Economies of scale (sale?)

Bet you never thought I'd complete analysis of the 4 TRUTHS about MLS attributes from the white paper authored by Connecticut's statewide MLS CEO. I had some doubts too, but here we are. It sure is easier to just assume TRUTHS, rather than actually think about the elements that comprise them. That approach saves time and with organizational culture the way it is, you often don't have the information needed to think deeply about an issue anyhow. That's no accident.

On a personal level, I'm still a scientist at heart and rigorous hypothesis testing remains important to me. Then there's the OCD--LOL. Every time a hypothesis is proven false (including my own) the body of knowledge about the world expands slightly (if the results are released--LOL). An alternative is testing "applied hypotheses" where you figure a desired outcome and then design tests to achieve the desired results. That takes skill and effort, though. The more direct way is to just say "this is the TRUTH" and move on with discussion.

Economies of scale suggest that statewide MLS data is cheaper to produce and distribute than data for regionals and individual MLSs, because setting up a database, running the application and administering a system is not related in a linear way to the size of the database. This is particularly true with MLS applications because most of the data input is done by the users and costs little or nothing to the owner of the MLS or the vendor.

At first thought, that sounds like a heck of a deal. Data for a whole state for less money that the cost of data for a smaller area within the state. What's not to like? More for less. Upon more careful consideration that may be a little too simple a conclusion.

Just suppose the MORE doesn't describe a single variable--it's that duality in the concept of "comprehensive" again. More listings--yes. More data about each listing?--maybe, maybe not. More pertinent data about each listing? Probably not in a one size fits all statewide MLS database. How much local data content are agents and the public willing to give up for cost savings? That's a moot point, because no one will ask either group that question. Consideration will take on the follow theme "of course you want a cheaper MLS system that will have data for the WHOLE state, don't you?"

How much cheaper? The white paper assumes (doesn't use the TRUTH word on this) about $100,000,000 a year is lost on a national basis because of inefficient MLS systems that haven't seen the light of consolidation. Sounds like a lot of money--but is it? If there are 1,000,000 MLS users (I have no idea if that's close-but CA has 200,000+/- so it may be on the low side). Do the math. That's a potential saving of $100 a year per user. Most dues invoices are mailed quarterly--so $25 a quarter savings. A dinner for one at a modest restaurant or if you have a friend, you're going to be treating them at a casual place. How much are you going to give up for $25/quarter savings? Perhaps more to the ultimate point, how much would your clients like you to give up when you're representing them in a transaction in which you might make a $40,000 commission?

That's it. We're done with the basic TRUTHS. IMHO, there is nothing compelling about any of the alleged advantages (TRUTHS) of statewide MLS as compared to regionals or local MLS. That's my opinion and I'm sure there are other opinions on the matter.

I'm not done yet (dream on!)

Just suppose the four TRUTHS don't account for the benefits now producing the urge to merge that is sweeping from Connecticut all the way to the left coast. What other factors might be involved?

That's next--the dynamics of power, control and profitability in the MLS ecosystem. Bless the creatures, great and small!

Comprehensible?

Half way there (covering the four properties Connecticut MLS considers TRUE attributes of statewide MLS).

Slight detour to provide link to Michael Wurzer's take on Cameron's white paper in the FBS Blog. Michael takes a different path to conclude that the one size that really fits all relates to data standards not the actual area covered by the MLS. I'll comment on that when I tie all this together (coming soon--have patience!!).

White paper states statewide MLSs have more comprehensive data. That should be obvious--of course they do. You guessed it, it's not that simple. There's a complication arising from different contexts of "comprehensive".

There are two ways to view "comprehensive".

One involves coverage--in a geographic sense and/or in the sense of containing a vast majority of something--listings in this case. Obviously a statewide MLS is more comprehensive in having more of the state's listings distributed over more of its geography. That's simple--the nod goes to statewide over regional or local MLS for that use of "comprehensive".

