A real estate professor weighs in on the future of MLSs

Matthew Blake: Hello, and welcome to “Houses in Motion,” a weekly real estate podcast that is part of “HousingWire Daily.” I am Matthew Blake, a real estate reporter at HousingWire. For this episode, I spoke with real estate professor, Sonia Gilbukh. Sonia’s past research has focused on why there’s so many real estate agents, about 2 million in the U.S., and how the number of agents affects consumers. Sonia is now looking at the intricate world of multiple listing services, who runs them, how they are used, and how they are changing. Sonia and I also talked about her fascination with Zillow’s radical changes to its business model, and how Zillow both utilizes the MLS but one day may act as a competitor to it.

This conversation provided as they say, a 30,000-foot perspective into today’s market. Neither of us have worked in real estate, and so for better or for worse, there’s an outsider’s view here to how things work. Agents, I’m curious to hear your thoughts on this episode. And for anyone listening who has ideas, questions, feedback, please email me at [email protected]. That’s [email protected]. Hello, I’m here today virtually with Sonia Gilbukh. Sonia earned a Ph.D. in economics from New York University, and she is presently a professor of real estate at Baruch College in Manhattan. Sonia, welcome to the show.

Sonia Gilbukh: Thank you for having me.

Matthew Blake: So, tell us a little bit about yourself and how you started studying real estate, and what your perspective is in terms of the real estate economy.

Sonia Gilbukh: Sure. So, as you said, I’m a professor of real estate of Baruch College for a few years now. And my main area of research is real estate intermediation in the residential market. So, what it means is I’m mostly studying real estate agents and how they help homebuyers and home sellers find a counterparty and transact a property. And I got interested in this topic in graduate school at NYU, where I did my Ph.D. And at the time, I was thinking a lot about search in different markets. So, one example would be people looking for things to buy and, you know, firms looking for customers. And the other example would be the labor market.

So, where employer’s looking for workers and then people looking for jobs. And these are the examples of markets where there isn’t a clearinghouse, like, there isn’t a stock exchange where you go in and everything is out there and available, and you sort of have to go out there and find the information. And housing is a really good example of a market like that. And so, in graduate school, I was lucky to get access to really amazing dataset on housing listings and that’s where I got really interested and started exploring this market and thinking about how real estate agents make the search process easier.

Matthew Blake: Well, this may be at the time when you first started studying real estate, what was the most surprising element to it? Like, when you started going through those listings about how sort of the agents and the consumers interact with each other?

Sonia Gilbukh: Yeah. So, everyone has opinions about this market and the most surprising things… So this is pretty well-known market, I guess, is what I’m trying to say, but the most surprising thing is what we found with my co-author was how many completely new agents there were helping customers.

Matthew Blake: And one of the articles that I know that you’ve worked on that I’ve read tackles whether there are too many agents and whether the fact that there are, I believe the National Association of REALTORS has 1.5 million-member agents, then there are agents who are not part of the National Association of REALTORS as well. Overall, I think there are almost 2 million agents and your article kind of says that that’s too many and it’s too many to the point where it might hurt consumers. Could you just tell folks kind of why you think it hurts consumers and why you think there are too many agents?

Sonia Gilbukh: Yeah. So, in that paper, yes, the first fact we document is just how many new people there are. So, if you were to pick a random agent who is licensed and currently active, then there’s 25% chance that that agent had no clients in the past few years. So in our minds is basically a new person in this market. And that also varies along the cycle, so if we look at the booming markets where all of a sudden agents think it’s very profitable to enter this profession, it’s, you know, upwards of a third of agents are completely inexperienced. So that was just number that really surprised us. And so, the next thing we asked is how that matters for consumers and what we found is that if you’re a seller, when you sell a house with a new person, you are 10 percentage points less likely to sell, which is just like the raw probability.

So if we look at the downturn in 2008, we see that less than half of the homes were selling. So by working with an experienced agent, you might be increasing your probability of selling from 35% to 45%, which is a huge increase. So, just by the fact of existing and people working with them, they’re already making the market less liquid, so sellers are not benefiting from experience because they’re working with these inexperienced agents. But then also, because they take on, you know, one or two listings at a time and then exit, they take away the opportunity for other people to work with those listings, and gain experience, and stay in the market and become experienced. So there’s a little bit of that crowding-out effect as well.

Matthew Blake: So you found a lot of turnover among real estate agents as well?

Sonia Gilbukh: Yes. Yeah. And most of the exiters are the ones who had just entered. So most people try it out for a year or two, maybe three, and then exit. It’s a hard profession. And I think it’s so easy to enter that people think it’s worth trying their luck, but it’s actually really hard to make it in this market.

