical services and are not exclusive, so MLSs can join more than one; membership opportunities vary for each, but all have plans to add additional members, either with MLS partners who have equity in the group or those who join solely as participants.
These collaborations offer one or more of the following:
- Shared data management
- Mix of equity partnerships and memberships
- Scaled technology development and service support
- Expanded, diverse revenue streams
- Smaller, business-minded boards to facilitate faster, more nimble decision-making
The deepening collaborations among MLSs suggest a future in which several large MLS groups will provide services and support, offer technology solutions, and unite disparate data sets to attract new participants, either by individual subscribers or by MLSs themselves.
Given the advantages of the scale, resources and tools MLS collaborations bring to the industry, MLSs will likely have just three business models to apply as they look to adapt. These include:
- Hyperlocal: MLSs serving unique markets that stand out in a variety of ways – such as relatively isolated resort areas – can double down on their differences while providing a curated, high level of service.
- Cooperative: MLSs can look to cooperate with some of their neighbors to leverage scale and improve their resources and tools.
- Competitive: This option is reserved for the largest MLSs, those who have the size, resources and appetite to implement new collaborations or to fold in neighboring MLSs into their system – whether by leveraging their strength, offering equity or a full consolidation.
The MLSs who do not choose one of these approaches will become increasingly isolated and find themselves at a competitive disadvantage as these economies of scale and increased service will be difficult to outperform.
MLSs are at a turning point in their history. The potential changes coming to their cooperation and compensation value propositions, the emergence of massive, well-funded national real estate data players and the growing needs of large brokerages are forcing MLSs to innovate.