After the Sitzer/Burnett commission litigation, the DOJ scrutiny, the Clear Cooperation battles and all the other disruption the real estate industry has been through, you might think we would be running out of major fights. Apparently not. The next one may be over something even more fundamental: who actually gets access to homes that are for sale.
The latest battle is between Compass and California Regional MLS, or CRMLS, one of the largest MLS organizations in the country. Compass sent CRMLS a demand letter threatening federal antitrust litigation unless CRMLS changes rules that restrict the public marketing of certain listings that are being withheld from the MLS. CRMLS responded with a seven-page letter making it pretty clear it has no intention of backing down. In essence, CRMLS said it disagrees with Compass’s legal arguments, believes its rules are lawful and procompetitive, and if Compass decides to sue, CRMLS is prepared not only to defend itself but potentially pursue claims of its own.
Compass’s position deserves to be understood because there is a legitimate argument behind it. A seller owns the property and should have considerable freedom to decide how that property is marketed. Compass argues that a seller should be able to enter into an exclusive listing agreement with a brokerage, choose not to place the property in the cooperative MLS, but still allow the brokerage to advertise it publicly elsewhere. Compass contends that an MLS should not be able to reach outside its own system and punish a broker for marketing a property through other channels. Particularly in today’s antitrust environment, arguments about seller choice and restrictions on competition should not simply be dismissed.
But that is where I think the conversation starts missing the larger point.
An MLS is not simply another real estate advertising website. It is a cooperative marketplace. Competing brokers agree to contribute listing information into a common system so other brokers can locate properties for their buyers and bring buyers to their competitors’ sellers. Every brokerage participating in that system benefits from having access to the inventory, property information, market data and cooperation provided by everyone else.
That cooperative structure only works when cooperation runs both ways.
What I have a problem with is a brokerage benefiting from access to thousands or millions of listings contributed by its competitors, while deciding that some of its own listings will be withheld from those same competitors and marketed publicly through channels it controls. CRMLS characterizes that as a form of free riding, and I think that gets pretty close to the heart of the issue. A brokerage should certainly be free to operate outside a cooperative system if it wants to build its own model. What becomes harder to justify is participating in the cooperative when it benefits you, while withholding inventory when doing so may benefit you even more.
There is also an important distinction between a genuinely private listing and what is increasingly being called a private or office exclusive listing. I have never had a problem with a seller who truly wants privacy. There are legitimate circumstances where sellers do not want their property broadly exposed to the public, and sellers should have that option. Privacy can be a perfectly valid objective.
But if a property is being advertised to the public, promoted on websites, shared with groups of buyers or otherwise openly marketed as being for sale, I have a hard time calling that private. At that point the issue is no longer whether the seller wants privacy. The question becomes who is permitted to access the property and under what conditions.
That is where this debate becomes much more than an argument among MLS attorneys.
CRMLS says it has received complaints from buyer agents who were aware that certain Compass properties were available but could not obtain cooperation from the listing agent to show them. In its response, CRMLS wrote that the problem was not identifying the properties, but rather the alleged refusal of Compass agents to cooperate with the buyer’s agent. CRMLS alleges that in some instances inquiries went unanswered until buyers eventually dealt directly with Compass agents in order to gain access to the property.
CRMLS goes even further, describing an alleged situation where access to an off-MLS property was conditioned on the buyer hiring the Compass agent to list the buyer’s existing home. These are allegations from CRMLS, not findings by a judge or jury, and that distinction is important. But if conduct like that is occurring, it illustrates exactly why the private listing issue should concern consumers and not just MLS executives.
Think about it from the buyer’s perspective. You find out about a house you would like to see. You already have an agent you know, trust and have chosen to represent you. The house is for sale and is being publicly marketed, but your agent cannot get you inside. Your easiest path to the property may be to go around your own agent and deal with the brokerage controlling the listing.
How is that increasing consumer choice?
