What would happen if the government mandated that real estate brokers make all their listings accessible publicly to everyone online, free-of-charge?
It would result in “a tragedy of the commons,” Redfin CEO Glenn Kelman and Vice President of Recruiting, Partner Programs and MLS Relations Chelsea Goyer wrote in a blog post published in late December.
Their piece detailed Redfin’s criticisms of a study published in November by a Washington, D.C.-based think tank, Information Technology & Innovation Foundation (ITIF), which advocated for open listings and urged federal regulators to investigate the multiple listings services (MLSs) brokers use to post information on homes for sale and rent, for possible antitrust violations. It should be noted that ITIF has previously taken funding from Redfin competitor Zillow Group (though not for this specific study).
Chelsea Goyer
“If we accepted the study’s recommendation, and today’s MLS participants could access MLS data without contributing our own listings as MLS members, some participants would immediately stop contributing listings,” Kelman and Goyer wrote.
“No one would be able to see all the homes for sale. The result would be a tragedy of the commons, where everyone accesses the data but no one contributes to it.”
Redfin’s post is a defense of MLSs, whose comprehensive data Redfin has used to create the most popular brokerage website nationwide — a competitor to non-brokerage listing site giants such as Zillow and realtor.com.
In a video released just before Redfin’s initial public offering in July, Redfin noted that, as a brokerage, it has direct access to MLSs, which means it can detect listings hours before other top real estate sites and provide more accurate home valuations. Redfin’s website is also a major source of leads for the brokerage’s employee agents.
But in an interview with Inman, Kelman also acknowledged that some of the study’s criticisms of MLSs were valid, particularly in regards to data standards, and the cost of scaling up a brokerage that comes with having to join hundreds of MLSs, each with attendant fees and data feeds.
For his part, the study’s co-author, Daniel Castro, said Redfin’s blog post had misrepresented some aspects of what he wrote and continued to call for the publishing of listing data without restrictions.
Listing agents need ‘incentive’ to contribute to the MLS
Redfin takes issue with the study’s proposal that brokers should be required to offer listing data without posing any stipulations, such as requiring listing agent attribution.
If online publishers of listing data weren’t required to give “meaningful credit” to listing agents, “more listing agents would stop entering their listings in the MLS,” Kelman and Goyer write in the Redfin piece.
Glenn Kelman
The marketplace depends on that “incentive” — without an MLS that has most or all of the listings in a particular market, the real estate market would become much less competitive and efficient and new websites would find it cost-prohibitive to aggregate listing data on their own, Kelman and Goyer wrote.
That would leave an “oligopoly where only the largest listing sites have all the data,” Kelman told Inman in an interview.
“If listing agents don’t feel that the MLS is the best way to share listing data with every potential buyer and those listing agents start cutting side deals or sharing a listing selectively or doing it at different times with different networks or websites, you do have a tragedy of the commons where the real loser is the buyer and the seller who want to meet in a marketplace where all the homes are for sale and every buyer can see them,” Kelman said.
“I think the basis of any cooperation is reciprocity, where we say ‘here’s the data but this is how we want it handled. This is how we want it published. This is who interested parties should contact.’
“We don’t have the right to take a picture of a house and do whatever we want with it. That’s someone else’s house. It’s someone else’s picture, too. We’re bound by someone else’s covenants.”
Listing data shouldn’t be handed over “lock, stock and barrel in perpetuity” without regard to whether a home is actually still for sale or the effect on homeowners, he added.
Redfin is in favor of syndication, Kelman said, but every listing data publisher should “play by the same rules. That they share their listing inventory. That they respect the homeowners’ privacy. That they give the listing agent his or her due.”
Asked if it’s against a listing agent’s fiduciary duty to withhold a listing from the MLS simply because the agent won’t get credit for the listing, Kelman said Redfin would put its listings in the MLS “regardless.”
“But the reality is that there are already agents who are posting listings to private networks and trying to get a sale without sharing it with the market overall,” Kelman said. “So I’m just trying to react to that reality.”
If the problem with open access to real estate listings is that some listing agents will take their ball and go home, why should state lawmakers not require agents and brokers to submit listings to the MLS?
“I don’t know that you could do that if a listing agent makes a deal with the owner of a home,” Kelman said.
For instance, if Tom Cruise wanted to list his home but not post it to the internet, Kelman said he didn’t know if the government could require Cruise to do so.
Portal sites don’t offer agent price transparency
While the ITIF study argued competition from startup real estate companies is harmed by MLS rules that limit third-party access to listing data, Redfin countered that none of the third-party portal sites have been hindered by such restrictions. Redfin did not name any specific portals, but Zillow, for instance, is the most popular real estate listing site in the country and its parent company’s market cap stands at $7.7 billion.
“This is why these sites have been able to charge an individual agent more for advertising over time, now sometimes in excess of $5,000 per month to meet customers. It is hard to see how this trend will lower the prices paid by real estate consumers, or how these remarkably successful sites have been been stymied by the MLS, the [National Association of Realtors] or any other entity,” Kelman and Goyer write in their post.
Asked whether he disagreed with the study’s assertion that having rival agents next to listings increases competition, Kelman said, “None of those websites let agents compete on price.”
