Why more MLSs and associations will merge in 2017

When real estate associations or MLSs consider merging, the process can be fraught with what is often called “politics.”

Executives fear losing their jobs. Associations fear losing their non-dues revenue. Board members fear losing their status and perks. People at all levels, from execs to agents, start talking about their unique market and losing their voice and identity.

But in the last few years, the political landscape of organized real estate has changed in at least two major ways: big brokers have become more demanding, and the National Association of Realtors has mandated a minimum level of services from its local branches.

Meanwhile, technology has caught up, allowing associations and MLSs to serve their far-flung members from virtually anywhere.

If you think more associations and MLSs merged in the past year, it’s not your imagination. And you can expect to see even more in 2017, according to the experts Inman contacted.

This could mean several benefits for agents and brokers on the ground, many of whom wish their associations or MLSs would merge. But while industry interests prioritize money and control, consolidation will likely chug along slowly.

“The drivers for MLS consolidation center around providing a common service for a real estate market area — a single subscription, data feed, set of rules, compliance process, and MLS and other information systems,” Matt Cohen, chief technologist for Clareity Consulting, told Inman via email.

“Sometimes consolidation allows for greater economy of scale — providing a better value to subscribers. A larger organization can also manage risk better than many smaller ones. ”

How many mergers were there, anyway?

At 2016’s start, 1,205 local Realtor associations dotted the nation; now that number is 1,177, Kevin Milligan, NAR’s vice president of board policy and programs, told Inman via email.

The drop is the result of 22 mergers entailing 45 local associations this year. NAR’s “core standards” have been a driving force in association mergers and dissolutions involving tens of thousands of Realtors.

The core standards are designed to ensure that even the smallest association can offer a minimum level of services, including enforcing the Realtor Code of Ethics; playing a political advocacy role; and operating a website promoting member programs, products and services.

At the time that NAR’s board of directors adopted the core standards in May 2014, there were 1,355 local associations — 13 percent more than there are now. Milligan acknowledged association mergers have been more frequent since the standards’ adoption “and we expect that trend to continue,” he said.

Milligan estimated that Realtor association-owned multiple listing services currently number around 700. (NAR subsidiary Realtors Property Resource put that number at 718 in November.) Taking non-Realtor affiliated MLSs into account, the total number of MLSs nationwide may be around 750.

Though consolidation proponents say that’s still too many, it’s a significant decline from the days of 850-plus MLSs a few years ago. If associations with separate MLSs merge, their MLSs also tend to consolidate.

“Mergers of MLSs tend to be less frequent since many of them enter into data share agreements or other similar cooperative ventures,” Milligan said.

“The most notable merger of MLSs [in 2016] occurred between MRIS, headquartered in Maryland, and TREND, headquartered in Pennsylvania.”

Shareholders of MRIS and TREND agreed to merge to form one giant MLS, dubbed Bright MLS, earlier this month.

“The biggest factor driving consolidation appears to be member demand for economies of scale, i.e., eliminating duplication of dues and service fees, and the desire for enhanced services,” Milligan said.

“Stronger associations [and] MLSs can better sustain market fluctuations and can better cope with the rising costs of operations.”

Response from big brokers

In October 2013, The Realty Alliance — a network of 69 of the nation’s largest real estate brokerages — delivered an ominous-sounding warning to MLSs and read out a list of grievances that included “Not consolidating the total number of MLSs.”

Now, big brokers appear to be pleased with the progress in mergers.

“We are thrilled with the initiative, creativity and progress we’ve seen from the volunteer and paid leadership of MLSs all around the country when it comes to MLS consolidation in 2016,” Craig Cheatham, TRA’s president and CEO, told Inman via email.

“We have seen years of planning begin to come to fruition, we’ve seen more spontaneous offers to merge seemingly out of the blue, and everything in between. CMLS [The Council of MLSs] and consultants and MLS staff with experience with this all appear to be providing expertise, resources and encouragement.

“Agents more and more are realizing the many and tangible benefits of combining the best from all their markets, so the ‘we’re unique’ resistance continues to fade. Technological hurdles continue to be overcome and best practices in governance, merger processes and contracts are bubbling to the top.”

