Understanding the MLS (Multiple Listing Service )

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This podcast about the MLS (Multiple Listing Service)  has been a long time in the making.  It is a bit more “in the weeds” than I would like it to be.  But although its a complex topic, I feel it is also an area where misinformation and assumptions confusing to home buyers and sellers alike.

Listing your home on the MLS (Multiple Listing Service)

Recently I have fielded several questions from potential sellers about MLS exposure for their listings.  These particular sellers were not interested in engaging an agent/broker to list their home.  A couple of them were also not willing to compensate a buyers agent, it was strictly the MLS exposure that they were after.

One thing I learned from these encounters is that there is a lot of misinformation about the MLS floating around.  Most sellers seem to think of the MLS as an almost public entity.  They really don’t understand what the MLS is, who maintains it, or even its primary purpose.

What is the Multiple Listing Service (MLS)

With origins dating back to the late 19th century, there are over 1400 local MLS’s in the US.  All of these MLS’s fall under the big tent of NAR.  Their primary function has remained largely unchanged for over a century:  to create a database of current listings that allows competing brokerages to cooperate with one another in the sale of their listings.    

relocate homeCooperation among competitors…

So, the primary purpose of the MLS then is to create cooperation among brokerages that normally compete against each other. The MLS system has been remarkably successful at doing just that. I has leveled the playing field within a market where “turf wars” could easily wreck havoc on home sellers and buyers alike. Sellers get maximum exposure for their listings and buyers have access to all the local listings of cooperating brokers.

his is what makes the MLS is so powerful. The information on the MLS is shared with literally every buyer working with an agent.  The collective power of all those buyer contacts is a formidable  force force indeed and sellers are right to want their listing in such a database. 

Member agents and brokerages pay a pretty penny to contribute to, and have access to the MLS.  That money maintains the system and ensures that the rules of accuracy and timely updates are maintained and that the MLS itself is sustained and upgraded regularly.

I know that the new internet economy  feels that information should be “free” to all.  But this database is far from free to those who have use of it.  Hence it is a proprietary database, privately owned and operated.  What it is not, is a public billboard.

Listing a home on the MLS…

Placing a listing on the MLS is not a trivial process. The information loaded onto the platform has to be accurate, complete and up-to-date. All cooperating brokerages are subject to the rules and regulations governing their local MLS.

The location, current tax information, the official square footage, the official number of rooms, bedrooms and baths must be inputted accurately.  Other required  information includes things like schools, and school districts, amenities, HOA fees  etc., and this only scratches the surface.

“Creative fudging”  or trying to puff the square footage or add an extra bedroom using unfinished space with great “potential” is not allowed.

This strict adherence to certain standards has made the national MLS’s   the go-to place for accurate information on current market conditions.  It is the “gold standard” used by appraisers and other market professionals because of its accuracy.

The promise of compensation…

There is one other specific requirement for an MLS listing: the promise of compensation.  Why is that a requirement?  We have to go back to the primary purpose of the MLS:  to foster cooperation between competing brokerages in order to sell each other’s  listings.  An offer of compensation is intrinsic to such a process. This is not a choice, but a requirement for any MLS listing.

The bottom line for this is that sellers who want MLS exposure in order to attract buyers but do not wish to cooperate with brokers who would bring their buyers are out of luck.

Listing your home for a flat fee on the MLS…

Having said that, there are online brokerages who will allow sellers to list their homes for a flat fee.  These brokerages merely place the listing online charging a simple fee for loading the home onto the MLS.   But as far as marketing, vetting buyers and negotiating the transaction, the seller is on their own.

Nevertheless, as with any other MLS listing, the seller still needs to offer compensation to cooperating brokers who bring their buyers.   Some may try to get around this by offering nontraditional commissions to brokers or a “token sum”  for bringing buyers, but that is tactic that can backfire.

Remember that the power of the MLS resides in the extensive collective database of buyers that member agents possess.  Sellers who have their homes on the MLS are trying to tap into the power of the MLS database.

What most sellers who don’t wish to offer compensation are thinking is that  buyers will see their listed properties and show up without their agents, and VIOLA!!! they’ve removed an expensive middle man.

It’s not that easy and with good reason…

Working with home buyers and cultivating them is a an extremely time-consuming process.  The agents who have extensive lists of potential buyers and take them on showing tours have spent hundreds of unremunerated hours developing their lists and nurturing their buyers. It should also be noted that for every successful sale, there were probably 10 other potential buyers that for whatever reason, did not result in a sale. These lists and the legwork involved for each prospect on these lists pays off over a period of months and years.  It is costly in terms of both time and money.

Buyer agency and buyer contracts…

Because of the time and cost involved in cultivating and working with buyers, brokers are increasingly putting their buyers under contract.  These contracts specify  that their broker must be compensated  a specified sum or percentage of the purchase price should the buyer purchase a home, regardless of the circumstances of the purchase. 

Yes…that includes (in fact it targets) FSBO’s.  It doesn’t matter if the buyer finds the home by themselves.  If only a token sum is offered in the listing, and and the buyer is under contract to pay their agent a more traditional fee,  that listing is probably going to the bottom of the pile.  And should the buyer submit an offer, having the seller pay the broker’s contracted compensation is almost certain to be one of the contingencies in the offer.

Using the MLS wisely for your listing….

At the end of the day, the MLS is a powerful marketing tool, but it is a private proprietary database designed by Relators® for use by Realtors®.  If you want to sell your home yourself and not engage a listing agent and are willing to play by the MLS rules, by all means, list your home for a flat fee.

But before spending several hundred for a flat-fee listing, understand that you might be better off foregoing the MLS if you aren’t willing or able to compensate cooperating brokers.  By now you should recognize that compensation is the a key ingredient in the secret sauce that makes the MLS work so well. Trying to do an end run around the compensation system could well defeat the purpose of the listing.
© 2015 – Ruthmarie G. Hicks – https://thewestchesterview.com – All rights reserved.

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