Matthew Blake: Yeah. And the paper that we’re talking about mentioned something that is so ingrained in real estate that I sometimes almost take it for granted in my reporting, which is that you found that there’s not any evidence that clients pay lower commissions to inexperienced agents for the relative disadvantage in experience, in accumulated sales, as compared to experienced agents. And that does seem unusual in most professions, you know, even journalism and unstable profession in its own right.

You know, I’ve gotten paid more the more work that I’ve done since finishing school. And that’s almost entirely due to my experience, yet if I were a real estate agent, I would probably make the same commission after 10, 20 years on the job. So, based on your conversations and all the research you’ve done on this, why do you think that’s the case where there’s not a graduated pay scale for agents that might be more experienced?

Sonia Gilbukh: So, I wanted to unpack the commission a little bit first before answering that question because there is actually a bit of a pay scale for agents. So I’ll get to that in a moment. But what you refer to as sort of what’s known as a fixed fee, that’s what the sellers are facing, right? So the sellers are currently in the standard model paying 5% to 6% commission to their seller agents. And that’s kind of what they know, that’s what they see, and that seems fixed and non-negotiable. But then where does that commission go to? So, half of that is offered to a buyer agent. So, automatically, you know, your seller agent is only entitled to that 3% as opposed to 6%. And then on each side of the transaction, the buyer agent and the seller agent also have to share their portion on the commission with the office where they work in. And that split is often a function of your experience.

So, if you are a completely new agent, your office might be taking 50% of your earnings. And if you’re a really experienced agent, they might allow you to retain 80% of your earnings. So there’s that variation that comes from experience that is there a little bit. But to go back to the commission, you know, as a seller, again, I’m paying 6%, but the person that I’m paying to in my mind only really retains 1.5%, or maximum, 2.5%. And they often don’t have any negotiating power over the remaining of the commission.

So, even if inexperienced person, I wanted to reduce my fee, right, and let’s say, instead of charging 6%, I would wanna charge you 5%, which seems like a small but reasonable discount, that would mean I would forego two-thirds of my earnings. Instead of 1.5%, now I’m going to only make half a percent because I’m giving out the only portion that I can negotiate over, which is that 1.5% that I actually make. So, there’s a little bit of vilifying agents if there’s really high commission, but actually, a lot of the times they have no control over that.

Matthew Blake: Yeah. The brokerage often won’t let them negotiate kind of the part of the commission. But I mean, for consumers though, it does sound like regardless of the agent’s experience, what they pay and their commission is usually the same, correct?

Sonia Gilbukh: Yes. That’s what we see in… So we don’t have data on what the sellers pay, but we do have data on what is offered to the buyer’s side, which is usually half. And so, that’s what we see in the data and there seem to be almost no variation, at least within an area. So, some areas maybe 2.5% is more prevalent, meaning the total commission is probably 5%. In other areas is 3%, but within a particular area, there’s very little variation.

Matthew Blake: One more question on this because you mentioned the brokerage, and thanks for clarifying that because that is important. That’s probably if our listeners are real estate agents, something that they’re quite familiar with, but it was good to, yeah, explain that because I kind of admitted that, right? If you’re a more experienced agent, you could have 90% of that commission where the brokerage only gets 10%, whereas if a newer agent, it’s more of a 50/50 split. So, speaking of the brokerage and these inexperienced agents, kind of putting you on the spot here, but I was just curious in your research, do you know if these inexperienced agents are being trained at all by their brokerage or kind of what support they’re receiving as they enter the real estate profession?

Sonia Gilbukh: So, in our paper when we look at the effect of experience, we also try to look at whether the office where you work matters when you were inexperienced, and we didn’t seem to find any evidence that it did. So, from talking to agents, it sort of depends where you are, but some offices do offer access to marketing, some funds for you to use in your own marketing office space, you know, support. But then other places don’t really offer much. So, I think it depends, but it doesn’t seem to make a huge difference at least for the outcomes that we see in the data.

Matthew Blake: The experience issue, you mentioned that the barriers to entry are low. What maybe would you like to see in terms of barriers to entry? Do you have any sort of prescriptive ideas at this moment as to like what might be better to ensure for consumers and to agents themselves that they have enough experience to do this pretty difficult job?

Sonia Gilbukh: Yeah. So, in the paper, we explore some ways to restrict entry, and one is directly raising the fees for licensing. Right now is pretty cheap also to become a real estate agent. So that’s kind of like artificially restricting, you know, the attractiveness of the profession. Training is great, but training is sort of very market-specific. I think it has to be experience that allows them to become better agents. So, something like an apprenticeship program feels like a really, really great option. And that would also help because that will extend the period of time between when I decide to become an agent to when I can actually work with clients. And that might make people a little bit less responsive to these, you know, jumps in home prices because they know that by the time they enter the market, it might be two years down the road and that might not be the case anymore.

