The modern real estate marketplace: A victim of its own success? 

Thinking big about residential real estate success requires a big-picture perspective. Industry Decoded features industry experts who can enrich your understanding of issues affecting the industry as a whole.

The views expressed in this column are solely those of the author. This story was originally published in NAR's news magazine.

Sure, the pipes may need upgrades in some places. But the real risk to the MLS system? Strategies that aim to circumvent it altogether. 

The real estate marketplace — continually modernized through business and technological innovation — delivers consistently strong financial and transactional benefits to real estate professionals and their clients. Through multiple listing services, the marketplace gives listings broad exposure, allowing buyers to see the full range of for-sale inventory.

Like any heavily traveled pipeline, the marketplace can have plumbing problems. Some organizations still rely on antiquated data feeds, and the MLS industry lacks a comprehensive data network. These are the types of issues the Real Estate Standards Organization (RESO) — with its mission to improve efficiency via standardized rules and processes — strives to address.

But one of the problems getting a lot of attention today isn't the result of infrastructure weaknesses; instead, it stems from a system that might be working too well.

Often, the experience in a single MLS environment feels seamless and efficient. The features just work, and no one gives a second thought to the plumbing that makes this a reality. 

It's generally a good thing when participants don't need to question why the market works — but what happens when they start engaging in practices that are detrimental to the marketplace's foundational functionality? Such activity can erode the marketplace's broad benefits.

A victim of invisible success

It's easy to take the incredible productivity of the modernized real estate marketplace for granted. High standards of practice, innovative technologies, broad distribution channels and strong rules frameworks create a transparent, comprehensive set of inventory.

Consumers open an app on a phone and instantly find timely information on nearly every home for sale in the market. They click a button and contact a person who can offer a legal duty of loyalty to them through buyer agency. That agent gives them access to investigate, collaborate, offer, sign and close with mere taps on a screen (and a lot of personal support in between).

For sellers, the efficiencies of the market may be even more distinct. They hire an agent, turn over the complexity of the process to their trusted adviser and watch the digital representation of their home go into a marketplace with global visibility in just days or even hours. The most attractive offers come from the maximum number of qualified buyers as they compete for this unique, fleeting opportunity that might just vanish before their eyes. It's the essence of free market competition.

But this environment didn't evolve by accident: MLS marketplaces have become modernized through intentional action to create these efficiencies.

The downside of differentiation

When a system is working smoothly, people sometimes experience what is known as "the complacency of plenty."

Ironically, the more reliably a system produces extraordinary outcomes, the more invisible it can become — causing participants to search for differentiation. Real estate professionals are, after all, unique marketers at heart, so it's no surprise they might consider ways to do business that diverge from the familiar MLS process. But sometimes the instinct to pursue a more novel set of services results in "negative differentiation," creating a worse experience for customers.

Practices like restricting access to information and creating artificial scarcity can generate attention. But they can also degrade the efficiencies that a comprehensive market brings to its participants.

When a for-sale sign is in the yard but the listing can't be found on the app, a buyer has to call around and search multiple sites for current inventory. It moves the marketplace experience backward when the industry already provided a path to a singular search experience decades ago. Most professionals recognize this negative outcome and instead focus their differentiation tactics on exceptional service, systems and style.

Results that matter

These behavioral dynamics matter most when they begin to affect real financial outcomes. The improvements that come from listing on the modernized MLS have been measured in many studies. Bright MLS, the San Francisco Association of Realtors MLS and Doorify MLS have all published analyses showing measurable improvements in home sale prices — to the tune of $50,000-$75,000 in additional proceeds for the typical seller — through broad distribution and visibility.

This is unsurprising in basic economic terms: The connection between exposure, demand and upward pressure on pricing is a given. 

Even a much smaller gain could still result in a material financial improvement for sellers, helping them fund a down payment, their kids' college tuition, a new car or retirement savings. The outcomes are not academic. They're often life-changing.

Consumer choices in the marketplace

These positive financial outcomes exist within a marketplace designed to support a wide range of seller preferences. As a baseline, they can choose to list a property For Sale By Owner and get broad internet exposure if they believe they don't need representation.

If they're like the 90% of consumers who choose to use a broker, they can list on the MLS and, if needed, add privacy features. Nearly every MLS has single-office and/or MLS-wide broker-only exposure options that can exclude the listing from public display. And many have "coming soon" and other "pre-marketing" capabilities to build buyer anticipation and still get exposure to all brokers and their clients.

Sellers can even choose to publicly display their listing while keeping the property address hidden. As long as all buyers receive equal treatment, potential buyers can be pre-screened for financial capability, and showings can be curated. There are many ways to create an experience with the least possible hassle for the sellers.

Keeping the pipeline flowing

As the industry evolves, it will encounter new scenarios that prompt discussions of change. But the foundation of real estate marketplaces — high-capacity supply inputs that keep the pipeline flowing, and high-quality infrastructure that keeps out toxins and leaks — can't be neglected. The critical task for the industry is to ensure that its systems and professionals are serving the needs of its consumers: sellers seeking maximum financial returns and buyers seeking maximum housing choices.

If the global interest in our marketplace is any gauge of its value, one only needs to look at the many countries striving to replicate the North American MLS system. In dozens of nations, there are brokerage alliances, trade organizations and even government agencies investing their time and money to establish similar models.

The industry's plumbing can support all kinds of new, innovative system choices. A central priority, though, must be ensuring that the modernized MLS marketplace remains comprehensive with widespread access to its inventory. For an industry centered around serving consumers and communities, there is no more important North Star.

Sam DeBord is CEO of the Real Estate Standards Organization (RESO) and the author of Working with Real Estate Data, organized real estate's premier technology course for onboarding and professional development. He has served as President's Liaison for MLS and Data Management with NAR, and he has also worked as a consultant, managing broker, NAR REACH mentor, and board director for association, MLS and venture fund organizations.