WEBVTT 00:00:00.000 --> 00:00:02.680 Welcome back to the deep dive. Today we are going 00:00:02.680 --> 00:00:06.459 to talk about something that is hiding in plain 00:00:06.459 --> 00:00:09.679 sight. It's a system that pretty much every single 00:00:09.679 --> 00:00:11.720 person listening to this has interacted with 00:00:11.720 --> 00:00:14.599 if they've ever looked for a place to live, but 00:00:14.599 --> 00:00:16.920 almost nobody actually knows how the machine 00:00:16.920 --> 00:00:20.250 works. That's so true. We are talking about the 00:00:20.250 --> 00:00:22.469 real estate market. It's deceptive, isn't it? 00:00:22.510 --> 00:00:25.050 You open an app, you see a house, you see a price 00:00:25.050 --> 00:00:27.730 and you just assume, OK, this is just how the 00:00:27.730 --> 00:00:30.629 world works. It feels like a public utility, 00:00:30.850 --> 00:00:33.899 you know. Like water coming out of a tap. Right. 00:00:34.039 --> 00:00:36.700 You assume there's this giant cloud of data out 00:00:36.700 --> 00:00:38.759 there, freely available, just waiting for you 00:00:38.759 --> 00:00:42.119 to browse it. But the reality is so much weirder 00:00:42.119 --> 00:00:45.619 and more territorial than that. Exactly. We're 00:00:45.619 --> 00:00:47.679 talking about the invisible engine that powers 00:00:47.679 --> 00:00:49.619 the entire residential real estate industry. 00:00:49.880 --> 00:00:52.500 We are talking about the MLS. The multiple listing 00:00:52.500 --> 00:00:54.420 service. And I'm glad you used the word territorial 00:00:54.420 --> 00:00:56.399 right off the bat because that is the defining 00:00:56.399 --> 00:00:58.240 characteristic of this whole story. Oh, really? 00:00:58.399 --> 00:01:00.960 Yeah. This isn't really a story about software 00:01:00.960 --> 00:01:04.159 or databases. It's a story about a 100 -year 00:01:04.159 --> 00:01:07.540 -old turf war, a social contract between bitter 00:01:07.540 --> 00:01:12.859 competitors and a, well, a cartel -like structure 00:01:12.859 --> 00:01:15.439 that keeps the whole industry moving. Cartel 00:01:15.439 --> 00:01:17.319 -like structure. OK, we are definitely going 00:01:17.319 --> 00:01:19.120 to have to unpack that. But let's start with 00:01:19.120 --> 00:01:21.140 the biggest misconception I had before we started 00:01:21.140 --> 00:01:23.180 digging into the research for this. I think I 00:01:23.180 --> 00:01:24.980 know where you're going. I always assumed the 00:01:24.980 --> 00:01:27.760 MLS was a single thing, you know, like there 00:01:27.760 --> 00:01:30.599 is a master server in a government basement somewhere, 00:01:30.760 --> 00:01:33.980 maybe next to the alien bodies that lists every 00:01:33.980 --> 00:01:36.379 house for sale in America. That is what everyone 00:01:36.379 --> 00:01:38.579 thinks. But it's completely 100 percent wrong. 00:01:38.680 --> 00:01:40.459 There is no such thing as the MLS. It just doesn't 00:01:40.459 --> 00:01:42.299 exist. OK, so then what am I looking at when 00:01:42.299 --> 00:01:44.799 I go on Zillow or Redfin? What is that information? 00:01:45.280 --> 00:01:47.579 You're looking at an aggregation of data. It's 00:01:47.579 --> 00:01:51.000 pulled from hundreds of tiny independent fiefdoms. 00:01:51.140 --> 00:01:54.500 In the United States alone, as of the last major 00:01:54.500 --> 00:01:58.739 count back in 2020, there were roughly 580 different 00:01:58.739 --> 00:02:02.700 individual multiple listing services. 