Matthew Blake: Turning to a different topic, so you are studying multiple listing services right now. What are you hoping to learn about MLSs?

Sonia Gilbukh: Yeah. So, the first question I get when I came to this market is what is MLS in the first place? So, it seems to be that there is no, you know, professional definition, there’s nothing fancy about it. It’s basically just a term that means dataset that contains very detailed and up-to-date information on the listings, on for-sale listings that are currently for sale and also in the past. So, the data now can often be found on websites like Zillow and Trulia. So, I’m curious about the value of these consolidated platforms for agents.

So, the other thing about MLS is that only real estate licensed agents can have access to it, only realtors. And so, that seems to be the greatest value that the agents provide to their clients is having access to these platforms, being able to list your house on that platform so other agents can see it. Being able to access really detailed information that is very accurate. So, I’m curious in sort of value of these platforms. And the trend that we see now is that they’re consolidating, so there used to be these small regional platforms where the data might be for a particular region. And now, they seem to be consolidating into bigger and broader data platforms, and so I’m curious about how that broader access to data and broader exposure for sellers might affect the market.

Matthew Blake: And to back up for a second, what is sort of the history of the MLS? Like, why do they exist and whom do they exist for? Do they strictly exist for agents, or do they exist for other interests as well?

Sonia Gilbukh: So, my understanding is that they’re sort of as old as the profession, right? The data sharing. And you know, now, of course, for the technology, it’s it looks a lot different, but this, you know, data sharing between agents existed for as long as there were agents from early 19th century. And it’s there for agents really to best serve their clients.

Matthew Blake: And in terms of the consolidation, I know that we had spoken earlier and you told me that there are now over 500 MLSs, I think, in the country as compared to maybe a few years earlier when there was an estimate that there were maybe 800 or 900 MLSs, why is this consolidation happening?

Sonia Gilbukh: I don’t know exactly why it’s happening. But if you read about different platforms merging and how the reason of why it’s happening, it’s for efficiency reasons so that they can better serve their customers. So, if you look at regions that were on the border between two different MLS platforms, right, then agents who work there would have to list on multiple platforms that have to get multiple memberships to multiple MLSs to really get all of the data. And so now with the consolidation, they can make sure that everyone gets access to data by just having that one MLS membership. And that the clients would also benefit from that because they will have broader exposure to their own listings independent of whether the agent only has one membership or two memberships. And as a buyer, they’ll also have access to bigger geographical network.

Matthew Blake: What is the argument then for even having different MLSs? What is the advantage of having a few hundred or a few dozen regional MLSs versus say, one MLS or three or four MLSs?

Sonia Gilbukh: So, my understanding is that, you know, very segmented MLSs are terrible. So we see that as an example in New York, actually. There’re so many different MLSs that they basically have no value. Like, as an agent, if you wanted to have access to the entire, you know, Manhattan and New York City basically, then you’d have to be a member of multiple MLSs. And even then, you might lose some data. So, we know that really segmented MLSs are bad. But then if you have one MLS, let’s say, at the extreme, one MLS across the United States, then that makes it harder for associations to, you know, adapt the MLS platforms to their specific needs, potentially.

So in some regions, you might need to add another field to how you display the data, or you might come up with a new guideline or a rule for your agents that now changes how the data gets input. And then, you know, you have to figure out how to adjust that MLS platform. And that might be more complicated if there’s just one big body that you’re working with.

Matthew Blake: Yeah. And I think that gets nicely into kind of the next question I had for you, which is, who owns these MLSs? Who’s kind of in charge of them generally?

Sonia Gilbukh: So, again, I’m also in the process of figuring this out, but my research shows that it really varies. So, I wanna say majority because that seems to be what I’m seeing, majority of the MLSs are run by the associations of realtors. So, the local associations would have their own platform that they will govern and they will pay. And basically, these MLSs would be non-profits that belong to the members of the associations who then pay to maintain this MLS. And they might outsource the technology, the actual platform, but they would be in charge of the data, you know, and they would own the data.

So, that seems to be the majority of the cases. But then there’s also for-profit MLSs as well that seem to make money from, again, the memberships and also from selling the data to private companies, to researchers, etc. So, it seems to be different models. So, as I said, MLS’s sort of a generic term for a database, but it doesn’t necessarily mean that they belong to someone specific.

