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The end of MLS as we know it

by Brian N. Larson

This three-part series appeared on Inman News August 15-17, 2006. The author argues that interbroker compensation should be done away with and in part one explains why this should be done right away. Part two discusses how the world will work without interbroker compensation, and part three looks at the future of the MLS in that world.

Why we should get rid of interbroker compensation
(Part 1 of 3)

"It's the end of the world as we know it, and I feel fine." - R.E.M.

The real estate industry now operates multiple listing services that not only draw attacks for suppressing competition, but also have at their core a service that is obsolete and inefficient: the communication of interbroker compensation offers.

The essence of the MLS for more than 30 years has been the offer of cooperation and compensation. The National Association of Realtors includes the offer of compensation in its definition of MLS, considering services without compensation mere "exchanges." Even broker-owned MLSs not affiliated with NAR generally require that listings input in the system must have offers of compensation.

I've argued for five or six years that interbroker compensation should go the way of the MLS book and broker subagency. Recent events persuade me that the industry is ripe for this change now.

Core purpose of MLS -- A 35-year-old model

The MLS model of the 1960s and '70s made sense because at the time, nearly all brokers involved in transactions represented the seller either as the seller's agent or as the subagent of the listing broker. Listing brokers got paid by sellers; listing brokers could therefore compensate brokers working with buyers.

This all changed in the late '80s and early '90s because of the arrival of exclusive buyer agents, who represent the buyer in the transaction rather than the seller or seller's broker. Also, listing brokers became more concerned about vicarious liability, a legal theory that says that the listing broker is legally responsible for misdeeds of cooperating brokers who are subagents. And under pressure from Realtor organizations, state legislatures began fashioning non-agency forms of representation; depending on state law, these "facilitators" and "transaction brokers" do not owe traditional agency duties to buyers or sellers.

NAR kept up with the times. It clarified, first, that MLSs had to allow exclusive buyer agents (EBAs) to participate -- sometimes over the objections of incumbent listing brokers, who complained EBAs "came to the potluck with a fork but no dish to pass." Later, NAR clarified that the offer of compensation through MLS could extend to cooperating brokers representing buyer brokers and cooperating brokers "acting in a non-agency capacity defined by law." In light of these changes, most listing brokers moved away from subagency, preferring to compensate other brokers as buyers' agents and non-agents.

As a result, the vast majority of listing brokers no longer offer subagency to other brokers. With the demise of subagency, there is little reason to keep interbroker compensation. There are also affirmative reasons to get rid of it.

Seller pays but does not receive service

It does not make sense for listing brokers to pay buyers' brokers for the services the latter provide to buyers. This is a bit like the lawyers working for one side in a transaction paying the lawyers working for the other side. It may happen, but it would not be anyone's first choice. In fact, there are rather complicated rules about what happens when a lawyer working as the fiduciary of one person is being paid by another person who is not his client.

Faced with the prospect of creating a real estate market from scratch, who would embrace this model? In fact, there are real estate markets being created from scratch, throughout the former eastern block and Soviet Union. By and large, the brokers there do not embrace interbroker compensation. One acquaintance of mine, a frequent advisor to real estate organizations in those developing economies, put it this way: "(Interbroker compensation) is the toughest concept to get across -- they just don't get it." I know my friend is a good teacher -- so I conclude that what my friend is trying to teach does not make sense to folks who did not grow up with sub-agency.

Constraining the nature of broker relationships

Interbroker compensation through MLS imposes unnecessary constraints on the relationships that buyers' brokers can form with buyers. Here are examples of how that's true:

First, imagine that Stirling Realty has a great reputation for providing excellent buyer representation. It believes that its services to the buyer are worth 3 percent of the sale price on most residential transactions. The prevailing cooperating compensation offered in the MLS where Stirling participates, however, is only 2.1 percent. (I use the term "prevailing" here to mean the average or market-rate compensation, acknowledging that neither brokers nor MLSs can establish a standard commission.) If Stirling sells another broker's listing, Stirling will have to arrange for additional compensation to be paid separately, either by the buyer or by the seller. This separate compensation will not be subject to Realtor arbitration if not paid; if there is a dispute about compensation in the transaction, Stirling might have to bring separate actions against the listing broker (through Realtor arbitration) and against the buyer. This is unnecessarily complicated.