Another aspect of "comprehensive" could apply to the amount of information about each listing contained in the MLS-ie data about each house or other property. Is the data copious or rudimentary? In that sense statewide MLSs may or may not enjoy an advantage. Remembering that all databases are compromises, it seems probable that statewide MLSs are likely to trend toward generality thereby reflecting more compromise in terms of data fields than most regionals and individual MLSs. It's a one size fits all database. Standardization has its costs. The statewide database may be large, but the fine details that define specific market areas may not make the cut as the fields are selected for inclusion. That even happened in creating our regional database covering 70+ miles of central coastal area. We do have some odd fields that only apply to a single community--that would not likely happen in a statewide. The interesting thing is the local agents know that sort of stuff already--or are at least aware of the need to check it out. The MLS field is a convenience. Agents not familiar with the local area may not even be aware of the issue in question. Their world (a very virtual one) is defined by a one size fits all database.

Through it all, clients and properties remain in the real world where a consideration not important enough to be included in a statewide database can loom large in the decision to buy and at what price. There's an argument that there are always factors of significant importance not included in the MLS data, so one size fits all MLS data is perfectly OK. The trade off between loosing local nuances and having data for the whole state is acceptable--but to whom? The Buyers? Would they rather see and have their agent see generalized data for the whole state rather than fine detail related to the property they are actually interested in buying? Has anyone asked them? Who's done a poll?

Compared to 25 years ago, agent are much more dependent on MLS data today. A great deal of their time is spent in the virtual world of digital data. That world is becoming more sophisticated all the time, but to compromise local information in order to expand coverage statewide may be a step in a wrong direction for agents and their clients. Generally clients have a fairly tight geographic focus. They want information and counsel that enables them to make wise decision about which property is RIGHT. Comprehensive (as in area of listings)statewide data may not play a major role in that process.

I'll get deeper into the trade offs and which entities in the extended MLS ecosystem actually benefit from statewide data in the conclusions.

We're almost there, too. Next is cost--how cheap is cheaper?

time after time

I promise this will go quicker than the accuracy treatment--that got a little involved, a real challenge for an industry that likes a straight path to a commission check with no detours, complications or delays. Hence the point of sale doctrine that's the tail wagging a whole kennel of frisky dogs in the state and national association's back yards.

This post asks the burning question: does statewide MLS consolidation produce more timely (ie less stale) data? Apparently it does in Connecticut. How?

There is typically a time frame requirement for data and change submissions to the MLS--48 hours is the usual figure. That's for documented changes--new listing expiration, new price, new listing etc. In theory if listing files were audited the changes would occur within 48 hours of receipt of document (whenever that might be). With email of scanned docs it's easy to tell. Snail mail is another matter. Signed on the 5th, mailed on the 6th, arrived on the 9th. When does the clock start and stop?

As the listing is input, the application requires a date certain for when the change became effective. There is a measure of fuzziness about that date and because files are seldom audited the amount of fuzziness is uncertain. Some agents, I suspect, put down a date within 48 hours prior to posting the change, just to avoid the appearance of a violation and the slim chance they'd need to provide a complicated explanation.

Other changes--for example if the seller asks for new pictures or fresh copy--are not effectively governed by a time window. There's no paper trail with a timeline.

The mechanics of the process are simple--agent inputs the change and it is available in the database. Aside from cache issues on individual computers, the change is nearly instantaneous regardless of how big the MLS is. It might take a few fraction of a second longer with a big database or a slow ISP, but there's not a wide variation in timing.

For aggregation based regionals there could be a slight delay, depending on refresh frequency

So where would the contrast arise between a Statewide MLS and smaller MLSs? Perhaps Connecticut has a shorter time requirement than 48 hours? If they do, how do they enforce it?

As was the case with accuracy, there doesn't seem to be any inherent difference in timeliness associated with whether an MLS database is statewide or smaller.

Next up: More Comprehensive Data (we're going to be in Wikipedia again on that one)

consolidation magic?

One of the key assumptions made in the white paper and presented without support from any actual sampling data (guess we don't need no stinkin science!)is that, compared to regional MLSs and single MLSs, consolidation of MLS data at the statewide level produces 1) more accurate data, 2) more timely data, 3) cheaper data and 4) more comprehensive data.

