What is “MLS”?
The concept of the multiple listing service (MLS) evolved
not long after the formation of the National Association of Realtors in 1908.
During the boom years of the 1920’s local realtor associations around the country were implementing their own multiple listing services.
There is no single, or nationwide, MLS. Each Realtor MLS represents one or more local realtor association(s). The MLS is usually a separate entity from the association(s) and is governed by a board of directors representing the broker members of the local association(s). In essence, it is a group of brokers who agree to share their property listing information and to offer a commission to any broker within the group who procures a buyer for their listing.
In the Chicago area there used to be multiple and sometimes overlapping MLS associations but there is now a single mega-MLS which goes by the acronym MRED (Midwest Real Estate Data LLC) and which covers all of metro Chicago.
How do commissions in MLS work?
The commission amount offered by a broker who has listed a property for sale is included on the listing. Historically, the commission amount was based on a percentage of the sales price and usually reflected a one half “split” of the total commission being paid by the seller. For instance, if the listing broker had a 6% listing they would commonly offer 3% in MLS to any broker who procures a buyer. At closing the listing broker would receive 3% and the buyer broker would receive 3%. Most listings are sold by a broker other than the listing broker. The term “split”, although often used by realtors, is a misnomer. The amount offered as a commission in MLS
is entirely up to the listing broker. They may have a 6% listing with the seller but decide to offer only 2% as a commission to the other MLS participants. If 98% of the listings in the local MLS were offering 3% but this broker was offering 2% on a listing, that listing would likely be at a disadvantage at least in terms of the realtor community.
Why has the industry been so slow to change?
Real estate brokerage, as an industry, is unique in that takes place within a framework that is regulated by private associations of brokers as well as state laws regarding the practice of brokerage. This framework, for decades, was conducive for certain business models and did not encourage creative thinking or innovation. To be successful as a broker within such an organization, it was critical to be accepted by the other members and to not be seen as “rocking the boat”. The very nature of these associations and the overwhelming market forces they exerted have long attracted the attention of federal antitrust investigators.
The most valuable asset that was held by the local monopolies (I mean, “associations“)
was information. In the pre-internet days both buyers and sellers had to visit a local broker to see what properties were currently available and to assess the local market conditions. The MLS “book“, usually resembling a phone book in size and weight, was published monthly for the exclusive use of the MLS membership and contained all the active listings as well as recent sales and other information. The nature of the MLS book forced complete and absolute reliance on the local brokers for information. If you were a buyer and the broker presented you with 6 listings that he said met your criteria, you had no idea if these were the only ones or if the broker had gone through and picked out the listings he wanted you to see. For sellers there were no viable alternatives to selling through a local broker and having the listing in the local MLS book.
What is the paradigm shift?
The term paradigm shift has come to denote a fundamental change in underlying assumptions. As applied to the real estate industry, it refers to the fundamental change that the internet has made possible through the widespread availability of listing information.
The information monopoly that the realtors enjoyed for decades has significantly evaporated over the last 10 years. Listing information today is widely available through both consumer and realtor websites. While there may be many local broker websites that carry all the listings from MLS some others may filter their websites to only display listings from certain brokers or where a certain threshold commission amount is being offered by the listing broker. The leading realtor website which has strong nationwide brand recognition is Realtor.com. Realtor.com is owned by the National Association of Realtors and serves as a funnel for all of the local multiple listing services to feed their listings into. It is the closest thing to a nationwide MLS and typically has the most listings and largest market share of any website in the country.
If you are considering selling as by owner I would highly recommend using a service like ForSaleByOwner.com where you have the option of also being listed in Realtor.com.
The largest for sale by owner website along with the largest realtor MLS website is a powerful combination in terms of pure market exposure.
Please check our posts for more information regarding the inner workings of MLS and other issues you need to be aware of if you plan to be listed in MLS.