Second, imagine that Buyer First Realty has developed a model for working with buyers that costs a flat $3,000, regardless of the purchase price of the home. Buyer First helps its buyer find a home, which the buyer purchases for $500,000 and on which the listing broker has offered a 2.4 percent cooperating commission (the prevailing rate in that MLS). Buyer First is entitled under the MLS offer of compensation to a payment of $12,000 from the listing broker. At closing, Buyer First wants to give $9,000 of that back to the buyer. Because the money comes to Buyer First at closing, Buyer First now has to comply with RESPA regulations to pay the rebate to the buyer; in some states, the rebate itself would be considered illegal. In the absence of interbroker compensation, Buyer First would just not charge the $12,000.

Third, imagine that Nifty Builders, a residential construction firm, has a wholly owned subsidiary brokerage firm, Nifty Brokers, that markets its listings. Nifty Brokers would rather not pay cooperating brokers at all but is willing to offer 2.1 percent cooperating compensation to other brokers, the prevailing rate in the MLS where it operates. In return it wants cooperating brokers to be present with the buyers to advise them during the process of selecting finishes, developing a budget for options, etc. Nifty is tired of agents showing up for the first appointment at the construction sales center and then never showing up until closing. Under NAR MLS policy, Nifty cannot condition the compensation it offers other brokers on them performing specific tasks; all that matters in interbroker compensation is whether the cooperating broker was the procuring cause of the sale. There is a way around this for Nifty (which I'll save for another column), but it can be confusing for everyone involved.

Discouraging buyer rep agreements

Interbroker compensation discourages buyer brokers from entering into buyer representation agreements with their buyers. I have recently given lectures to brokers in three states where I asked the brokers present to indicate by show of hands whether they require buyer representation agreements with all or nearly all buyers before they begin showing them homes. In each case, fewer than a third of the brokers present raised their hands.

A good buyer representation agreement provides numerous protections and advantages to the buyer's broker: It offers some remedies for problems associated with working with unrepresented sellers (we'll save the details for later). It permits the buyer's broker to spell out the boundaries of her representation of the buyer. And it can be critical in ensuring that the buyer's broker gets paid if there is a dispute about procuring cause. In some states, without a buyer rep agreement, the broker may not be entitled to receive compensation -- from buyer, seller or listing broker -- at all.

Buyer brokers get away with not having buyer representation agreements -- even in states where the law requires them -- because they are assured payment by the listing broker through the MLS.

Danger of price fixing

Normally, antitrust regulators frown on competitors publishing their prices to each other, because it makes price fixing easy. Assume, for example, that a large broker in Midtown MLS, where the prevailing cooperating compensation is 2.4 percent, has decided it wants to pay cooperating brokers less. It starts putting its listings into MLS at 2.1 percent cooperating compensation; it waits a few weeks to see if other market-leading brokers follow suit in lowering their compensation. If they do, great, the change sticks. If not, the large broker can raise its compensation back to the market rate. In this way, a few market-leading brokers can establish the market-rate cooperating compensation without ever speaking directly to each other. They can just watch what happens on MLS.

Thanks to the MLS offer of compensation, listing brokers effectively are able to fix service prices of buyers' brokers; many buyers' brokers are loathe to collect more than what is offered in MLS, even if the broker has a written agreement with the buyer providing for a higher payment.

Criticism from outside

Just because folks don't agree with us on some issues does not mean that everything they say is wrong.