I'm going to go down this list and ask some questions about what attributes might factor into measuring the characteristics of each item that might demonstrate the supposed superiority that consolidation produces at the statewide level.

I'll also consider some means of testing that set of hypotheses (which I assume hasn't been done or a "white paper" would certainly provide the statistics of the sampling).

1. Accuracy of Data
What is accuracy? That may seem too rudimentary for a starting point , but if we're interested in a metric for measuring a component of MLS quality, we should understand the metric. More importantly can the metric be measured in a precise way. If we're pimping for a political agenda that doesn't matter much. We can just assume THE TRUTH. I'm not pimping (at present anyhow), so I'll refer to Wikipedia for a refresher definition.

Ok, without launching into a discussion of accuracy vs precision etc. etc., lets agree that accurate MLS data approaches the TRUTH. In this case the information in the MLS system should be very similar to the TRUE values associated with the house (or lot or whatever) and listing agreement (price, commission, term of listing).

The problem with MLS data is how do you know what the TRUE values are? If you don't know, how can you determine the accuracy of the data? The MLS staff isn't going to run out with a clipboard and review every house. Agents familiar with the house might know what the truth is (but if it's not their listing, they may not care much--they know the truth already). As far as listing agreements--MLS staff can audit the agreements, but that nearly never happens--so in most cases there's no real checking of house data or listing data.

So, how does a statewide MLS "know" it's data is more accurate than the data present in component MLS containers pre-consolidation? What changes magically with consolidation? Does the statewide MLS have an omniscient algorithm that sniffs out inaccurate data and flags it. That is a cool system, if that's what they really have in Connecticut. You'd think the Federal Government would want a piece of that, huh? They could certainly use it!

Ok, so measurement of accuracy is going to be a significant hurdle. We'll come back to that during discussion-- after we cover more of the complexity behind the contention that statewides are more accurate in their data.

IF we could indeed measure accuracy against the TRUTH, what factors might influences accuracy and are those factors likely to exhibit differentials between statewide MLS and those MLS databases covering smaller areas?

Agents input much of the MLS data but in many MLS systems certain fields are pulled from public records. The public records part is as accurate as the public records--usually pretty good for recently reviewed parcels and for permitted or assessed improvements.

So, public records data is easy--it's accurately pulled across into the MLS, but it's pulled across in the same manner whether it's dumped into a statewide container or the container of a regional or a small MLS. No advantage to a statewide there.

The motivation of agents to do a good job of inputting accurate data is another major factor. That involves several sources.

Agents have varying degrees of personal pride in their professional skills and responsibility to act in the best interests of the Sellers they represent as well as the other agents they interact with professionally. Hard to rationalize how inaccurate data is a benefit to a Seller or other agents--at least in the long run.
Are agents likely to do a better job when entering data into a statewide system?
The data may be seen by more people, but listing information is already up on the Internet for the whole world to see. Exposure is not a likely factor.

There is also office culture/protocol/office handbook directives etc. The authority of brokers/managers over agents is all over the place, but I haven't talked to many old timers who think it's as strong as it was 20+ years ago. Back in the day, the broker was THE AUTHORITY. Nowadays, not so much. The rise of state/national associations as a standardized source of education/information probably plays a role in that trend. When I started in the business, the broker or manager or old timers were THE place to get much real estate information. There was First Tuesday as well--we had an extensive collection of back issues. Back then if your broker told you to enter accurate data--you did. If you didn't, the understanding was you might find yourself looking for another office. Sounds tough, but the listings BELONG to the broker. Before computers, Internet and profuse data leakage brokers felt that ownership with intensity.

Some larger offices have a clerical enter the data, but there's a worksheet somewhere that the agent fills out and one would hope the clerical is skilled at data entry. No reason to think there's a differential between statewide and some smaller database in that regard.

