Counter Economics

Abstract

Information control is critical to make assets appear more valuable then they are. In the US in real estate this is called the Multiple Listing Service. We look into who controls the MLS in this entry.

Real estate is the world’s largest asset class. According to estimates made by the economist the total value of residential property in developed countries rose by more than $30 trillion from 2000 to 2005. Unlike other assets it is a very localized asset, and the market for it is less transparent that other asset markets. In the US the database of listed properties is called the MLS or Multiple Listing Service. According to Wikipedia, it is a database which allows real estate brokers representing sellers under a listing contract to widely share information about properties with real estate brokers. The powers behind the MLS would like people to believe its a neutral database designed to improve information dissemination, but that is not at all a correct representation of the MLS.

Configuration of the MLS
 
Firstly there is not just one MLS. As of 2007 there were 800 different MLS systems in the US with large ones being (Cendant, ZipRealty and HouseValues). Each MLS is not subject to government regulated by the government, but but by the National Association of Realtors. That is each MLS is controlled by a lobby group that represents real estate agents. Strangely, though the government does not regulate its operation, it does use statistics from the MLS. This leads to inaccuracies, which lead to problems which we will discuss later.

Control of MLS and its Bias

Because the MLS is controlled by real estate agents. This leads to predictable problems such as record control and trend analysis bias:

1. Re-listing allows an agent to remove the history of the listing for a property that has not sold. The property may be re-listed at a new price or at an old price. However there is no simple way for the buyer to find out how its history prior to the re-listing. Agents both change pictures as well as alter the address from “street” to “avenue” to confuse those who may have see the original listing. In some agent circles this is considered just part of marketing and “representing the client’s interests.”
2. Incentives allow the real estate agent to provide non-price inducements for the buyer. This includes paying associated fees, throwing in improvements or even vehicles. This allows the real estate agents in an area to show a misleading sales number in the MLS.
3. MLS services are used to establish contact with and to “pitch” buyers. Therefore an inquiry into an MLS web site, which requires registration for the more detailed information about a property, will often be followed by a “courtesy call” from an agent asking about the time frame for a purchase, what other properties the site user might be interested in and so on. 

What MLS is and The Future of Real Estate Listings

The MLS can be characterized differently depending upon the benefits to that person (buyer, seller, realtor, buyer’s agent) however there are two indisputable features of the MLS.

1. The MLS is adversarial to buyer interests
2. The MLS is a lead generation tool
3. The MLS is not entirely what it says it is

Prior to computerization a listing of properties was the exclusive province of those in the industry and was not accessible by prospective home buyers. This was referred to as an “asset” that is it was something the realtor’s had that consumers did not have real. A person selling his or her own property cannot put a listing for the home into the MLS, but must pay a fee to the associated MLS. However, this is happening with increasing frequency. This democratization of information is likely to continue as Google is getting into the real estate listing business which will combined with Google Maps. It is unlikely that the Google listing service will be as Realtor centric as the current MLS. The MLS has reduced the value provided by real estate agents (that is they no longer provide exclusive listing information) and an objective MLS would reduce real estate agent bargaining power even more.

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