580. That 00:02:02.700 --> 00:02:05.519 seems incredibly inefficient. Why do we need 00:02:05.519 --> 00:02:08.199 580 different databases just to sell houses? 00:02:08.520 --> 00:02:10.919 Because real estate is hyperlocal. It's always 00:02:10.919 --> 00:02:14.099 been hyperlocal. And historically, the people 00:02:14.099 --> 00:02:16.319 who controlled the data didn't want to share 00:02:16.319 --> 00:02:18.800 it with the town over, let alone the state over. 00:02:18.900 --> 00:02:21.300 So who owns them? They're all owned by different 00:02:21.300 --> 00:02:23.960 entities. Some are owned by local associations 00:02:23.960 --> 00:02:26.680 of realtors. Some are regional conglomerates 00:02:26.680 --> 00:02:29.060 that have merged a few smaller ones. And some 00:02:29.060 --> 00:02:31.599 are just independent cooperatives. But each one 00:02:31.599 --> 00:02:34.919 has its own rules, its own fees, its own leadership, 00:02:35.060 --> 00:02:37.419 and its own territory. So it's a patchwork quilt. 00:02:37.560 --> 00:02:41.139 A very expensive, legally complex patchwork quilt. 00:02:41.560 --> 00:02:44.979 And our mission today is to figure out why it 00:02:44.979 --> 00:02:47.500 was built this way. And more importantly, whether 00:02:47.500 --> 00:02:49.659 it's actually good for you, the consumer, or 00:02:49.659 --> 00:02:52.120 if it's just good for the brokers. Okay, so that's 00:02:52.120 --> 00:02:54.000 the plan. We're going to cover the mechanics 00:02:54.000 --> 00:02:56.719 of how this social contract actually works, then 00:02:56.719 --> 00:02:58.979 get into the massive antitrust battles where 00:02:58.979 --> 00:03:00.759 the government literally had to step in and say, 00:03:00.860 --> 00:03:02.860 play nice. Well, the lawsuits are the best part. 00:03:03.039 --> 00:03:05.259 And then this is the part I'm really excited 00:03:05.259 --> 00:03:08.060 for. We are going to do a global tour because 00:03:08.060 --> 00:03:10.740 apparently this whole system we have in the U 00:03:10.740 --> 00:03:13.960 .S. is a total anomaly. It is almost entirely 00:03:13.960 --> 00:03:17.259 unique to North America. If you try to explain 00:03:17.259 --> 00:03:21.039 the U .S. MLS system to a real estate agent in 00:03:21.039 --> 00:03:24.210 London or, you know. Hanoi, they look at you 00:03:24.210 --> 00:03:26.229 like you're speaking Martian. It makes no sense 00:03:26.229 --> 00:03:28.189 to them. Okay, so if you're listening and you 00:03:28.189 --> 00:03:30.270 think you know how buying a house works, get 00:03:30.270 --> 00:03:33.009 ready to have that completely dismantled. Let's 00:03:33.009 --> 00:03:35.270 start at the foundational level. What is an MLS, 00:03:35.490 --> 00:03:37.169 really? If I strip away the computer screens, 00:03:37.330 --> 00:03:39.789 the apps, all of it, what is the core definition? 00:03:40.090 --> 00:03:43.370 At its most fundamental level, an MLS is a facility. 00:03:43.990 --> 00:03:46.389 It's an organization that provides a suite of 00:03:46.389 --> 00:03:49.129 services to brokers. But the definition that 00:03:49.129 --> 00:03:51.379 really matters... the legal heartbeat of the 00:03:51.379 --> 00:03:54.500 whole thing, is that it is a facility to establish 00:03:54.500 --> 00:03:58.159 contractual offers of cooperation and compensation. 00:03:58.599 --> 00:04:01.180 OK, those are big words. Cooperation and compensation. 