Then there are MLS rules and sanctions. Most rules include a statutory fine for confirmed data errors. The fines vary. In regionals the fines are imposed according to the MLS rules of the association the agent committing the infraction belongs to. A deterrent? Somewhat, depending on the fine and the agents concern about having a record in their file. The other factor is that someone who discovers an inaccuracy must file a complaint. Our system allows that to be done right online-click a "report violation" link and fill out the report, then submit. However, the "glass houses" effect kicks in and keeps much of the bad data from being reported. Are the fines higher in a statewide? That might actually decrease reporting of errors. Agents who think the fine is grossly excessive would probably think twice about filing a report. Within a statewide framework, who administers the fines, where do the fine monies go, etc. etc. BUT does any of that indicate a statewide will necessarily compel agents to participate in achieving more accurate data? Nope.

OK, there's the lay of the land for data accuracy. How is statewide data likely to be different (more accurate) than data in a regional or a local MLS? How do we prove that hypothesis? Take random sample of listings and compare the accuracy of their data field entries to the TRUE values as verified by objective observers checking the actual properties--sorta ground truthing. Has anyone actually done that? Not that I know of. It would take a lot of effort and it's possible no one really wants to know.

Here's another angle. There are some self checking features in some MLS vendor applications, but they don't check every field and they don't know the TRUTH. If a statewide application had more of those self checking features you could possibly say that for THOSE fields where self checking was applicable, the accuracy of statewide data was superior to that of a regional or local MLS that had a lesser number of self checking features--but only for that subset of fields. However, that's not the hypothesis we're trying to test. It would depend on the vendor and that a different issue entirely.

Statewide databases are inherently challenged by compromise. In fact all MLS databases are a compromise. They can be very large to accommodate MORE information that agents and buyers might have an interest in. In reality, most of the data field are rarely used. Most searches use 4-5 fields. The database may have several hundred. Some are necessary to identify agents, offices, contact info, etc., but setting those aside, there are still many field never used and most of those aren't required. That raises an argument regarding attention span. At what point does data accuracy tail off because agents loose enthusiasm during the lengthy process of completing the fields?

Statewide databases might tend to have more fields than regional or individual MLSs. Regionals and individual MLS are more organic--i.e the containers include data about a geographic area with a degree of commonality. How would one data set represent the diverse properties of a very heterogeneous state like CA. Mountains, coasts, tracts, resort areas, etc. In a very general way--one size fits all--just not very well. That effect could decrease accuracy in a statewide MLS. Fewer of the data fields would be relevant to a particular listing. The MLS application could flag fields depending on access ID or property zip, but that could be a problem too.

Here's an interesting "what if". What if an agent is confronted with entering data for a listing into a hypothetical MLS system in which ALL the agents using the system, and public viewing the system have intimate knowledge of ALL the houses, including the one in question. Under those circumstances, we might expect the agent to feel a need to carefully enter accurate data-- knowing that any error would be quickly detected. That's taking things in the opposite direction from statewide superiority, but is more in line with the very early MLS systems.

It's similar to giving a seminar to an audience who's not very knowledgeable on the subject, as compared to appearing before acknowledged experts in the field. In which case are you going to be at your very best?

In summary, I see no verifiable reason statewide MLS data should be any more accurate than data from smaller MLS entities. If Connecticut did before and after sampling and analysis, I'd love to see the data and results. At best, accuracy in MLS data isn't easy to measure in the first place. To complicate matters, MLS data accuracy is largely determined by factors outside the direct control of the MLS, be it statewide, regional or individual.

If statewide MLS consolidation has an upside, accuracy of data is not likely a major contributor.

Next up: Timely Data? Does time become warped in proximity to a really large MLS?

The journey begins

Ok, did your homework and read the 42 initial pages (over achievers have read all 133 pages)? Ready to launch an expedition into the shadowy land of CHAOS where standardization seeks to cast a brilliant light into the wilderness thereby forcing diversity and creativity to cower in the dark recesses of cyberspace?

Oh, one last observation before we blast off--about the really nice message from the CTMLS President. Did we really expect the pres to diss the white paper fluff piece in a Preface? He did use the word "dialogue", suggesting differing opinions might exist, so here we go with some of that differing stuff.

