Alphabet Soup: Understanding MLS and its Importance to Sellers

Posted by nithi.vivatrat on May 13, 2009

Three little letters every real estate agent spouts. It has been called the “black box” of real estate, was the center of a major antitrust lawsuit from 2005-2008, and may be the key to selling (or buying) your home. What is MLS and why does it matter?

MLS stands for Multiple Listing Service. The singular use of “service” makes it sound like a monolithic system; in reality, there are actually many separate MLS systems across the country, one per region. For instance, the Mid-Atlantic MLS, run by Metropolitan Regional Information Systems, Inc. (MRIS) happens to be the largest real estate database in the country, listing properties in Maryland, Northern Virginia, Washington DC, West Virginia, and Pennsylvania.

An MLS system is a database where licensed real estate professionals list properties they represent for sellers with all the relevant details, such as room dimensions, contact information, tax records, photographs, maps, and of course asking prices. Likewise, MLS is the go-to source for brokers/agents representing buyers to identify prospective properties to show to their clients.

Each property listing in MLS also states the compensation that will be provided to other agents who take part in an eventual transaction. The National Association of Realtors (NAR) Handbook on Multiple Listing Policy specifies that when a property is filed in MLS, the agent listing that property is making a “blanket, unilateral offer of compensation to other MLS participants.” While there is no officially set compensation level, it has become an unspoken norm for the broker on each side of a transaction to be paid around 3% of the final purchase price.

Just last year, the Justice Department and NAR settled an antitrust suit brought against NAR in 2005 regarding how MLS was being used and who was using it. Specifically, some brokers were holding back listings to prevent online and discount brokers from seeing them. At the time, Professor Norman Hawker of Western Michigan University told the New York Times that it was “pretty clear that there was an enormous amount of discrimination against brokers who were trying to use innovative business models… [the settlement] has the potential to be a big step forward for consumers,” as it opened the door to more competition in the real estate market.

It is important for consumers to understand how enormous an impact MLS can have on their own real estate transactions. MLS is the most comprehensive repository of active property listings in your area, and therefore, it is a seller’s best marketing tool. However, only licensed brokers and agents can list properties in MLS. A non-licensed individual selling his or her own property (a For Sale by Owner, or FSBO) cannot use MLS and misses the opportunity to market his or her property to the most important audience – the brokers/agents representing prospective buyers who are actively looking. This would be like a retailer hiding a product in the back room of a store – nobody is going to see it.

In recent years, flat-fee MLS services have emerged to help FSBO sellers list properties in MLS (and some other online databases as well) for a flat, up-front fee. In every other respect, it is still an FSBO listing – flat-fee MLS services do not assist the owner with other aspects of selling a property, such as creating brochures, staging, price recommendations, or negotiations. At the completion of the transaction, the owner will not owe a commission to a seller’s agent (since there isn’t one), but he or she will still have to pay whatever commission he or she stated in the MLS listing that the buyer’s agent would receive.

SmithAdams offers consumers, including FSBO sellers, the best of both worlds – avoiding seller-side commission fees, while getting the benefits of a full-service real estate brokerage. Selling a property can be a stressful experience, especially if you have no one from whom you can get advice or feedback. SmithAdams’ a la carte model can be a great solution for FSBO sellers — we can list your property in MLS and provide any other services that you choose. We’re there for you if and when you need us, on terms that are right for those of you with a do-it-yourself mindset. Visit our web site to see SmithAdams’ new packages for sellers. Look forward to talking to you.

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