thought experiment in drop off

Here's a post derived from a thought I had a couple nights ago in Sacramento. I always enjoy the meetings because of the down time from regular business activities. In between meetings I get major work done and some stellar thinking--to wit blog posts every day. Back to reality now and competition for time. This post addresses a topic, like many, that involves what everyone seems to believe is true, but may not be quite as it seems.

Imagine a graph showing dues for MLS services plotted on horizontal axis and number of users paying the dues plotted on the vertical axis.

The relationship is linear--graph is a straight line. More users paying the same amount of dues (lets hope) yields more gross dues income in a linear way. As mentioned earlier, the cost to deliver that MLS service doesn't increase linearly, so profitability actually increases as the number of users increases. If we throw a line for costs to deliver service on the graph we see that it levels off and goes up much more slowly than the gross dues receipt line. What if we expand the service area to encompass far more users? Again the cost to bring in more users, isn't linear. In summary, there's a linear relationship for users and dues and a declining cost per member to provide those services. The result is, the more users, the sweeter it gets financially. This graph  shows the perspective of a statewide MLS, or even mega regional. They never tell you that in presentations. Anyone ever heard "and the best thing about a statewide MLS is that it maximizes the profitability of the entity running the MLS"? They leave that out--wonder why? They might need to pass more savings to the users?
This is just money aspect--then there's the control, power, political gravey, etc.,etc. Those factors are difficult to graph--LOL. It is sooo sweet--for the controlling entity.

Lets imagine another graph addressing the generation of leads for a property in the MLS FROM the MLS. Number of leads per week (or month or whatever) is plotted on the vertical axis and the area served by the MLS (individual, regional or statewide), measured as a square miles and plotted on the horizontal axis.

What kind of a graph would we expect? Linear? Lets start with a 10 square mile area for MLS exposure and say we get 5 leads a week from the MLS for a house near the center of that area (either directly or through leads worked by other MLS members). What if we expand the MLS exposure to 30 square miles by enlarging the MLS boundaries, merging with another MLS or whatever. Would we expect the number of leads to increase linearly--to 15 per week? Not sure? What if we bumped the coverage all the way up to 60 square miles, would we get 30 leads per week? Would we think it is as likely that a Buyer interested in our subject house would become a lead through MLS means as the distance from the property increases? Pushing the argument to the extreme, how many leads for property in Eureka would be generated from an MLS listing of that property seen in San Diego? I don't know if anyone has ever really tested what the drop off factor is, but the commonly stated premise cited in favor of big MLS coverage and even statewide coverage is that the Sellers get more exposure for their property. They DO get more exposure, but is it quality exposure as likely to produce QUALITY leads and a Buyer willing to pay an acceptable price as exposure derived from MLS and originating from nearby the property? There is a drop off and I suspect it's pretty steep. Less steep for resort areas where out of area Buyer are a major factor. Those out of areas Buyers come to the resort town anyhow, so it's not as though the lead is lost without distant coverage in an MLS, it just comes from a different origin.

I used leads in the thought experiment above because they're easier to measure and visualize. It would be better to develop an index of saleability using several variables. First and foremost did the house sell at all? If it did, how long did it take? What percentage of the initial list price was the selling price. What percentage of the final list price was the selling price. Those variables should offer some sense of saleability. What we're ultimately interested in is the relationship between the area of MLS exposure and the saleability. Does wider exposure produce an increase in saleability in a linear way? Does a large MLS or even a statewide MLS produce a linear increase in saleability to the direct benefit of the Seller? I don't think the proponents of statewide MLS can produce data showing it does!

Proponents would argue that the Seller DOES get more coverage, so on balance a statewide is still better than a smaller MLS. A far off Buyer or agent MIGHT generate a sale, unlikely, but it might happen.

I would counter that everything else isn't equal. There are TRADE OFFS with a large MLS. What if those trade offs more than offset the small benefit of having wide MLS exposure primarily among agents and  members of the public who have minimal interest in property so far away?

Trade offs are in an upcoming post.