Page ONE--Right outa the chute we get bludgeoned with:
"THE TRUTH OF OUR INDUSTRY(my caps--whose truth --LOL?)is that consolidation yields more comprehensive, accurate, timely and efficiently produced listing data. Anything less than consolidation on a statewide, or larger, scale burdens brokers and ultimately the public with LESS comprehensive, INaccurate, stale and more expensive listing data."

I'm going to dispute ALL of the above contentions during the next few blog posts--yes, even "comprehensive"--we'll need a dictionary and some semantics for that, but the point I'll make is worth the effort.

So up till now those of us working in the real estate industry and those buying and selling real estate have been, according to Cameron's white paper, living in a vast chaotic wasteland of overlapping, contentious MLS territories where stale, inaccurate, uncomprehensive and excessively expensive data is used doggedly by burdened brokers (particularly those who have multiple offices spreading out into different MLS areas)to eek out a modest existence. No surprise, the public is similarly burdened--even though they pay $50 Billion a year in commissions --- despite the alleged inefficiency and inadequacy of current MLS operations.

OMG! You guessed it. Things are even worse than that!

We (the industry) are also fragmented and divided, while we are assaulted by the barbarians attacking us on multiple fronts and deal with the perpetual stress of rampant fear and galloping paranoia. No mention of the lions coming over the hill--OR the camel sticking its nose into the tent--but with a mere 133 pages something had to get cut.

This scene sounds like it came from a movie about the dark ages! It's truly a miracle we survived. It's more amazing that tens of millions of buyers across the US managed to find housing and complete transactions with willing sellers, despite the stultifying handicap of these antiquated MLS operations? It's truly a miracle of impressive proportions.

Cameron paints a landscape showing a dark and woeful world of MLS madness that may have existed somewhere, sometime, but not often and certainly not where I did business from 1985-present. MLS members, volunteer leadership, paid staff and vendors made sincere efforts to achieve the shifting goals of the MLS and meet the needs of the public. They largely succeeded in a vast majority of markets, sometimes creating regional MLSs to expand services and market areas. To infer less in the process of moving an agenda forward shows a lack of respect for the industry, its heritage and those individuals.

I've mentioned in earlier Blogs that the national and state associations (at least the BIG state version out here on the left coast) played very little role in the day to day real estate business 25 years ago. More recently, if agents, brokers, and the public, were suffering mightily in the dark shadows of purported MLS oppression, one wonders why the trade organizations weren't struggling down a path toward consolidation much sooner? What changed over the past few years? Plenty, as you'll read in later posts!

Next: Whose data really is stale, inaccurate, incomplete, expensive AND inefficient?

homework--eeek!

I read through the first 42 pages of the white paper at open house--wind kept blowing the signs over, so I finally left. This is going to be a long process! There is so much material to critique because the white paper is really just a PR piece for that particular statewide MLS.

I also looked at a map of Connecticut. Pretty small spaces and only 11,000+ users for the entire state. The regional MLS I served as chair and sys ad for during 2001-2005 had a third of that number among 6 MLSs in a very rural area spanning two coastal counties. The size factor again--does size matter? It had better not if all 50 states decide to go statewide, as the author suggests they should.

Before I launch into the review of this white paper, you should go take a look at their public portal and home page. Marketlinx MLXchange Version 4.0 is the MLS vendor application. May look familiar to some. It's typical of MLS applications that provide services to medium and larger MLSs. There are other interesting documents accessible to non-members (click the Logo at the lower left to link to a page with a RESOURCES tab), including the white paper itself. Browse around and get a feel for their organizational culture, before you read the white paper (at least the first 42 pages--maybe go do an open house?).

If you've read earlier blogs you know that I'm not impressed with the relevance of most MLS applications to agents or the public. Too much data that is rarely viewed (by either group) and not nearly enough information about factors that almost always determine the buyer's final choice. Present systems are still throwbacks to the mimeographed MLS sheets of the 70's and the primitive books I started with in the mid 80's. That perspective will weigh heavily in my review.