Matthew Blake: And what is the relationship to all these different MLSs and other different models with the National Association of REALTORS because it sounds like the majority of the MLSs, you’ve pinpointed are owned by a local chapter of the National Association of REALTORS, but then there are others that are owned by broker-owners. There are some that are not-for-profit. There’s some that are for-profit. And the National Association of REALTORS issues rules about MLSs. They tell agents that you need to post a listing and the MLS within one day of marketing it, that’s the pocket listings ban. So, what is the relationship with the MLSs and the National Association of REALTORS?

Sonia Gilbukh: So, I’m thinking of the MLSs as, like, let’s say the analogy that I have in my mind is like hospital data sharing, right? So, you are governed by certain rules when you’re a doctor, when you’re a medical professional, but you use a particular platform to deliver those rules. So, some platforms let’s say are owned by the hospitals and it’s, you know, the same enforcer and the, you know, deliverer, but then some, you might think okay, they’re outsourcing the technology, but ultimately the doctors themselves are the professionals that are responsible for the right conduct, right?

So, that’s my understanding of the MLSs is that they’re either owned by the local chapters, which means that clearly, you know, they abide by the rules or they’re these technology companies that then work for the local chapters, and so they will make sure that the needs of the realtors are met. And so, clearly, the rules will also be obeyed.

Matthew Blake: So you’re finding that, overall, most of the MLSs do try to follow the National Association of REALTORS rules?

Sonia Gilbukh: Yeah.

Matthew Blake: And what is the relationship with the MLS and Zillow? And you mentioned truly as well, these consumer-facing websites that, you know, you and I are able to go on right now and look for a home once.

Sonia Gilbukh: Yeah. So, it’s actually really interesting. So Zillow, when they started making data available to consumers, they had relationships with each individual MLS and they were buying the data from them. And that allowed consumers to see the data, but that also actually made the data less accurate because a lot of the times it was pulled maybe once a day or every few days. Some listings were lost. So, if you talked to real estate agents, they would tell you that Zillow is terrible, never has the right information, and things like that. But then this spring, Zillow actually became a brokerage and now MLSs have to give them access to real-time, what’s called the IDX feed, which is, you know, on the website, the information is real-time. And so, now the data is accurate and Zillow’s relationship to MLSs is basically just like any other brokerages relationship to an MLS.

Matthew Blake: And so you’re saying that since Zillow became a brokerage that their data is more reliable as relates to the data that they’re getting from MLSs?

Sonia Gilbukh: Yeah. I mean, at least that’s the claim, and in theory, that’s what it should be. I think Zillow still has a lot of control of what they display on their website. So clearly, if they wanted to restrict some information or, you know, change the order in which the listings were displayed, maybe they could, but in theory, the information is just as accurate as any other brokerage website.

Matthew Blake: And what is the relationship between the MLSs and real estate agents because you mentioned that real estate agents primarily use them? They’re a site for real estate agents to access data. But now if I’m a real estate agent, I also can go on to Zillow, which has accurate information, or Redfin, or Trulia, why do I as a real estate agent need to pay a membership fee to an MLS to continue to use their data?

Sonia Gilbukh: Yeah. So, you’re not required to as an agent to be a part of the MLS. As a buyer agent, you certainly could consider not getting an MLS membership, but if you are a seller agent, you still want that listing of your clients to get on their platform so it could end up on Zillow. So, in my experience, most agents do get the membership anyway. So, it’s not just about getting access to information, it’s also about contributing and making your home as a home seller available for everyone to see

Matthew Blake: How might you see the MLS system change to benefit agents, or I know you’ve just started with your research, but any kind of potential areas for improvement that you see right now?

Sonia Gilbukh: I think the consolidation is a really interesting direction where things are going. I think as we talked about, it has some drawbacks, but I think ultimately, it will benefit consumers. I actually am worried about the MLSs in the future going forward. So maybe not something that can improve, but can deteriorate with platforms like Zillow is… The Zillow, for example, rolled out now their own for-sale-by-owner, you know, strategy, where the seller can directly put their house on Zillow without dealing with an agent and without putting the home on the MLS. So, that kind of creates a possibility of listings being in different places and not consolidated in one platform. And I think that would create a lot of inefficiencies.

I think consumers would really benefit if all of the listings, everything that they might be interested in was in sort of one place where someone they trust has access to, them or someone that they trust. And so, it’s I think gonna be tricky if we start seeing that these big companies, big technology companies might offer their own platforms and might try to become that big platform instead of the MLS. It’s not necessarily bad, they might be in a position to better provide that kind of service to everybody, to the profession, to the clients, to the consumers, but I think they would have to be regulated then because there’s a lot of ethical issues that could come with that power.