00:04:01.280 --> 00:04:03.319 Let's break that down, because usually when I 00:04:03.319 --> 00:04:05.800 think of competitors like Coke and Pepsi or Ford 00:04:05.800 --> 00:04:08.599 and GM, they don't cooperate. They try to destroy 00:04:08.599 --> 00:04:11.699 each other. Exactly. So why would competing real 00:04:11.699 --> 00:04:13.960 estate brokers cooperate? Because of the nature 00:04:13.960 --> 00:04:15.879 of the product. Let's role play this for a second. 00:04:16.319 --> 00:04:19.259 Imagine it's 1890. You're a broker. You have 00:04:19.259 --> 00:04:21.399 a listing, a nice farmhouse on the edge of town. 00:04:22.259 --> 00:04:24.680 I'm a broker across town and I happen to have 00:04:24.680 --> 00:04:28.160 a buyer who's looking for a farmhouse. If I call 00:04:28.160 --> 00:04:30.160 you up and say, hey, I have a buyer for your 00:04:30.160 --> 00:04:33.300 listing, what is your immediate fear? My fear 00:04:33.300 --> 00:04:35.920 is that you're going to steal my client or you're 00:04:35.920 --> 00:04:37.620 going to go directly to my seller and try to 00:04:37.620 --> 00:04:39.920 cut me out of the deal entirely. Precisely. Or 00:04:39.920 --> 00:04:42.540 even if I'm on the level and I... bring the buyer 00:04:42.540 --> 00:04:44.939 and we close the deal, you might just stiff me 00:04:44.939 --> 00:04:46.620 on the commission. You might say, thanks for 00:04:46.620 --> 00:04:48.660 the buyer, see ya, and keep all the money for 00:04:48.660 --> 00:04:50.980 yourself. There's no trust. So it's a classic 00:04:50.980 --> 00:04:53.180 prisoner's dilemma. If we don't trust each other, 00:04:53.259 --> 00:04:55.180 the deal doesn't happen and nobody gets paid. 00:04:55.459 --> 00:04:57.759 And that is the problem that the MLS solves. 00:04:58.379 --> 00:05:01.740 It is, at its core, an insurance policy against 00:05:01.740 --> 00:05:05.459 greed and mistrust. It establishes what's called 00:05:05.459 --> 00:05:08.319 a unilateral offer of compensation. Unilateral 00:05:08.319 --> 00:05:11.709 meaning? What goes one way? It means is a blanket 00:05:11.709 --> 00:05:14.689 offer to the entire network. When a listing broker 00:05:14.689 --> 00:05:18.449 puts a property into the MLS, they are legally 00:05:18.449 --> 00:05:20.709 binding themselves. They are typing into the 00:05:20.709 --> 00:05:24.310 system, I am offering X percent or X dollars 00:05:24.310 --> 00:05:28.189 to any cooperating broker in this MLS who brings 00:05:28.189 --> 00:05:31.490 a buyer that successfully closes. Ah, so it's 00:05:31.490 --> 00:05:33.949 not a negotiation. It's not a request. It's a 00:05:33.949 --> 00:05:36.509 promise. It's written into the rules of the organization. 00:05:37.120 --> 00:05:40.160 So that removes all the friction. I, as the buyer's 00:05:40.160 --> 00:05:42.399 broker, don't have to call you and haggle over 00:05:42.399 --> 00:05:44.439 my fee before I show the house to my client. 00:05:44.500 --> 00:05:46.040 I just look it up in the database. I see the 00:05:46.040 --> 00:05:48.000 offer right there. And I know that if my buyer 00:05:48.000 --> 00:05:51.160 buys it, I'm safe. I'm getting paid. Right. It 00:05:51.160 --> 00:05:53.319 creates liquidity in the market. Without that 00:05:53.319 --> 00:05:56.800 preset guaranteed offer. Every single home showing 00:05:56.800 --> 00:05:58.959 would require a separate contract negotiation 00:05:58.959 --> 00:06:01.180 between the agents. The gears of the market would 00:06:01.180 --> 00:06:03.779 grind to a halt. It would be impassable. But 00:06:03.779 --> 