Do your homework (LOL) and we'll get started in the next blog post.

Size? One is all we need?

Just came across a white paper re statewide MLS consolidation released MAY 2010 by CEO of a NE statewide MLS. I love it when a CEO writes a white paper extolling the virtues of his own accomplishments. That hardly fits the commonly held definition of a white paper. Is the content likely to be objective? Not hardly. What are the odds this author is going conclude that the grand endeavor he slaved over for many years, played political theater within, risked his professional reputation on and spent many sleepless nights over was really not that great a concept? Wanna take odds on his objectivity?

As you've probably guessed, I've got a few issues with assumptions made by the white paper at the outset and also with the analysis, not to mention other relevant matters that are just ignored.

Then there's the issue of whether what worked for his state (if it did work) will necessarily work in all states (as he suggests it should). Hey, all the states and all the state associations and all their politics are the same right?

It's a one sized fits all world out there. Houses are all the same, buyers and sellers are all the same and agents are all the same. So they all need the same MLS data from one statewide MLS and one data vendor, then everyone will be happy and well served in all their real estate needs. It's a perfectly beautiful world defined by elegant simplicity!

Who needs a complexly diverse tropical rain forest when you can have a lush corn field? It's really a question of real estate ecology.

The white paper is a mere 133 pages long, so I'll need a few blogs to cover it, but if anyone has an interest (up or down) in the statewide initiative that's out there in the not too distant future, it's an interesting read. For those agents mostly focused on the commission checks, forget reading the white paper. Just kick back with the absolute confidence that your state association has a plan for your future. Not to worry, it's your state association and the benevolent leadership is fully accountable--to whom?

Return of the Boomers?

A developer and I were discussing the glowing economy (not sure what the glow is from--LOL) and the volatile stock market this AM and came up with a possibility that is disturbing on multiple levels.

The Boomers may not come back to the resort real estate markets when the recovery kicks off for real (who knows when that will happen). As a Boomer myself, that's disturbing.
The Boomers made the coastal resort markets bloom in the 1998-2005 extended era of creative finance mania. Now, five years later many pulled more equity out of their resort properties than ever was there. IRAs and 401Ks took a hit. The Boomers got older and some retired. Some unretired in an attempt to regrasp the good life of American Consumerism. So the lifeblood of resort real estate may be sidelined getting an economic transfusion rather than leaping back into the fray to rocket the resort real estate recovery skyward. Many will rent vacation rentals and enjoy the beachy sunsets sitting on someone else's balcony while wondering where that retirement fantasy went off course.

Soooo--what's it all mean? The next wave of resort real estate buyers may include relatively few BOOMERS! The demographics don't look that encouraging right out of the gate. There are LOTS more Boomers than GenX and GenY people. All the books written about the quirks of the X and Y crowd could pave Grand Central Station, but the resort real estate markets haven't seen them in big numbers---yet.

That's it for now--just throwing that idea out there. You KNOW I'll have further thoughts on something juicy like that, particularly when it hasn't been all chewed up by the press just yet.

size of what?

Quick follow-up in the SIZE genre. Among the many emails I get daily regarding products and services for agents, brokers and firms are very few directly addressing the quality of service offered to the public or seeking to enhance the experience the public has during the process of selling or buying real estate.

The industry is self absorbed in the pursuit of increasing sales and commission metrics. There are seminars on risk management, recruiting top agents, using social media to get more buiness, the latest and greatest upgrade to third party data providers---to get more business etc, etc. Then there is the MLS theater--statewides, mega regionals, national resources and new applications all play out on the stage of politics, power, control and greed. Funny thing---no one discusses how any of the secret negotiations or mergers will actually assist Buyers to find the RIGHT house and purchase it at a fair price with a minumum of complication and liability.