The first of a recent round of criticisms came from the Government Accountability Office report of August 2005. Some of the GAO's comments echo what I have said here. For example:

"While MLSs provide important benefits to consumers by aggregating data on homes for sale and facilitating brokers' efforts to bring buyers and sellers together, the cooperative nature of the MLS system can also in effect discourage brokers from competing with one another on price…. As previously noted, MLSs facilitate cooperation in part by enabling brokers to share information on the portion of the commission that sellers' brokers are offering to buyers' brokers…. When choosing among comparable homes for sale, brokers have a greater incentive -- all else being equal -- to first show prospective buyers homes that offer other brokers the prevailing commission rate than homes that offer a lower rate. Therefore, even without formal policies to maintain uniform rates, individual brokers' reliance on the cooperation of other brokers to bring buyers to listed properties may help maintain a standard commission rate within a local area, at least for buyers' brokers."

The GAO report also notes:

"Further, some states prohibit brokers from giving clients rebates on commissions, and some states require or are considering proposals to require brokers to provide consumers with a minimum level of service. Although such laws may offer some consumer protections, DOJ and FTC have argued that they can potentially prevent price competition or reduce consumers' choice of brokerage services."

An AEI-Brookings report, authored by Bob Litan and others, appeared in November 2005 and was the subject of a New York Times editorial by Litan in June 2006. The Brookings report notes:

"First, we believe that the involvement of multiple parties and the unique splitting arrangements make it difficult for buyers and sellers to pay for services according to their needs. Second, the commonality of the structure across firms and its persistence over time suggest the possibility that alternative models have not had a fair chance to compete."

The Brookings report further noted:

"Commission rigidity results in a socially wasteful oversupply of underproductive agents in high-priced cities, compared to lower-priced ones."

The Consumer Federation of America released a very unflattering report called "How The Real Estate Cartel Harms Consumers And How Consumers Can Protect Themselves" in June 2006. Many of the assertions in the document were entirely unsupported by documentary evidence. Some of their comments were nonetheless provocative. For example: "If sellers and buyers each separately negotiated compensation with their brokers, uniform 5-6 percent commissions would quickly disappear."

The CFA continued: "Traditional brokers not only continue to oppose separate buyer and seller compensation but also have vigorously promoted state anti-rebate laws which prevent brokers working with buyers from rebating a portion of the… commission split to their clients." It is true that organized real estate has championed anti-rebate regulations in some states. But I do not believe that traditional brokers "continue to oppose separate buyer and seller compensation." In fact few brokers have discussed the issue, and the ones with whom I've discussed it would happily get rid of interbroker compensation tomorrow.

Brokers don't like it

I gave a presentation to a large national brokerage concern last year. Before my talk, I heard the participants discussing the problems they experienced with paying out and collecting interbroker compensation: disputes about the amount of compensation due; complaints about the time between closing and payment of the compensation; tracking payments to be made and received; and even arguments about whether any compensation was due at all. Before I began my talk, which was on a different topic, I asked them whether their lives would be easier if there were no interbroker compensation. Every one of them said "yes."

Consider this: Every broker being paid through the MLS by another broker has to track amounts due and follow up on payments. Doesn't it make much more sense for buyer's broker and seller's broker to be able to walk away from the closing table with the money due them?

Conclusion to Part I
Interbroker compensation is an anachronism, and for the reasons I've noted above it should be eliminated. Getting rid of it means ceasing to be MLSs, at least from NAR's perspective. But if indeed this would be the end of MLS as we know it, how do we survive the end?

An alternative to interbroker compensation
(Part 2 of 3)

"Lack of money is the root of all evil." - George Bernard Shaw (1856-1950)

Real estate brokers surely will not want to see the end of interbroker compensation if it means brokers will not be paid for providing services to buyers. The first order for one envisioning a world without MLS offers of compensation must therefore be making sure brokers get paid for their services. After we propose ways for that to happen, we'll talk about some of the advantages to the consumer of getting rid of the offer of compensation through MLS.

