Ending MLS Offer of Compensation and the Beginning of the Listing Cooperative
In the late 90s, Brian Larson explained to a new consultant in real estate (me) that the core services of the MLS are managing cooperation and compensation between competitors. Given the influence of class action litigation, and relentless pressure from the FTC and DOJ, the role of the MLS is now limited to managing cooperation between participating brokers. They are – in effect – becoming a cooperative.
What is a cooperative and how can an MLS think like one?
There are a few different types of cooperatives in America – consumer cooperatives, worker cooperatives, producer cooperatives, purchasing or shared services cooperatives, and multi-stakeholder cooperatives. The shape of the MLS is probably most like a shared services cooperative. When I think of cooperatives, I think of farm cooperatives where regional farmers collaborate on food processing and distribution. One of the best-known cooperatives is probably Sunkist – the orange growers cooperative that is also the longest standing agricultural co-op in the country (since 1893).
I believe that the MLS listing cooperative follows the cooperative principles very well. MLSs are voluntary and open membership, democratic member control, member economic participation, autonomy and independence, education and training for members, and concern for the community. The themes of voluntary and economic participation may cause concern to some MLSs, but those themes are not extraordinary; many MLSs operate that way already.
Today is a good day for MLS executives to jump into a meeting with their CPA and their legal council and develop a straw man for becoming a cooperative under United States (US) and state law. You need to define the future state of the MLS under the US guidelines of cooperatives. Converting your MLS organization and governance to a cooperative will be quite different for each MLS in the country.
The good news is that the operation of the company will pretty much be the same as a cooperative is today, but offer the legal protections of a co-op.
I had an interesting discussion with a Utah broker at the council of MLS meetings. He framed the seller commission in a way that made a lot of sense to me. He told me that the seller hires his firm for a percentage of the selling price. With the earned commission, they have full latitude to exhaust every effort to perform the services of the listing firm which includes purchasing any services they choose – including a buyer agent service, a referral service or any other marketing service. Through this prism, the buyer’s agent and other service providers are contracted by the listing firm who has the full freedom to negotiate the fees for those services. Effectively, Utah operates like every other market, but the frame is different.
In similar fashion, the MLS operating as a co-op would operate like any other MLS, but the frame would be different.
Let’s face it. These class action lawsuits and efforts by the FTC and DOJ are picking at small cracks in state and federal laws as they apply to the SEC governed legal structure of corporations who deliver an MLS service. Changing the frame to a co-op would require the MLS to operate under co-op laws that are well suited for competitors who cooperate to deliver efficiencies that benefit the consumers of their products and services.
I do not have the legal training or expertise to understand the nuances of a co-op vs a C-corp, but perhaps this is a string worth pulling.