Quite the contrary, the wider and wider coverage by mega regional MLS data (or the national trade organization super data resource) will, ON AVERAGE, result in a greater number of agents working outside their geographic area of expertise, thereby diminishing their ability to deliver the subtle nuances of local lore, micro climate, ambiance, etc. that should play into the consumer's final decision to purchase and contribute to their subsequent enjoyment of positive experiences. The net result could be a decrease in AVERAGE level of servuce to the consumer. Can anyone identify a compensating benefit that ultra wide data coverage produces? The only one I can come up with is the opportunity to use an MLS vendor who would not serve a smaller MLS. Is that benefit worth the potential cost to the consumer? Considering that most users only scratch the surface of MLS application capabiliities, probably not.

If a buyer is interested in a house in San Luis Obispo, for example, how does he or she benefit if the MLS includes data for, say Glendale (BTW it doesn't--yet)? I've asked that question and no one has a plausible answer. It may be good for brokers who have lots of agents operating on straight commission. Every so often one might fall into a deal in some far off area yielding a tidy split. So we have a major MLS data initiative with huge investment of time, money and politics by mega brokers, regional MLSs, trade organizations and vendors (those last two can be the same thing these days) all pointing at a change that will probably diminish the average quality of service the consumer receives. More importantly, ON AVERAGE, it will increase broker profitability and offer ample opportunities for some power and control reallocation--mother's milk for organizational politicians.

Is this a good trade off? Did anyone think to ask the consumers if they would like a decrease in service so broker profitability could increase and a few leadership types could gain political cachet? After all, consumers pay $50 BILLION dollars a year in commissions--what do they expect for $50B??? I think the industry leaders believe that consumers won't notice. Even if they do, the brokers are in a cool position, because the full impact will hit, not them, but some of their agents--and the brokers have so little invested in their agents, it won't make a ripple. They'll go hire more agents.

Informed Buyers might be expected to want the most knowledgeable agent they can get--one who knows the neighborhoods of key interest house by house from experiences gathered over many years. In recent times the industry headed off in another direction propelled by an expansive virtual world populated with increasingly sophisticated computer applications that still provide no more than a dim representation of the experiences associated with living in a particular town, neighborhood, block, street and house.

You see, it's easy to control data--it's consistent, doesn't change and it doesn't think or have dissenting ideas. Power organizations like data, it simplifies their world--in fact if they play the game just right the data becomes their world. Then they really are at the center of EVERY transaction.

Consumers don't occupy a virtual world, but agents do, at least to a greater degree than in past decades. Consider this, how wide an area can an agent effectively work--how many houses (plus streets, neighborhoods and towns) can an agent become familiar with on an detailed basis, at least to an extent that will fully serve consumer needs? You could argue that kind of familiarity isn't necessary to provide quality service, but what if another agent did have that kind of familiarity? Could that be an advantage to the consumer? Of course it could, but the industry is discounting that possibility without asking the question. At best, the industry and trade organizations remain neutral, while enthusiastically charging after the benefits of consolidation and disintermediation, largely through meetings not open to consumers or the rank and file practitioners.

In a profitability sense this trend toward ever expanding MLS data coverage is good business--fewer Broker fees and dues for multiple MLS memberships (this was the number one reason for the 6 principles that kicked all this off 6 years ago), more leads for agents, more opportunities for commissions and more splits for the brokers. Most agents spend less and less time in the office because it's a virtual world out there! Anything that's important about houses can be found in the computer using those big databases. Why spend time actually researching houses, streets, neighborhods and towns in person? That's all been done--hasn't it? It's easy, sort out a showing list from the computer and go close 'em on their favorite house! It may not be the RIGHT house, but it's a good one--the computer said it matched their criteria!

Are the consumers concerned about this trend? Well, houses are still selling and commissions are still flowing --- so all must be fine with consumers. Why wouldn't it be? Just like the agents, they're getting more and more data from wider and wider areas all the time---what's not to like?

Size matters?

Notorious ROB has posted a LONG 3 part series on "Does Size Matter?"--we all know it does, but opinions differ on how. The three segments attempt to compare law firms to real estate brokerages in terms of advantages or disadvantages of size within the context of newly emergent technology. Interesting stuff and well worth the read. There's a fundamental point of contrast in the very nature of legal firms and real estate brokerages that I'll expand upon here.