Interbroker compensation out of MLS

The problems of having interbroker compensation in MLS can be addressed simply by ridding the MLS of the offer of compensation. But some brokers will be unwilling to part with what has become an ingrained tradition. Removing compensation from MLS does not mean that brokers could no longer offer each other compensation. They could do so just as they please, by sending faxes or e-mails to brokers in their markets prior to doing business with them or at the time the cooperating broker asks to show the listing. They could even publish unilateral offers to compensate cooperating brokers on their Web sites.

The MLS offer of compensation arose at a time when e-mail and fax machines were unknown. Communicating an offer to compensate a cooperating broker in writing in those days meant hand delivery or reliance on the Postal Service. Now they can be transmitted nearly instantaneously.

What's more, the listing broker making the offer of compensation can control its offer in more detail than MLSs allow. Think back to Nifty Builders in part one of this series. They wanted cooperating brokers to do more than just show up at the first meeting with the buyer. Free from the MLS policies that prevent adding any conditions to performance as procuring cause, Nifty could offer other brokers compensation and spell out in clear terms what the cooperating brokers have to do to earn it.

Buyer brokers will want to control their compensation

The possibility that listing brokers will want to establish conditions on cooperating brokers' entitlement to compensation will engender a natural response: cooperating brokers will want to get paid by someone other than the listing broker. This will be just fine with listing brokers, who are likely to say, "Take it or leave it, but if you take it, you need to do the following things. Leave it, and I'll take care of those things myself."
But brokers working with buyers can take this further: they can charge what the market will bear for their services. For example, I knew a salesperson years ago who worked in a small, highly desirable neighborhood in St. Paul, Minn. He knew not just the housing stock, but all the residents. He often knew they were going to sell before they did. As a consequence, if you wanted to buy in that neighborhood, you needed to call him and get on his list so you could get a showing and make your offer the same day your dream house was listed (and usually before it ever appeared in MLS). Is that worth more to the buyer than 2.4 percent of the purchase price (the prevailing cooperating compensation in St. Paul at the time)? I suspect the answer is yes, but it was impractical for him to charge more than the prevailing rate because buyer/consumers were aware that the prevailing rate is what listing brokers were paying.

There may be a down side for brokers: I discussed this proposal before a group of brokers, and a very soft-spoken elderly woman commented, "But that will cause price competition for buyer brokers." Yes, probably it will. Many licensees, who expect the MLS to find homes for their buyers, will not get paid 3 percent (or even 2.4 percent or 2.1 percent) for the assistance they provide. Others, who assist buyers in complex situations, may be entitled to 3.5 percent or even 4 percent, or perhaps a retainer that is not conditional on a sale (e.g., $x to show up to 10 homes; $y to negotiate and close a purchase; etc.).

The advent of price competition for buyer brokers will no doubt disturb some, but the flexibility afforded to those brokers may pay off in a substantial way. For example, much has been written about limited service listings, where the listing broker puts the listing in the MLS and does nothing else, for a low flat fee. Cooperating brokers express frustration about having to do additional work and assume additional risk, all without additional pay, when working for buyers in these transactions. But the same problem has existed for years with regard to for-sale-by-owner listings. If the buyer's broker gets paid by the buyer, she can specify varying compensation depending on the nature of the transaction. For example, "Buyer will pay broker a commission equal to 3 percent of the purchase price; but if buyer purchases a property from a seller who does not have brokerage representation during negotiations and closing, buyer will pay broker a commission equal to 4 percent of the purchase price."

What about this notion of the buyer paying?

It is widely believed that it is impractical or impossible for the buyer to pay her own broker at closing. A report published in spring 2006 discussing the future of MLS considered the idea of buyers paying their own brokers: "It is unlikely that this will happen unless HUD and Fannie Mae allow the buyer to finance the portion of the commission that the buyer would need to compensate their own agent."

