I had a feeling during the recession that the pillars that held our industry in trust had cracked. The first of two pillars of trust is the National Association of REALTORS® as fully constituted by its local, state, national, and international chapters. The second pillar of trust is the Multiple Listing Service.
History has taught us that when you apply pressure to any society or organization it is likely to fracture. No doubt, these industry pillars came under massive scrutiny from their constituents. The real estate brokers who founded these noble entities became conscientious objectors to the organizations and their operations.
As the distress of the recession began to ease, our industry began to reshape itself. The restoration of the National Association of REALTORS® and the Multiple Listing Service since 2012 has had a single key focus, careful consolidation.
Consolidation is everywhere today. Portals are consolidating to create our industry’s largest and strongest public company. Yesterday, Zillow nearly kissed the $8 Billion dollar ring on Wall Street. Technology firms like Lonewolf, Boston Logic, Elm Street, and others are absorbing smaller firms at an astounding rate. Brokerage firms have consolidated too – represented by the tremendous roll up by Berkshire Hathaway.* But most of all, we have seen massive consolidation in our REALTOR® Associations and Multiple Listing Service providers.
One of the most astute strategic thinkers in the MLS industry is David Charron. He coined the term Overlapping Market Disorder (OMD). Overlapping Market Disorder is a plague that erodes organizations that are contributing to the chaos. OMD happens when brokers and agents must become members to two MLSs in order to serve a consumer looking to buy or sell in an overlapping area between the two firms. OMD causes friction between the two MLSs whose duty it is to serve the broker and agent. The consumer is also trapped in this friction.
Everything is duplicated in OMD areas as the data and operations fabric that is constituted by bifurcated organizations pits those forces against each other. On one hand, Charron provided a solution to the problem with a database for sharing data. It’s largest and most handsome installation was California Real Estate Technology Services. The technology solution to merge the databases was the first step. Then the participants recognized that data sharing was only a suspension of the inevitable.
In the wake of data sharing came consolidation. The California Association of REALTORS® launched an initiative to bring all of California under the single roof of California Regional MLS. Today that company serves over 80,000 REALTORS®, about half of the state. Charron and his peers along the east coast have done some consolidating themselves by forming Bright MLS, a combination of 7 MLSs that also has more than 80,000 subscribers. I am pretty certain that consolidation will continue to create these massive data solutions providers to brokers and agents.
REALTOR® Association Consolidation
Associations of REALTORS® have been consolidating at a rapid pace too. But is happening differently than the MLSs. The small Associations are evaporating under the new requirements of the National Association of REALTORS®. It is not overlapping market disorder that is driving Association consolidation. They are driven by less elegant motivations, like the requirement to employ a full time staff member. The bottom of the Association barrel is going away, collapsing under minimum standards with continue to astound.
If you have not looked at the bylaws of the National Association of REALTORS, take a minute to read them here https://www.nar.realtor/about-nar/governing-documents/nar-constitution-bylaws. It’s 39 pages long, so go for it.
This year will be a landmark for Associations as CEO Dale Stinton passes his leadership role onto his successor. His C-level work for NAR started in 1998 as Chief Finance and Information Officer, followed by his leadership as its CEO, which began in 2005. Although controversial at times, he developed a strong team and leaves the healthy organization in to the hands of his successor.
Although there are many State REALTOR® Associations in America whose membership could warrant consolidation with nearby States, that has not happened nor do I foresee it happening. But I guess its possible under the constitution.
Where we see real consolidation is at the Board level, and I would expect that to continue. Boards that own MLSs, Forms, and Lockboxes are pretty healthy today. Take one or all of those away and you see organizations that struggle for relevance in the hearts of the REALTORS® that form them. But do not despair. The REALTOR® constitution requires that every independent contractor or salesperson of a brokerage must be a REALTOR®, or no agent under a broker can be a REALTOR® (C.1.a). There are plenty of licensed agents across America, but they are an insignificant minority of 2% of transaction volume.
Associations must deliver value, and they do. First of all, they keep brokers out of court by settling disputes between REALTORS. Secondly, Associations keep our villages, towns, counties, States, and Federal Governments from infringing on the rights of homeowners though regulations, laws, and taxes. Yes, a central value that Associations deliver is political involvement. The special interests they represent include members of the National Association of REALTORS® and property owners. They do a good job and we should all be thankful.
Associations with fewer than 1000 members shall disappear though consolidation. Associations live on the three way dues split to cover their CEO, their Government Affairs, and other basic services of the Association. It takes a minimum of 1000 members to cover those costs without non-dues revenue.
Associations thrive on non-dues revenue. Offering additional products and services of value to REALTORS® requires expertise that only comes with scale. There are too many variables to draw a line on the size of an organization that is large enough to property offer valuable non-dues revenue generating products, but even as a reseller you need a full time person to manage the product sales, support, training, etc. If the product yields profits of $100 per REALTOR® per year, you will need around 1000 users to simply cover the costs of salary and benefits for a single staff person administrating the product delivery (marketing, sales, training, support, billing, etc). This supports an argument that REALTOR® Associations with fewer than 1000 REALTORS® are likely to consolidate in order to survive financially.
Consolidation of small Associations is obvious, like MLS consolidation. But I would expect to see more consolidation among large Associations in the coming future. When you look at the effectiveness of large boards with more than 10,000 REALTORS®, WAV Group research shows higher levels of member satisfaction, greater business sophistication, effective government affairs, and outstanding service delivery. At 30,000 members and above, Mega boards can often outshine State Associations by leveraging their direct relationship with the REALTOR®.
Local board are also the tip of the spear for long-term success of the REALTOR® organization. The National and State Associations need the local boards to deliver their non-dues revenue products. And, the bigger the local board is, the better position they are to negotiate.
Our future as an industry is exciting. Collaboration among brokers, Associations, and MLSs has never been stronger. The pillars of trust are repaired. WAVes of Change are happening everywhere, and it’s exciting. If you need help refining your strategy; researching your opportunity for success; developing your executive team, communicating your value
*Realogy was the first company to lead massive consolidation as they formed NRT, the nation’s largest brokerage. They own the largest brokers in nearly every major city in America. Realogy did their roll up before the recession. Berkshire Hathaway has done most of their consolidation during and after the recession.