Multiple Listing Services (MLSs) across the U.S. are local monopolies which control aspects of the process for selling and buying homes. An MLS can deliver good prices to home sellers in a timely manner if pricing mistakes are avoided, but their typical cost in the form of commissions is high. Fortunately, the widespread adoption of the Internet has opened up new options for sellers to benefit from MLS exposure to all the buyers without the cost.
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.
And 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. 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. That means that every buyer goes to the MLS as the first (and often only) source of inventory and for that reason, sellers uniformly list there too due to the concentration of active buyers.
While the 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 with 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.
In conclusion, buyers flock to the MLS because they don’t want to miss out on 9 out of 10 possible homes to purchase. Likewise, sellers who don’t list in the MLS face an uphill road in getting a good price because no other channel has the same volume of buyers. When the MLS is used to secure a good price from a buyer and commissions are successfully managed, sellers can get the best financial outcome possible.