In fact, HUD and Fannie Mae regard a commission paid by buyer to buyer's broker at closing as a valid closing cost. In other words, to the extent that closing costs can be financed, a buyer broker's fee can be financed as well. The traditional view is that the buyer borrows money to pay for the purchase price and comes to the closing with the closing costs in cash. Practically speaking now, buyers have the option to come with a piggyback loan ready to cover some of the down payment and closing costs in return for a second lien position on the property. There may even be tax advantages to this approach for the buyer.

Even if you are queasy about the buyer paying, the transaction can still fund the buyer broker's commission. The buyer merely seeks the necessary amount as a concession from the seller. Note that this is a request from the buyer that the seller cover some of buyer's closing costs. It is not a request from the buyer for the seller's broker to pay more than the published cooperating compensation to the buyer's broker; such a contract clause would likely run afoul of NAR's Code of Ethics. A seller concession to pay the buyer broker should be perfectly OK from the perspective of mortgage lenders and the secondary market. But the buyer broker had better have a buyer representation agreement first.

Brokers must have buyer representation agreements

In a world without interbroker compensation, the buyer's broker must look to the buyer for payment. And the only way to ensure the buyer will pay is to have a contract with her. Many states already require this, though the provisions appear to be honored more in the breach than the observance.

In addition to any provisions mandated by statute or rule, a buyer representation agreement should include the following:

What the buyer's broker will be paid, along with circumstances that can cause that payment to be varied (e.g., transaction with an unrepresented seller).
What the buyer's broker will do, stating with particularity what services the broker will offer. Most consumers don't know, and it will make it easier for the broker to get paid if it's laid out. Brokers can also take this opportunity to distinguish themselves from competitors.
Permission from the buyer to seek payment from the seller, from the listing broker, and from anyone else who might be willing to pay.
Clear explanation of how the brokerage firm will handle a dual agency, if one arises (and provided it is legal in the state). Some states mandate agency disclosure language for representation agreements.

If the broker is worried about the buyer saying, "But Fly-by-Nite Real Estate won't require me to sign this," the broker can point out that state law requires it, if state law does, and hand over a copy of the statute or rule. The broker can point out, that it is important to discuss up-front what services the buyer will receive and how the broker will get paid.
If the broker is worried about the buyer saying, "I don't want to be tied down/locked in," the term of the agreement be terminable upon notice by the buyer. An override clause/protective list can ensure the broker is paid if the buyer purchases one of the homes the broker showed her after she terminates the representation agreement.

Once the broker has the buyer's commitment to compensation and her permission to obtain payment from other parties, it is now perfectly consistent with the broker's agency duties to seek compensation from the seller or listing broker. Seeking such payment without the buyer's commitment and permission might be a violation of the broker's fiduciary duties, because the broker might jeopardize the buyer's interest to obtain payment. Once the buyer has a financial obligation to the broker, however, the broker's duty requires it to do its best to obtain that payment in the way most convenient for the buyer.

Solution addresses several problems

Getting rid of interbroker compensation improves the market in several areas:

Buyers and their brokers have more options for structuring their relationships and the compensation that will flow between them.
Buyer broker fees can be commensurate with the skill and experience of the broker and with the buyer's needs.
Brokers do not have to fuss with the accounting details and conflicts associated with paying each other.
The market benefits from price competition for buyer broker services.
Buyer brokers working in transactions with FSBO or unrepresented sellers can obtain additional compensation for the additional work and risk they assume.
The question of buyer's brokers "rebating" commissions to the buyers becomes moot. There will be no compensation from the listing broker out of which any rebate could be made.
The dangers of price fixing, and the claims by industry watchdogs that it exists now, will largely be addressed. Brokers will really be unable to tell what their competitors are charging for services, and there will be no incentive for commissions to be "standard."
Buyer's brokers can achieve the type of relationship of trust with brokers that supports a claim to being "professionals." When the buyer knows what she is paying for broker services and what she is getting in return, buyer expectations and broker performance are both likely to be more refined.

Well, assuming the reader is still with me, I still have to address in part three how the MLSs that make up the bulk of my client base will survive this transition.