He noted that on a third-party airfare site such as Kayak, a consumer can see exactly how much a flight would cost on different airlines and choose the lowest price.
“The goal is price transparency. I’m not sure that that is the goal of those [real estate portal] sites,” he said.
It’s not the Zillows or Redfins of the world that need government safeguarding as the ITIF study seems to imply, according to Kelman.
“I’m just worried about some teeny-tiny little company, maybe it’s some woman or some guy, that really needs antitrust protection,” Kelman said. “Someday someone’s going to build a website better than Redfin … and they should kick our little fanny.”
‘Not a nefarious plot’
There are about 700 MLSs in the U.S. today. Kelman acknowledged that reducing this figure through consolidation would help Redfin and that the MLSs could do a better job of complying with data standards from the Real Estate Standards Organization (RESO).
Handling non-standardized listing data feeds from different MLSs “is cumbersome and costly,” Kelman conceded, and he “would love to see the local differences normalized so that we would have lower engineering costs.”
Kelman does not view this as an antitrust issue, though, as the ITIF study indicates. “It’s not a nefarious plot,” Kelman said. The reality is many MLSs have “technical staffs of zero or one,” he said, making compliance difficult.
Kelman said he did not disagree with the costs of scaling up noted in the ITIF study, which put the cost of adding each MLS at about $20,000 in upfront costs, plus another $10,000 annually to maintain, not including the membership fees and dues owed for every agent.
“If there were consolidation of MLSs, it would lower our costs and that would help the consumer. Every cost we bear at some level is passed onto the consumer,” Kelman said, adding that the cost for Redfin to access more data is going down because of data standards, but the cost to try and reach more consumers is going up — which is exactly why the company wants to make sure it can show as many homes as possible for sale.
Redfin got ‘a few things wrong’
Daniel Castro, co-author of the ITIF study, told Inman via email that Redfin got “a few things wrong” about what Castro actually said in the report. For instance, the ITIF study never said it was “unnecessarily cumbersome for ‘Internet brokers such Redfin to be licensed brokers’ in every state” as said in the blog post.
Daniel Castro
“I’m not making any claim about Redfin, which clearly has had successes that others haven’t been able to replicate,” Castro wrote. “The question is why is it so hard to scale up an Internet broker? A big part of that is the difficulty of getting access to all the different MLS data feeds.”
ITIF’s study also did not claim that Redfin’s website has less information available about properties, as the brokerage’s blog post indicated.
“I don’t say anywhere that Redfin doesn’t have this data,” Castro said. “I do say that consumers will have less access to information about a particular listing if F.C. Tucker [for example] is keeping it off Zillow. Homebuyers could get this information elsewhere, but they may not go to these other sites. This seems like a pretty straightforward factual claim.”
The ITIF study also did not argue that consumers should be required to hire a buyer’s agent, as Redfin claimed in its post.
“Again, I simply don’t write this (or think it to be true),” Castro said. “I also don’t write anywhere in the report ‘that making it easy for homebuyers to contact the listing agent directly is anti-competitive.’ In both of these cases, there is no quote provided to back up the claim,” Castro said.
Castro noted that his study did state that “brokers fear they will lose out on potential clients, including the opportunity to act as both a buyer’s agent and seller’s agent for their listed properties,” but said there was ample evidence for this, pointing back to an Inman article on NYC brokers criticizing StreetEasy.
Redfin also misrepresented ITIF’s recommendation, according to Castro.
“We say ‘state policymakers should require brokers to provide open access to their real estate listings.'” he said. “So we don’t actually take a position on the issue of long-term rights to photographs (they [Kelman and Goyer] reference the issue of photos of children’s bedrooms).”
Castro further noted that ITIF’s proposed requirement to make listings data open was not restricted to MLS entries, but also to portals such as Zillow. So agents would not be able to escape the requirement by posting to Zillow or any other portal, he said.
And he told Inman that it imposes unnecessary barriers to have every listing require permission from the listing agent and to always credit said listing agents, as is current practice, and as Redfin’s piece supports. Also, Castro said that it was “absurd” from a consumer perspective to say listing agents required such incentives to share property data.
Castro argued that the reason only the biggest companies presently have access to the most comprehensive listing data is because of the current barriers to entry for smaller companies, and noted that Redfin itself had acknowledged market inefficiencies with the current system.
“How long will it take for the market to solve this on its own? At this point, it’s not clear that this issue will be resolved anytime soon without outside intervention,” he said.
In its blog post, Redfin said it had not experienced discrimination from NAR or MLSs as a low-fee brokerage, though ITIF’s study referred to discrimination that had taken place against low-fee brokers in general, not Redfin specifically, when NAR and its affiliated MLSs instituted rules that allegedly inhibited competition from Internet brokers.
NAR scrapped those rules after the U.S. Department of Justice sued the trade group and the two entities entered into a 10-year settlement agreement that expires in 2018.
The “big question” is what will happen once that agreement expires, according to Castro.
“Providing open access to real estate data would be one way to get ahead of any potential anti-competitive actions that individual MLSs might take,” he said.
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