Internet MLS discussion

What’s an MLS? To frame the debate, you must understand that the rules governing Realtors, MLSs, and real estate in general are a complex mix of local, state, and Federal laws with rules from the National Association of Realtors (NAR) and state and local Realtor associations thrown in. So what an MLS, Realtor, or broker can do in one part of the country is often different in other areas.

The other thing to understand is what an MLS is. The MLS is a company that offers real estate agents and brokers (the offices that real estate agents work for) a membership. As an MLS member, the agents and brokers get access to view the property listings that the MLS maintains as well as to post listings of their own. The primary product of an MLS is this cooperative property listing database that they have compiled by soliciting listings from their membership.

Rules, rules, rules. In order to be a member, there are rules that must be followed. Rules that come from NAR as well as rules that the MLS decides to enforce to protect their business and their members. Typically these rules govern the use of the property listings. For instance, an MLS may require that at least 90% of the homes listed by a broker are posted to MLS. You see, some brokers would like to keep all their listings to themselves instead of sharing with other brokers. This is because in a typical real estate transaction, the selling and buying agents each get 3% of the sale price. And then each gives a cut of that to the broker they work for. Brokers like to control both sides of the transaction so they get a larger cut. The best way to do this is to not let agents that don’t work for the broker to know about the property for sale.

Sometimes brokers will delay placing a for sale sign on the front of properties until they’re able to arrange a tour of the house by the other agents in the office. This essentially gives their agents an exclusive to the property for a couple of days.

This is a disservice to home buyers and sellers. Sellers don’t have their home shown to the largest number of potential buyers. Buyers have a smaller selection of homes to choose from.

So the MLS, with guidance from NAR, creates rules governing this sort of thing. Properties must be included in the MLS unless a buyer specifically requests that it not be (celebrities may not want their house advertised to protect their privacy). Homes must be listed in the MLS within 48 hours of the seller contract being signed. Realtors must include accurate information when listing a home.

As a broker, if you don’t want to list your properties in the MLS, why do you belong in the first place? The agents want to belong to an MLS because that’s how they find houses for their clients. The cooperative nature of the listing database only works if people actually cooperate and submit listings to the system. Some people would rather cheat than cooperate so the MLS enforces cooperation by withholding viewing privileges from those who don’t also list properties. (Some MLSs allow for exclusive buyers agents, but that’s another discussion.)

As illustrated here, many of the rules are in place to protect the consumer as well as protecting brokers by ensuring a level playing field.

Copyright. The USA Today article that started this mentions that eRealty struck a deal to display MLS listings on Yahoo. I’m not familiar with the specific MLS rules for the markets that the Yahoo deal includes, but most MLSs own the copyright to the property data in their database. That means that you can’t just come along and republish that data wherever you want. So it’s possible that eRealty is violating the copyright of the MLS in each of their markets.

The copyright on the MLS data is also important in the protection of the consumer. Remember those brokers that would like to keep all their listings to themselves? If they can get full access to listing data without belonging to an MLS and following MLS rules, then there’s no reason for them to belong to the MLS. The size of the MLS database may shrink as less brokers list properties there. And that would truly be bad for consumers.

Virtual Offices. ERealty’s position on the matter is that they are a virtual office. When you walk into a real estate office, an agent is allowed to show you as many properties from the MLS as they want. Agents can fax or mail you detailed property information if they would like. ERealty argues (PDF) that they are doing exactly what any other agent does. They are simply doing it over a different medium—the Web instead of on paper.