Law firms hire employees to provide professional consumer services for salaried compensation and consumers pay by the hour as the services are rendered. Results do not impact compensation. More complexity or longer duration in the tasks yields more hours of work and greater compensation.

Real Estate Brokerages are very different animals. Services are rendered for commissions, paid somewhere down the road, after variable effort and expense. Sometime there is no commission at all. Effective compensation per hour ranges wildly, only partially dependent on purchase price. A key consequence is that the ultimate goal is to sell houses. That triggers the commission, nothing else does. The most insightful, sensitive, creative representation imaginable costs nothing until a property closes escrow. It's better if houses sell quickly, limiting time and effort expended by listing and selling agents. The Real Estate Industry, because of this compensation model and the typical independent contractor agent status is a SALES industry driven by numbers, not primarily a purveyor of quality service. Job number one is to sell houses quickly, NOT to provide optimal consumer service regardless of consequences. The efforts at consumer service mostly focus on controlling risk at an acceptable level--not maximizing performance in meeting the needs of the public (real or perceived).

Not surprisingly, ALL the metrics of success in real estate are determined by aggregate MONEY and SIDES. If it walks like a duck and quacks like a duck it's not a swan, it's a sales industry (I'm not inferring only swans are hanging out at the bar association!).

The perpetual disconnect between the goals of the real estate industry and the public is that the public measures success and satisfaction ONE TRANSACTION AT A TIME. Real estate measures success in terms of aggregate COMMISSIONS and SIDES. There are obvious trade offs and potential conflicts of interest in those very different perspectives of the same industry. Firms can AFFORD to provide LESS than optimal service all day long, PROVIDED the SIDES and COMMISSIONS produce profitability and the RISK is controlled. True, if some firm consistently delivered noticably superior consumer service levels, and could document that, it would represent a major point of differentiation in marketing. Evidently costs and benefits don't encourage that approach, perhaps because of a need to educate the public regarding the diverse components of quality service.

A serious problem arises for consumers when the product is complex and rapidly changing and the legal/technical aspects of purchase are complex and rapidly changing, plus the frequency of purchase is relatively low, thereby limiting significant progress up the learning curve. That sounds like a situation where consumers need a highly trained, trusted professional offering expert service for direct hourly compensation. A similar strategic situation exists in the medical and legal fields. Self help books notwithstanding, most consumers see the need for a doctor or a lawyer to optimally meet their needs.

In contrast, Real estate agents are salespersons who are paid, not based on effort or expertise, but as a percentage of the purchase price (which has little to do with the effort involved). Of course there are extremely competent salespersons whose approach to business approximates the highest standards of the legal or medical professions, but they follow that path because of choice, not because of a linear increase in compensation or the enlightened corporate policy of a franchise or brokerage.

The trade organizations, franchises and mega brokers operate in a manner consistent with a SALES definition of the Real Estate Industry. Training of agents, which I did for 18 years within a franchise environment, is perpetually focused on how to be more productive and control risk, not on the subtle nuances of offerring phenomenal service.

Alternative compensation plans and agent employment arrangements are now being tested by a few firms, aided by Internet technology. These are showing modest success in limited markets. Long term reaction from mainstream real estate and the trade organizations will be interesting to observe. Don't expect a $50 billion dollar per year commission based industry to change directions eagerly or quickly.

The lack of transparency in the real estate industry tends to leave the public without much insight concerning what's actually at stake in trade offs between consumer service and broker profitability. Without greater consumer involvement, bona fide accountability within the industry is destined to be thin. The public has access to copious information about individual listings on the Internet, but receives little education about how to define their RIGHT house and find the right agent to help them locate it, then purchase it.

After all, the consumers just want to buy the RIGHT house at a fair price with minimal complication and liability. How closely their experiences and results approach that ideal result is largely a subjective judgement and one they don't make very often. Meanwhile, those within the industry who are in a better position to judge the true quality of service remain otherwise occupied counting the quantity of sides, volume of commissions and number of trade organizaiton members.