Last week, at the Inman Connect conference, I got into a rather interesting — if dry and technical for non-lawyer types — discussion with Brian Larson about whether MLS could escape being classified as a public utility. I’m not going to go into that, since that discussion tends to have a lot to do with issues like anti-trust exemptions, regulation, various legislation throughout the years, etc.
Instead, let me ask a patented Notorious Dumb Question.
Why should not the MLS be a public utility?
Right now, I can imagine the readers of this blog divided into three groups. The first group is smiling acidly in incredulous bemusement, because they know what the hell it means for a MLS to be classified as a public utility. “You just don’t get it,” I can hear them say. To which I say, read the whole post, coz I think I do get it. 🙂 The second group is going, “What the hell does that mean?” And the third group has already hit the BACK button. See ya!
For those remaining… a brief (I promise) detour.
The Wikipedia definition of a public utility is as good a place to begin as any:
A public utility (usually just utility) is an organization that maintains the infrastructure for a public service (often also providing a service using that infrastructure). Public utilities are subject to forms of public control and regulation ranging from local community-based groups to state-wide government monopolies. Common arguments in favor of regulation include the desire to control market power, facilitate competition, promote investment or system expansion, or stabilize markets. In general, though, regulation occurs when the government believes that the operator, left to his own devices, would behave in a way that is contrary to the government’s objectives.
Most public utilities in the United States have to do with power and water, although things like public transportation, insurance, cable companies and the like may also be public utilities.
The key salient facts for our purpose is that a public utility is (a) heavily regulated by the government, and (b) not subject to anti-trust laws. These go hand-in-hand.
The idea is that an industry as vital as water and power exists not merely for profit, but for the public good. So you want to encourage monopolization, which creates efficiency and market power, but control that via regulation (including setting the prices these companies can charge).
The Public Utility Argument in Real Estate
Back in 2006, when NAR was in the throes of trying to fend off an anti-trust lawsuit by the Justice Department, as well as possible legislation by Congress to regulate the real estate industry, then-president Pat Combs testified on Capitol Hill that the MLS is not a public utility:
Real estate reform advocates maintain that the MLS is a necessary utility, and as such, should be available to the public for use. As indicated above, the MLS is a cooperative that not only operates for the use and benefit of its members in serving their clients and customers, but it is created and operated, and its inventory provided by, the very members it serves. That distinguishes it from public utilities like water, gas or electricity, which are not created and operated by their customers, members of the public.
I wrote about some of these issues back when the Franchise IDX issue blew up at NAR Mid-Year. I don’t really want to rehash those. Feel free to click through and read those sections.
Instead, let’s ask whether Pat Combs’ argument remains valid five years since her Congressional testimony. Today, it is taken for granted that listing information is everywhere, and that having listing data is no longer a competitive advantage in any way. We have heard numerous thought leaders talk about how the industry needs to wake up, needs to modernize, needs to get with the program, needs to innovate, and so on — all of it premised on the idea that real estate information is a commodity, that information wants to be free, and control is an illusion.
Note, by the way, that back in 2007, Stefan Swanepoel noted this emerging issue in his Trends report:
According to the Report the existing MLS model in use today dates back to the 1960s when almost all brokers involved in transactions represented the seller; either as the seller’s agent or as the subagent of the listing broker. The seller paid listing broker who was in turn responsible to compensate the broker working with the buyer. There are approximately 900 local MLSs that appear to be stuck in this old paradigm. However, all this changed during the 1990s with the evolution of buyer’s agents, the advancement of the Internet, the subsequent and rapid sharing of real estate listing data online and the copyright door was thrown wide open.
Some ten years after the door was thrown wide open, we’re still debating who controls what and who should get what under what rules decided and enforced by whom.
So let’s go all the way and ask why not a public utility.
Real Estate Information As a Public Good
Imagine for a moment a bill in Congress that proposes the following:
- Real estate information is of critical importance in consumer decision-making on the largest purchase of their lives.
- High-quality, accurate information is incredibly valuable — as valuable as cable television or car insurance.
- Real estate agents, all of whom are licensed by a state and therefore protected from open competition, create most of this information.
- Therefore, all property information should be required to be submitted to a public database for ease of access by the public.
- Real estate information utilities, formerly called the MLS, shall be exempt from anti-trust laws, but their rates, access rules, and such shall be regulated by the HUD.
In an age when MLS’s themselves are talking more and more about becoming consumer-focused, why is it a bad idea for Congress to pass this law?
Consider the benefits of this law:
- National data standards, more or less overnight, enforced by the Federal government.
- Heightened compliance: no more Association-shopping, no more insider-favoritism; the HUD regulators don’t much care who you know on the local MLS board. Plus, the penalty for failure to comply isn’t simply a fine or expulsion from the MLS, but loss of the real estate license.
- Exemption from anti-trust laws; no more fear about getting sued by consumers, or by some new model of real estate brokerage, or whatever.
- Possibly no more free data: just like an electric utility can and does charge a (regulated) rate for access to power, these new utilities can charge everyone for access to the data. Brokers can get paid for creating data in much the same way people with solar panels can sell their power back to the utilities that operate the grid. Consumers can get all of the information industry insiders do, but they have to pay for it somehow.
There are, of course, significant downsides as well. I can think of a few. I’m sure many of you can think of others.
I’d like to hear them. Or, if you think this is a fantastic idea, I’d like to hear that too, and why you think so.
(By the way, I have my own opinions on this, but for now, I’d really like to hear from you, the readers of wit and wisdom. I’ll followup later if there’s enough interesting opinions on this subject.)