He recognized the challenges of MLS consolidation, but indicated that it may be necessary given the services brokers expect, including compliance with data standards from the Real Estate Standards Organization (RESO) designed to alleviate the pain and costs of transporting real estate data between different systems.

“Running an MLS isn’t easy, and our smaller MLSs often can justify their existence, but struggle under the sheer weight of day-to-day responsibilities and the pressure keep their technology and services up with the times,” Cheatham said.

“Then we all really need them to meet NAR and RESO standards as part of that, and they and their vendors hardly can keep up. Contemplating a merger can be hard to do under those circumstances, even when the politics are favorable.

“There is no easy solution, but together we all need to do everything we can to continue the progress we are seeing currently.”

What prevents mergers from happening?

The factors that hinder mergers tend to be concerns about control and money, according to the experts Inman contacted.

“The single biggest obstacle to MLS consolidation is MONEY. Money includes jobs. Loss of control is often an excuse for not collaborating or merging, but it’s a distant second to money,” Kevin McQueen of Focus Forward Consulting told Inman via email. McQueen often facilitates collaborations and mergers for associations and multiple listing services.

Clareity’s Cohen elaborated on these obstacles.

“Leadership, staff, and volunteers wonder what their position would be, or if there would be a position for them, within a new entity,” he said via email.

“There are often concerns about a loss of control with consolidation — that somehow local needs won’t be met. There can be concerns over the loss of local identity.

“Sometimes organizations have disparate product and service offerings or dues structures, and it can be difficult to find consensus on what things should look like going forward.

“With MLS consolidation, sometimes there are association concerns regarding loss of revenue. In some markets MLSs have a hard time merging because some are association-owned and others broker-owned — that can be a challenge to deal with.

“A group can try to address all of these issues during the consolidation process — when leadership is willing to engage in that process.”

It’s not the technology

Some MLSs may cite technological hurdles to merging, but that’s a smoke screen, according to Victor Lund, founding partner at real estate consulting firm WAV Group.

“What it really has to do with is money and politics. Probably the most real consideration is how much you pay in dues,” he said.

In the San Francisco Bay Area, for instance, several MLSs serve in overlapping markets, and agents are typically required to join more than one to do business. But incentive to change the status quo appears scant.

“When the low end of the market is a million dollars, somehow paying for more MLS fees is an indifference,” Lund said.

Still, he believes technological advances have spurred more association and MLS mergers recently, with the opportunity to provide remote customer service, training and support driving consolidation.

He credits the rise in mergers to an increase in data standardization; the ability to configure software in a customized way; and the rise of MLS systems, such as CoreLogic’s Matrix, that can handle “massive amounts” of data.

Consider the most popular listing portal in the nation, Zillow, he said. That site restricts its filtered searches to one geographic location, typically a city or ZIP code. But agents often need to conduct far more dynamic searches across locations.

Say a buyer wants a property with an ocean view and a minimum of 2,500 square feet, plus parking in one of 25 cities in Los Angeles County.

“Go. Try to do that search on Zillow. Used to be you’d crash the [MLS] database with that,” Lund said.

“Or reverse it — find comps. MLS systems have these exotic searches. You couldn’t do it before. You’d do a search and have to come back 20 minutes later to see your search results.

“When you standardize data it means you can do those searches across multiple markets, but you can also save those searches [for specific MLS areas]. Years ago MLS systems couldn’t handle that load. They had to keep them small. Now they can.”

This robust data and inquiry management, made possible by faster internet, standardization and the ability to customize your desktop more efficiently, is why MLSs can be bigger now, Lund said.

A national MLS hasn’t taken off for the same reasons mergers aren’t more common: money and politics, he said.

“There’s no technical barrier to a single MLS. Ninety-eight percent of all listings in America are on RPR today and all parcel data,” he said.

So why not make RPR a national MLS? “Because it would disenfranchise everybody,” Lund said.

More than one way to consolidate

Earlier this month, Colorado’s largest MLS, REcolorado, made a surprise multimillion-dollar offer to buy its smaller neighbor to the north, IRES MLS.

Lund believes there will be more of those kinds of offers in 2017.