Matthew Blake: So, well, we’ve talked a lot today about like sort of quacks in the real estate economy in terms of inexperienced agents regarding the MLSs, the challenges the MLSs are facing, their consolidation, whether Zillow may eventually become a competitor instead of a partner. In your research, what would you say is the most glaring flaw in the way that the residential real estate economy works today?

Is there anything that really stands out to you as this is really unfair for people who are going through the home buying or home selling process or even something, especially for our audience which is often real estate professionals, you know, this is really unfair to an agent, this is really unfair to the people who are out there trying to make a living doing this?

Sonia Gilbukh: I think for this question, I have to go back to the commission structure because those fixed fees, you know, for the seller, where the majority of the fee goes to someone that they’re not even working with seems to be unfair for everybody. It makes the intermediation sort of artificially expensive. And it also falsely vilifies the agents, even though they have no control, really. So there’s a few losses that are going on right now in Chicago and Connecticut, I think where the home sellers are suing the association realtors for this particular structure of the commissions.

And their argument is that the buyer should be able to pay for the buyer agents. So then the buyers would negotiate their 3% and the sellers would negotiate their 3%, and everyone would be in the better position to negotiate and get a better price. So I think, I hope that that’s where the industry is going, but we’ll see if we get there in the next foreseeable future.

Matthew Blake: Do you feel that, I mean, this is something that as a reporter, I’m keeping very close tabs on, these lawsuits to change this commission rate structure, where basically in order to play ball as a real estate agent now, you have to split your commission with the buyer’s agent and then the home seller bears all the costs. Is this something that the people that you talk to in the real estate profession are concerned about, or is this something that’s kind of an esoteric issue for them at this point?

Sonia Gilbukh: Meaning that are they worried that their salaries will go down as a result?

Matthew Blake: Yeah. And that their business will change as a result?

Sonia Gilbukh: I think so. So my mother-in-law, Jessie Pinkham, is a realtor in Chicago. And she’s one of those people who charges less than the prevailing price because she’s just, like, I think that’s a fair price. So even though she could charge more, and she’s just like one of those really conscientious and reasonable people. And she certainly thinks that the fee is not necessarily unfair. Like, it’s not necessarily too high a price to pay because there’s a lot of work involved for a real estate agent, but I think she agrees that there’s too many people who are new, who are completely inexperienced, and if there is a way for them to earn less, right, and to gain their experience more by volume, you know, by taking clients who want to pay less, maybe for a lower quality service, then that would be really beneficial for the profession. So I think the experienced agents would not necessarily see lower wages, but I think this will make it so that inexperienced can gain their experience faster and sort of get to that level faster.

Matthew Blake: No, that makes sense. And one last question, since we’ve been criticizing the real estate economy, or at least I have, I guess. What about the real estate economy that you’ve studied that you actually think is positive or good or sort of is an aspect that maybe other facets of the economy should emulate?

Sonia Gilbukh: I think the MLSs are overall a really great idea and are really great for efficiency. We don’t really see that… Well, so in labor markets, we do see some technology platforms come up where you can list, you know, your jobs, but overall, we don’t really see a consolidated platform for all the possible jobs available that are there. I think in the housing market is really great that that happens. I also really like that buyers have good representations in the U.S., that’s not the case in a lot of countries.

We often say, oh, U.S. commission is 6%, but then, you know, in England, it’s 1% to 2%, which is a lot more reasonable, but actually, you know, it doesn’t pay for anything on the buyer side. So it’s almost like you’re comparing apples to oranges. And in the UK, if you’re a buyer, you have almost no representation. You walk in and you see the price and you can hire someone, but it’s very unusual as far as I understand. So I think it’s nice that in the U.S., buyers have representation.

Matthew Blake: Yeah. Anything else that you’d like to discuss?

Sonia Gilbukh: I’m just curious where this market is going. I’m curious how the lawsuits pan out. I think we’re seeing a lot of changes, even with Zillow becoming a brokerage, how that’s gonna change the market. That’s very recent and only happened in the spring of this year. So, you know, when I started this research and started digging into the historical reasons for why things are the way they are and thinking about the disruptors in this market like Redfin, for example, the discount brokerages, I was sort of under this impression and conclusion that nothing’s gonna change, or it’ll take forever for things to change. But now I think I’m coming around and I’m seeing big differences. So I’m just curious to follow this market and see what happens.

Matthew Blake: Yeah. Yeah. It does seem like there is legitimately a lot of change happening right now. Sonia Gilbukh, Baruch College real estate professor, thank you so much for answering my questions and for being on “Houses in Motion.” Really appreciate it.

Sonia Gilbukh: Thank you so much for having me. Thanks, Matt.