Tuesday
July 29, 2014

Off-MLS is Off-Base

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Off-MLS is Off-Base

The rise of "pocket listings" threatens the integrity of market data—and the profession.

Representatives from the largest real estate brokerages in China recently spent a morning at the MLSListings Inc. offices in Sunnyvale, Calif. The company’s general manager and several agents came to get a closer look at an MLS and to see how real estate is practiced professionally and with standards. We, of course, complain about our standards. But from their perspective, we have a king of a system.

In their world, there is no MLS. Agents and brokers can hide a property or enter fake pricing and misleading property details. It’s just a free-for-all, like a real estate Wild West, as the visitors described it to us. What they seek is a platform for fair trade.

Not long after that visit, it occurred to me that as so-called “pocket listings” increase in popularity, we in this country could be headed for the kind of chaos our visitors loathed.

MLSListings research found that properties marketed off the MLS have nearly doubled over the past year in some parts of California. The phenomenon is drawing attention in Chicago and New York, too.

Why does it matter?

When market appraisals, collaboration, CMAs, and other important data are unavailable because they are hidden from the MLS, the integrity of the data is negatively affected. That data is our professional signature in the practice of real estate, and the MLS is the platform on which that data takes its place in the marketplace.

Source of Knowledge

The NATIONAL ASSOCIATION OF REALTORS® and our state and local associations have invested heavily in promoting the value of a real estate professional. Much of that value hinges on our intimate knowledge of a market, and the MLS is our repository of that knowledge. In other words, MLSs are to real estate pros as law libraries are to the lawyer or blueprints are to the architect. It is where we find incontrovertible facts. When the facts are skewed, we are unable to provide the most accurate counsel. Your tool kit for doing business is cheated when listings (or facts) are hidden from that platform.

Model of Fair Trade

Let me sum up the MLS model in two words: fair trade. It can’t happen in the off-MLS environment. This erodes the value of an agent.

Here’s why this matters. Real estate professionals owe a fiduciary duty to the seller. Participation in private-listing groups raises possible fair housing concerns and potential antitrust violations.

I have colleagues who predicted last year that the off-MLS activity was a market reaction to tight inventory. Their reasoning was that when the number of properties is limited, income potential is limited. Hiding available inventory creates a “sure thing” opportunity to keep a transaction within their brokerage or their grasp. But that isn’t entirely so.

In the San Francisco Bay area, off-MLS transactions rose from 15 percent of total sales in 2012 to 26 percent in the first quarter of 2013. That is not a fad—that’s a business model. The sales volume of these transactions in our marketplace topped $3 billion in 2012. This volume is hard-baked into our industry.

Sadly, the ugly side of our industry rides in on the off-MLS wave: those who use the excuse of seller privacy to double-end a deal. Double-ending is the result of the “sure thing” I alluded to above. That is, I can keep a listing to myself or to my brokerage, so when the sale happens, all commissions are within my grasp. One indicator of this type of deal is a report of zero days on market.

I remember when many in the real estate industry had heartburn over the loss of MLS books and the outing of listing information on the Internet. We came to learn that those events were natural evolutions. We have learned to refine our value in the Internet age so that we are not listings researchers but transaction experts.

The off-MLS activity does not have the same connotation as the integration of the Internet in business. The latter was progress. The former, in my estimation, is a foundation for chaos.

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