Future of MLS without interbroker compensation
(Part 3 of 3)

"Facts are the enemy of truth." - Miguel de Cervantes (1547-1616)

For Cervantes' Don Quixote, facts were something to be distrusted. That's fine for a mystical idealist, but most of us in the real estate industry are inclined to realism. And realism works best with facts -- which are the stock-in-trade of MLSs as we now know them.

The real core MLS service

I have spoken to business and community groups about how MLS works, and almost invariably the audience has questions about things like, "Are all the listings there?" and "How often are they updated?" Then I go on to explain the interbroker compensation mechanism in MLS, and I get questions like, "Are all the listings there?" and "How often are they updated?" Those folks in Minnesota who do not have real estate licensees seem to have no understanding of the "core purpose" of the MLS -- interbroker compensation. Based on my anecdotal experience, I believe the consumer's perception of the value of a broker's membership in MLS has everything to do with listing data and little to do with interbroker compensation.

It's also interesting to note that folks who are hell-bent on pirating data content from MLSs do not appear the least bit interested in interbroker compensation. I suggest that the real core service, the reason for being, for each MLS is quality data content.
That data thing is tricky, though. It's important to have data content that is complete, current and accurate. MLSs affiliated with the National Association of Realtors typically impose certain requirements on brokers to ensure these objectives are met. Brokers are required to submit all their listings that meet certain requirements. Brokers must submit listings soon after they are taken and must advise the service of status changes promptly. Brokers are subject to fines and discipline if they report inaccurate and incomplete information to the service. And if brokers do not meet these standards, they lose MLS participation.

What brokers and the broader real estate market really need from MLS can be summed up in three objectives:

1. Provide a place for the brokerage to put its listings where everyone interested in buying can find them.

2. Provide a place for the brokerage to look for listings for its buyers that has everything (or nearly everything) available on the market.

3. Provide comprehensive and very current information about sales and expired listing information to support valuations of properties, whether the brokerage or appraiser is preparing a CMA for a prospective seller, an opinion about a listing's price for a prospective buyer, or an appraisal of the property for a mortgage or other purpose.

None of these things has anything to do with interbroker compensation. In fact, MLSs could continue providing every service of significance they currently provide without addressing compensation at all. Without the offer of compensation, however, NAR would not refer to them as MLSs -- to such organizations, NAR might say, "You are dead to me."

New models for the successors to MLSs

In a world without offers of compensation through MLS, future listing services (FLSs) could organize their efforts in a dozen different ways. Just to start the discussion rolling, I've provided one here. I don't recommend this approach, and I recognize it has a number of potential problems and weaknesses. But I suspect readers will find as many solutions as they will problems and will probably offer more compelling potential models as well.
What if an FLS merely viewed itself as an aggregator and distributor of listings on behalf of listing brokers? Let's pretend such an organization exists today in East Overshoe, Minn. What does it look like? FLS does not have participants; any broker licensed in Minnesota can put any listing in the area surrounding East Overshoe into the service. FLS has quality control rules: listing information must be accurate and listing status must be updated promptly upon any change (from active to pending sale, for example).

FLS charges no periodic fees to listing brokers, but it does charge the listing brokerage a significant fee for each listing the brokerage puts into FLS. If, upon the sale or expiration of the listing, the listing broker goes into the system and provides accurate information about the listing's disposition (did it expire? was it sold? and if so, for what price and on what terms?), FLS refunds to the listing broker 90 percent of that listing fee. FLS is essentially paying listing brokers for timely off-market information.

FLS monitors the accuracy of active and off-market information listing brokers provide. By automated means, it checks listing information against public record information, requiring brokers to fix or clarify discrepancies; it checks public records regarding sales to make sure brokers are accurately reporting off-markets. (Because the counties around East Overshoe are slow to publish these records, FLS looks back a few months to compare sales information reported in the service with that reported by the counties.) Listing brokers that put inaccurate information in the service must pay FLS an administrative fee (something like a fine) to cover quality control costs. If a listing brokerage fails to pay the fee or continues to submit inaccurate information, FLS refuses to accept further listings from it.

