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for alternatives to MLS

Some see new possibility
for alternatives to MLS

For two months, Michael and Jennifer Donoghue have had a for-sale-by-owner sign planted in front of their 877 S. Goodman St. home. So far, they have had a few lookers but no serious offers.
If the Donoghues do not get more action within the next month, they plan to think seriously about putting the house in the Greater Rochester Association of Realtors Inc.’s Multiple Listing Service. But that is a step they are not eager to take, Michael Donoghue says.
Their reluctance is not without irony. Jennifer Donoghue is a real estate saleswoman for Chase Properties.
Even so, “If we put the house on MLS we automatically lose 1 1/2 percent and probably will lose as much as 4.5 percent. If we don’t, who knows how long it will take to sell,” Michael Donoghue laments.
The money will go to pay commissions to Jennifer Donoghue’s boss, who will take half of her normal 3 percent commission, and to any subagent who finds a buyer and thus earns another 3 percent, he says.
Typically, such commissions amount to thousands and sometimes tens of thousands of dollars.
The Donoghue’s dilemma is far from unique.
The fastest and surest way for buyers to find a home and for sellers to find a buyer is through MLS. The system–owned and operated by GRAR–essentially is a data base of residential properties. The system has its origins in information-sharing cooperatives among brokers that began in the 1920s using for-sale data printed on 3-by-5 index cards, and has evolved into a network of loosely affiliated computer data bases.
Most are maintained by National Association of Realtors affiliates such as GRAR. A minority, such as ones operating in the Adirondacks region and in a small area of Brooklyn, are run by non-Realtor broker groups.
No one has figures on what percentage of homes listed and sold go through MLS systems. But it generally is said that MLS listings comprise the vast majority of residential sales, says Patrick Riley, director of member and board services for the New York State Association of Realtors.
Critics of the broker-owned data bases argue that the system funnels real estate sales to brokers, who typically charge up to 6 percent of a home’s selling price for their services.
A 1990 study put out by the Washington, D.C.-based Consumer Federation of America portrayed MLS as a shield for sloppy sales work and commission price gouging.
“The principal reason for the lack of price competition and overpricing of agent services is the listing of subagent services on multiple listing services,” the study states.
Consumer awareness has risen considerably since 1990, but the basic situation has not changed much, maintains the study’s author, CFA president Stephen Brobeck.
Too often, commission structures bear little relation to services rendered, he says. In effect, commissions are access fees to MLS.
“We’ve analyzed the treatment consumers receive. In many cases, it’s not that good,” Brobeck says.
In the age of the Internet, setting up competitor data banks to rival MLS would be technical child’s play, but nevertheless is a practical impossibility, says Rochester-area buyer’s broker James Arrow, owner of Buyer Pro-Tection Realty.
The barrier, Arrow maintains, is the Realtor-owned MLS systems’ monopolistic blanketing of the market.
In Arrow’s view, home buyers and sellers are like Willie Sutton, who said he robbed banks because “it’s where the money is.” They are driven to MLS because it is where the overwhelming majority of homes listed for sale can be found.
“The consumer isn’t looking for a Realtor so much as he’s looking for MLS, and because they have a monopoly, Realtors are not motivated to provide good service,” he says.
Like Brobeck, Arrow believes that Realtors and other broker organizations that run MLSs operate with commission structures that are for practical purposes fixed.
While such organizations have no formal agreements binding members to set rates, they have rules defining allowable cooperative agreements among members that serve the same purpose, he says. And with up to 80 percent of market share guaranteed by MLS, there is little motivation for brokers to negotiate.
Meanwhile, the investment required to overcome the MLS monolith so far has discouraged even well-heeled competitors from trying, Arrow believes.
Not so, says Riley of the state Realtors group.
MLS is merely a cooperative effort among interested professionals, he says. Broker commissions are reasonable compensation for services rendered. The issues are entirely separate, he maintains.
Real estate salespeople put in hours showing homes and contacting prospects, and spend considerable sums to advertise properties, he says. Sellers and buyers benefit from licensed professionals’ knowledge of markets and from their financing connections.
In terms of direct compensation, most hours salespeople put in are fruitless, Riley adds, yet brokers’ overhead costs for things such as advertising, support-staff salaries and office rents are constant. Partly, commissions go to cover fixed overhead.
MLS is the shortest route to buying or selling a home, Riley says. Yet competitors do exist. Magazines specializing in for-sale-by-owner ads are relatively common, for example.
Why have such competitors not made more of a dent?
The reason is not MLS monopoly, Riley says.
Consumers use the system to the extent they do not because of its stranglehold but because they need the services of licensed professionals, and the professionals use MLS, he says. If non-professionals could easily handle the intricacies of buying and selling for themselves, maybe non-broker-affiliated systems would be more potent.
And all states demand that anyone selling real estate as an agent for others be licensed, Riley notes.
Regardless, Arrow believes NAR is concerned about the possibility of large data-processing firms getting into the MLS business.
As the information highway develops, he says, it will grow more cost-effective for rivals to mount MLS-like systems.
A Pennsylvania-based firm called Homeview Inc. already has set up MLS rivals in some markets, with mixed success.
Homeview has one system up and running in California, but a second effort mounted in the Boston area two years ago folded in April.
Part of the reason more competitors have not surfaced is that until now markets could support only one such service, Arrow says. However, he believes the economics of MLS are about to change.
As interactive electronic shopping services such as the one Time-Warner Inc. is now developing in Orlando, Fla., take hold, they will “naturally” include home-sale data banks, Arrow says.
And since home listings will be only one offering of such services, they will be better able to bear the entry costs of overcoming MLS market share.
Newspapers such as the Chicago Tribune also are starting to provide electronic access to real estate information in online versions of their publications, Arrow says.
Indeed, Realtor groups have begun to offer non-brokers limited access to MLS information, a trend Arrow sees as a move to counter the growing threat of MLS rivals.
GRAR is weighing two separate plans to open MLS, says John Piper, GRAR executive director. One would give the general public limited access to MLS information in a separate data base. Another would open MLS to non-Realtor licensed professionals. Piper said GRAR’s board has not yet reached a decision on either plan.
Even if rivals such as Arrow envisions do develop, they will not greatly change the residential realty picture, Riley says.
Arrow scoffs at such contentions.
If rival systems take root, he maintains, they would automatically engender greater competition and thus force agents to negotiate commissions far more than they now do.
Says Arrow: “What you’d see is an industry that for the first time would be motivated to change.”

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