New Report Demonstrates Robust Competition in Real Estate Brokerage Market
General Real Estate
July 30, 2018
Senior Technology Policy Representative, National Association of REALTORS
Later this year, a 10-year-old settlement and consent decree between the National Association of REALTORS® (NAR) and the U.S. Department of Justice (DOJ) mandating how listings are displayed by online brokerages will expire. On June 5, 2018, NAR had the opportunity to demonstrate the breadth and depth of competition in the real estate and brokerage industry at a public workshop held by the DOJ and the Federal Trade Commission (FTC).
To help show how the hundreds of multiple listing services, or MLSs, promote competition between real estate brokers (to the ultimate benefit of consumers), NAR asked independent expert economist Fredrick Flyer to explain how an MLS works in a recently published report, entitled Procompetitive Benefits of Policies Limiting Access to Local Multiple Listing Service Data.
The report explains that the MLS depends upon participating brokers voluntarily agreeing to share their property listing information with and compensate other participating brokers for the sale of those listings. Quite simply, in order for the MLS to work to make listings available to consumers, brokers must be incentivized to participate. According to Flyer, “…the MLS is not costless to build and constantly needs updating and new distribution to maintain relevancy, and so incentivizing those who ‘build’ the MLS and contribute the listings that it contains is important to the promotion of consumer welfare.” In support of this thesis, Flyer asserts:
- By protecting broker listing investments, current established brokers have incentives to make their listings available, and thus enable new entrants to more effectively compete and expand as these new entrants gain access to these listings via the MLS.
- Reserving to brokers the opportunity to determine whether to share their property listings for display on third-party aggregators can benefit consumers of brokerage services, as maintenance and promotion of broker listing value encourages investment and expansion in the brokerage service industry. Obligating brokers to provide their information to businesses in different markets, without any explicit compensation or derived benefits in return, is not a sustainable economic model.
- Much of the criticism of limiting information access stems from the concern that consumers of internet-based data aggregators of real estate listings, such as Zillow and Trulia, will not have access to full MLS information. However, what’s important to recognize is that these websites compete in a different antitrust market, as neither Zillow nor Trulia broker real estate transactions (and so are not competitors of real estate brokers). There’s nothing exclusionary about preventing third-party data aggregators from using MLS data.
- Critics of information restrictions have openly wondered why the internet hasn’t played an even more significant role in the provision of real estate brokerage services. Effective brokerage services still require substantial personal services for which there are no computer substitutes (currently), so comparing this industry to others with far fewer human capital requirements (such as the travel industry) leads to misleading inferences on the level of innovation occurring in brokerage services.
Flyer concludes, “…policies that interfere with broker determination of how they will use and profit from their efforts, or that allow others to benefit from broker efforts (without compensation), means [sic] that brokers will face distorted incentives when making decisions on investments, including their investments in obtaining and sharing property listing information.” Policymakers within and outside of the real estate industry should remember that the future of the MLS and the procompetitive benefits it confers depends upon MLSs providing incentives for brokers to participate. For more information, access the full report at https://www.nar.realtor/procompetitive-benefits-of-policies-limiting-access-to-local-multiple-listing-service-data.
This column is brought to you by the NAR Real Estate Services group. A version of this article originally appeared on RISMedia.com.