To me, consumer choice cannot mean protecting only the seller’s ability to choose a marketing strategy. Buyers are consumers too. A buyer should have the ability to select the professional who represents them based on that person’s experience, skill, service and value, rather than being pressured toward a particular brokerage because that brokerage controls access to inventory the buyer wants to see.
That is the larger competitive issue that I think is getting overlooked. Competition in real estate should be about who provides the best service to consumers, not who can accumulate the largest collection of homes that competitors cannot readily access.
CRMLS clearly believes the stakes are high. Its response did far more than reject Compass’s demand. CRMLS instructed Compass to preserve documents and electronic communications, identified potential legal claims of its own and announced plans for an MLS Cooperative Legal Defense Fund intended to help MLS organizations defend the cooperative model. CRMLS is also asking buyers, sellers and real estate professionals who believe they have been harmed by withheld listings to contact the organization.
Again, accusations in a demand letter are not proof of wrongdoing. Compass has its legal position, CRMLS has its position, and if this winds up in court those issues may eventually be decided there. But there is no question CRMLS views this as something much bigger than a disagreement over one MLS rule.
The timing also makes this particularly interesting. Compass recently resolved litigation involving Northwest MLS and has characterized that outcome as a victory for seller marketing choice. CRMLS sees the Northwest MLS situation differently and points out that the rules resulting from that dispute still contain mandatory cooperation requirements. If Compass follows through on its threatened litigation against CRMLS, those competing interpretations will almost certainly become part of the fight.
But I think the industry would make a mistake by allowing the legal arguments to obscure the much simpler question underneath all of this.
What kind of real estate marketplace do we want?
For decades, the cooperative MLS model has allowed large brokerages, small independent firms and individual agents to compete for clients while sharing access to housing inventory. A buyer represented by a small brokerage can purchase a home listed by the largest firm in town. A seller represented by an independent agent can receive exposure to buyers represented by hundreds of competing companies. The brokerages compete, but the inventory is shared.
That system is not perfect. MLS rules deserve scrutiny, particularly when they restrict competition unnecessarily. Antitrust law applies to MLS organizations just as it does to everyone else, and simply calling something “cooperation” does not automatically make every rule legitimate.
But there is a huge difference between fixing unnecessary restrictions within the cooperative marketplace and replacing that marketplace with competing proprietary pools of inventory.
Imagine a future where Brokerage A has one group of homes, Brokerage B has another and Brokerage C has another, with varying levels of access depending on which company’s agent represents the buyer. Large firms with the most inventory would gain enormous leverage. Smaller brokerages and independent agents would be disadvantaged, but ultimately the consumer would be the one dealing with the consequences.
Sellers could lose exposure to buyers who never discover the property or whose agents cannot easily gain access to it. Buyers could find themselves choosing representation based partly on which company’s inventory they want to see. Brokerages might begin competing less on service and more on their ability to control listings.
I don’t see how creating more walls around housing inventory produces more competition.
Sellers absolutely deserve choices about how their homes are marketed. There will always be situations where a seller legitimately wants a property kept off the MLS or marketed privately. But when a property is openly being offered to the public, access to that property should not become leverage to steer a buyer toward the brokerage that controls the listing.
Compass’s lawyers have said they are prepared to spend millions of dollars pursuing litigation against CRMLS and potentially other MLS organizations. CRMLS’s response can fairly be summarized as saying that if Compass wants that fight, CRMLS is prepared to have it.
After years of commission lawsuits, DOJ investigations, Clear Cooperation disputes, portal battles and arguments over private listings, the real estate industry has somehow found another made-for-television drama.
This one, however, is about much more than two organizations fighting over MLS rules. The outcome could help determine whether the real estate marketplace remains primarily a cooperative system where competing brokers share inventory for the benefit of their clients, or whether we begin moving toward a world where the largest brokerage companies increasingly control their own pools of homes.
I know which model I think gives consumers more choice.