Incidentally, this is why FLS accepts listings only from brokers and not from consumers: Brokers will be repeat customers in the short-term, and as a result will be sensitive to losing their entry privileges in FLS. If a consumer could input her own listing, FLS would have no leverage over the consumer in its quality control efforts.

The result: FLS has a pretty darned good database of active and off-market listing formation, and the cost to listing brokers is just quite small per listing, provided they provide accurate off-market information.

But what about users of this data? FLS allows anyone, real estate brokers and licensees, as well as the public, to view all active listings free of charge on FLS's public Web site. Visitors must register by giving a valid e-mail address and "sign" an agreement promising not to use the listing content for any but the specified purposes. This permits brokers working with buyers, including exclusive buyer agents, as well as interested consumers, to see everything FLS has currently for sale.

FLS offers a subscription service, paid quarterly in advance, for anyone wishing to view and use the off-market information for valuation purposes. It provides the service to anyone, including consumers and non-brokerage businesses, willing to pay for it. It strictly enforces a policy prohibiting the sharing of passwords by requiring strong authentication (in this case, a key fob that generates a login code for each session). FLS charges $150 per quarter per login ID for this service.

Any other use of the listing broker's data requires listing broker permission. Brokers and other businesses (including folks like Trulia, Oodle, LendingTree, Realtor.com, etc.) can obtain active listing data for use on their consumer Web sites. Each entity that wants to obtain active listing data for display on its own Web site signs up with FLS, paying a registration fee and agreeing not to use the data except for the specified purposes and not to share the data in bulk with any third party. It also agrees to update the data on its site from FLS at least daily; this helps to prevent the problem in the marketplace of very stale data. (I recently found listings on Yahoo Real Estate showing as active that had expired in my client MLS four months earlier.)

All the data-using entities appear on a list in the FLS system. The principal broker in each listing firm can pick and choose which registered recipients receive that brokerage's listings, checking a box for each entity she wants to receive the data. Or, she can check one of the boxes at the top, which say, "Send to all" and "Send to none."
Each day, registered data recipients receive a feed of the listings of brokers who have authorized release of data to them. Their display of the listings is subject to very rudimentary rules, the principal one being that the listing broker must be identified on each listing. FLS does not have the sort of detailed regulations found in the current IDX programs. If a broker does not like the way a data recipient is using her data, she can complain to the recipient, and if dissatisfied, she can stop sending her listings to that recipient.

Most brokers in FLS do not offer compensation to cooperating brokers, requiring them to obtain their own compensation from their buyers. Those listing brokers who offer compensation do so by extending offers through the mail, by fax or via e-mail to those cooperating brokers who seek compensation.

The FLS model results in the following benefits to brokers and consumers:

The only rules necessary are those to ensure the data is accurate and to ensure that listing brokers' listings are used in ways that they expect and understand. No more MLS rules based on an NAR model that is more than a dozen pages long.
The listing broker controls where her listing goes.
There is no discrimination of any kind based on business model. Anyone who will pay for a data feed and agree to basic usage and quality control requirements can display data on their Web sites. They need to maintain good relations with listing brokers, however, to ensure they do not lose listing content.
Brokers and others willing to pay for it have access to excellent off-market information.
National and regional Web sites operated by third parties will have much more accurate and up-to-date information about listings. Obviously, this is good for consumers. But based on the anger with which listing brokers complain to me about non-current data on third-party Web sites, I think listing brokers will like it, too.

There are problems with the FLS model, and readers may post scathing analyses of it. But remember, the FLS model isn't the only possibility: It is listing-broker-centric, but I think we can conceive of models that are buyer-broker-centric or even consumer-centric.

Conclusion

Interbroker compensation makes little if any sense. Getting rid of it would mean the end of MLS as we know it, but it solves a series of problems and may also open the door for more innovative brokerage and listing service models.