Challenging the MLS Monopoly

I propose an Open-Source Listing Service (OSLS) with the express purpose of killing the MLS monopoly and highlighting the earned value of truly competent real estate agents, while preventing under-performing agents from continuing to extract unearned value from their role as gatekeepers.

By Ryan McGreal

Posted November 25, 2009 in Blog (Last Updated November 25, 2009)


2Sub-Optimal Market Outcomes
3Open-Source Listing Service
4MLS Killer
5Meritocracy in Open Market

1 Introduction

After a recent exchange involving a real estate agent, I'm again reminded that the real estate business is something of a racket, and that many real estate agents are not worth the money they make brokering real estate transactions.

Essentially, due to the network effect of the closed-source Multiple-Listing Service (MLS), they are able to extract value from real estate transactions by acting as gatekeepers to the MLS.

Because they only way to access the MLS is through an agent, they have created an artificial scarcity of information, and they leverage that artificial scarcity to charge money for access to the information resources available in the MLS.

Since the MLS itself is not a particularly sophisticated system, and since there is no technical reason why all of its contents cannot be made available to everyone with an internet connection, this practice should be rightly regarded as monopolistic and predatory.

2 Sub-Optimal Market Outcomes

The real estate monopoly produces many sub-optimal market outcomes:

  1. Limited competition results in a slow rate of innovation. (Translation: the MLS sucks at both functionality and usability, even for agents themselves.)

  2. Limited information means that participants in real estate transactions cannot easily make rational, well-informed market decisions but must depend on their agents to provide expert advise.

  3. Real estate transactions cost more than they should, as both buyer and seller is 'punished' by having to pay agents' fees in excess of the true value of the agents' contributions.

  4. Real estate transactions take longer than they should, since the gatekeeper function of agents acts as a bottleneck restricting the free flow of information between prospective buyers and sellers.

None of this artificial scarcity of information is necessary, as the internet has: caused the cost of transactions to collapse, reducing the need for professionals to broker such transactions; and enabled effective emergent tools for sharing information and allowing people with compatible interests to find each other.

3 Open-Source Listing Service

So what I propose is an Open-Source Listing Service (OSLS) with the express purpose of killing the MLS monopoly and highlighting the earned value of truly competent real estate agents, while preventing under-performing agents from continuing to extract unearned value from their role as gatekeepers.

The OSLS would have, at a minimum, the following characteristics:

  • Open the functionality to everyone, not just authorized agents. If information on a property or a transaction is publicly available, it should be universally available both to view and to aggregate. The key is transparency and accountability.

  • As much as possible, commit to making the services gratis as well as libre to encourage participation.

  • The interface should be intuitive and simple to use, and the functionality should be powerful - particularly searching, filtering, mapping, transaction history and so on.

  • Start by allowing anyone to list properties on OSLS as well as MLS. Make this extra-easy via functionality that auto-populates MLS when an agent lists a property on OSLS (and make sure the interface for listing a property is significantly easier on OSLS than on MLS so agents are more likely to back-post to MLS via the OSLS interface).

  • Provide a robust, RESTful open API and encourage third parties to build add-on functionality.

  • Establish ways for users to earn and demonstrate credibility - as buyers, sellers or agents - through respect granted by other users. Give more weight to respect granted by users with high credibility.

    For agents, this means the best ones will gain a lot of credibility quickly while the worst ones will not be able to hide the fact that their clients are dissatisfied with them.

  • Open-source the code itself with a strong licence like the GPL. Make sure the source code stays open and infects everything it touches with openness.

4 MLS Killer

I think this has a pretty good chance of serving as an MLS killer, because it:

  1. Doesn't violate the MLS terms of service or require users to choose between MLS and OSLS.

  2. Is so much easier to use than MLS that it undercuts the network externality of MLS-as-a-monopoly.

  3. Provides better information to more people in a more findable manner.

  4. Puts private sales on an even footing with brokered sales by legitimizing non-brokered transations.

  5. Allows competent agents to continue earning money for providing extra value (in fact, it will probably benefit the best agents in absolute terms, by doing a better job of placing a market premium on their superior service).

5 Meritocracy in Open Market

Poor real estate agents will resist such an idea vehemently; but I suspect that excellent real estate agents - those who really do add considerable value to the transactions they broker - will quickly come to appreciate the meritocracy of such a system.

At a minimum, opening up the platform will draw a distinction between the authentic added value that comes from an experienced, competent agent from the phony added value that comes from exploiting the false scarcity of an information monopoly.

Left as an exercise for the reader is the question of how such a platform could generate enough revenue to be sustainable.