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The MLS is a monopoly

There is no way to get any new, additional buyers

The basic economic principle behind getting the best price for an asset you are selling is to get it in front of as many buyers as possible, at the same time. Having the option to sell to multiple buyers gives sellers leverage in the process and good prices. Buyers, on the other hand, want to have as many opportunities as possible lined up with different prices so they can choose the best value within their budget. Marketplaces have high utility since they satisfy both of these conditions for buyers and sellers at the same time. Once a marketplace gets up and running, they tend to have an inertia of their own, self-perpetuating with increasing returns to scale as they continue to attract new buyers and sellers over time which can lead to becoming a monopoly.

The logic that drives the dominant market share of the 860 or so local multiple listing services (MLS) in the U.S. can be circular, but the results speak for themselves, and their monopoly status is undeniable. In any given county around the country, more than 90% of the homes that transact in a given year start as MLS listings. Buyers know this. Sellers know this. Brokers and agents know this, but of course they do, since they set the whole operation up in the late 1800s. Since then local MLSs around the country have been incredibly successful for a very long time at delivering inventory to buyers and market prices to sellers. Of course, there is only one little catch to the MLS from the perspective of sellers, and that is the commissions.

While U.S. consumer certainly does benefit from efficient price discovery and getting a good price for their home in the MLS-- if intentional underpricing is successfully avoided-- they pay through the nose for the privilege. U.S. commissions on home sales are 3-4 times higher than in other similar countries and average about 5.4% which is a number that comes out of your net proceeds as a seller. The good news is that the Internet has opened up new ways to benefit from the marketing power and distribution of the MLS without the historically necessary commissions.

Websites that don’t syndicate MLS listings like Craigslist, Zillow, or other portals don’t charge commissions if you list your home there. Sellers have less leverage because the interest is sporadic, even while it’s possible that a well-priced home may eventually attract a buyer in those channels. When the average time on market elapses for a home listed in the MLS, then sellers know they need to drop the price. However, outside of the MLS where there is more variability in the sales conditions and fewer buyers, it can be harder to make the same determinations and more often than not sellers get lower prices outside of the MLS when they do accept offers due to less leverage. This same thing happens with pocket listings where often for privacy reasons a home is offered to a smaller number of buyers but because the marketing is outside of the MLS lower prices are achieved. Buyers love pocket listings and sellers should always avoid situations where they put their home in play without letting all the buyers know with a public MLS listing if they want to get the best price possible.

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