“What’s happening in Colorado right now is really novel. I think more MLSs will do this because it calls the question. The board of directors has to make a decision,” he said.

Different MLSs have come up with different ways to consolidate, he noted. MRIS and TREND formed an entirely new entity. In November, the Hudson Gateway Association of Realtors merged with the Manhattan Association of Realtors. The latter became a chapter of the former and they plan to merge their MLSs.

California Regional MLS first formed through the merger of two large MLSs and has pursued a number of arrangements to create a statewide MLS since. After the first big merger, CRMLS has been slowly adding more members, which now total past the 80,000 mark.

The MLS hopes to add thousands more members through a merger with San Diego’s regional MLS, Sandicor, but that project is stalled due to lawsuits filed by the associations that own Sandicor.

“What’s clear to me is that there’s activity in all of these styles,” Lund said. “It’s a matter of selecting which one is right for you. And hopefully avoiding court cases like the one in San Diego. That doesn’t do anybody any good. It’s a huge waste of money.”

‘Many projects under the radar’

Many MLS consolidation projects currently keep a low profile “under the radar,” according to Focus Forward’s McQueen.

He said, “I would expect more of the following in the coming 24 months,” largely fueled by national brands, regional brokerages and consumer demand for more accurate and comprehensive information:

• Continued consolidation of MLSs until broker needs are met — the pace will escalate beyond one per week
• A few more mega-mergers
• The big continue to get bigger and better (20,000-plus subscribers)
• There will be some more data shares or data cooperatives, but they won’t last
• National technology providers displace smaller MLSs with better alternatives at lower fees

By “national technology providers” McQueen means non-traditional MLS system vendors such as RPR (through its Advanced Multilist Platform), Zillow Group or News Corp.-owned Move Inc.

Such companies could “provide search, print, email functionality that is ‘MLS-like’ — but never called MLS for legal reasons,” McQueen said.

“In fact, RPR already does that — their app is pretty good and does a lot of MLS-like things. Move has solutions for the professionals like Find. What would prevent any of them from offering their services to the brokers as a possible alternative to the local MLS? Zillow or Move would not require Realtor membership as a requirement.”

He predicts these companies will go directly to the brokers with their offers, and provide alternatives to the smaller, association-run MLSs.

“Franchise and regional independent brokerages will be supportive of one or more of these alternatives, and they will take away some of the business and money from the smaller associations that are not keeping up or meeting the broker’s needs,” he said.

“This is in addition to continued consolidation and MLS mergers by those who can work through the process in their [market].”

McQueen anticipates data shares will fizzle out because of the cost and hassle involved. REcolorado, for example, cited the “burden” of data sharing when explaining why buying IRES was a better move.

“Data sharing costs more at a time where everyone is looking to reduce costs,” McQueen said, and after the six to 12 months of hard work it takes to launch the new data share, every change one MLS makes to the data, rules and use causes the two organizations to drift apart.

Plus, the vast majority of MLSs license their software and platform (about 700 of 719), which adds molasses to the process of developing, changing and improving the system, according to McQueen.

“History shows us that it costs a lot, doesn’t mirror the data and it doesn’t meet 100 percent of the broker’s desires,” he added.

Help with merging

As part of a partnership announced in May, NAR and CMLS are creating an MLS consolidation toolkit.

A work group comprised of members of both trade organizations will “develop practical resources MLSs can use when they consider consolidating services — be it through merger, data sharing, combined services strategies, group buying agreements or other partnership arrangements,” NAR’s Milligan said.

“The group is in the initial planning stage, and we anticipate an update at NAR’s midyear business meeting in May with the toolkit being available sometime in 2017.”

Moreover, grant funds allocated to encourage adoption of NAR’s core standards are still available.

In May, the NAR board approved an extension of up to $625,000 in grant funds to facilitate association mergers. That extension is limited to the first 25 merged associations through Dec. 31, 2017, which will be funded at a rate of $25 per Realtor member with a range of $15,000 to $25,000 per merger.

Should MLSs need assistance with consolidation efforts, Milligan invited them to contact NAR’s first-ever MLS manager, Caitlin McCrory at CMcCrory@realtors.org. The trade group hired McCrory in September.

Email Andrea V. Brambila.

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