00:06:05.740 hold on. I have to play devil's advocate here. 00:06:05.879 --> 00:06:07.939 This sounds fantastic for the agents, you know, 00:06:07.939 --> 00:06:10.139 making sure they all get paid. But doesn't this 00:06:10.139 --> 00:06:13.139 blanket offer system basically lead to price 00:06:13.139 --> 00:06:15.379 fixing? It's the billion dollar question. If 00:06:15.379 --> 00:06:19.060 every listing in the MLS says offering 2 .5 percent 00:06:19.060 --> 00:06:22.290 or offering 3 percent. Aren't we just removing 00:06:22.290 --> 00:06:24.850 the ability for the consumer to negotiate? It 00:06:24.850 --> 00:06:27.449 becomes the standard price. And that's the argument 00:06:27.449 --> 00:06:29.949 that has been at the center of decades of lawsuits 00:06:29.949 --> 00:06:32.110 from the Department of Justice. Now, if you ask 00:06:32.110 --> 00:06:35.389 the National Association of Realtors, NAR, they 00:06:35.389 --> 00:06:38.009 will tell you explicitly in all of their official 00:06:38.009 --> 00:06:40.050 documents, commissions are negotiable at any 00:06:40.050 --> 00:06:42.879 time. At any time. But what's the reality? In 00:06:42.879 --> 00:06:47.319 practice, it feels very, very sticky. Many agents 00:06:47.319 --> 00:06:50.060 feel that once it's in the MLS, it's set in stone. 00:06:50.259 --> 00:06:52.839 But technically, the MLS is just the vehicle 00:06:52.839 --> 00:06:55.199 for the offer. The initial negotiation happens 00:06:55.199 --> 00:06:57.879 between the listing broker and the seller. They 00:06:57.879 --> 00:07:00.620 agree on a total commission, let's say 6%. Then 00:07:00.620 --> 00:07:02.439 the broker decides how much of that to offer 00:07:02.439 --> 00:07:05.050 to the buyer side. The MLS just makes that offer 00:07:05.050 --> 00:07:06.870 transparent to all the other professionals in 00:07:06.870 --> 00:07:08.889 the market. OK, so that's the money side. That's 00:07:08.889 --> 00:07:11.050 the compensation. Let's talk about the other 00:07:11.050 --> 00:07:12.970 part, the information itself, because I think 00:07:12.970 --> 00:07:15.509 most people believe the value of the MLS is the 00:07:15.509 --> 00:07:16.930 photos. You know, look at this kitchen, look 00:07:16.930 --> 00:07:19.389 at this backyard. The photos are just the fluff. 00:07:19.589 --> 00:07:23.509 They're the marketing. The real deep value is 00:07:23.509 --> 00:07:26.639 the structured data. We're talking about hundreds 00:07:26.639 --> 00:07:29.879 of specific fields that define a property. And 00:07:29.879 --> 00:07:32.300 this isn't just three bedrooms, two baths. This 00:07:32.300 --> 00:07:35.519 is deeply local proprietary knowledge. Give me 00:07:35.519 --> 00:07:37.600 an example of how local we're talking. What kind 00:07:37.600 --> 00:07:39.980 of data field would exist in one MLS but not 00:07:39.980 --> 00:07:42.160 another? Okay, perfect example. If you're in 00:07:42.160 --> 00:07:45.339 Phoenix, Arizona. The MLS data fields regarding 00:07:45.339 --> 00:07:47.639 air conditioning systems, what type of refrigerant 00:07:47.639 --> 00:07:49.959 they use, the age of the unit, and the details 00:07:49.959 --> 00:07:52.519 on any swamp coolers are incredibly specific 00:07:52.519 --> 00:07:54.899 and detailed. Because that's life or death there. 00:07:54.980 --> 00:07:57.120 Right. That's critical information. But if you're 00:07:57.120 --> 00:07:59.800 in, say, rural Vermont. Nobody cares about that. 00:08:00.060 --> 00:08:02.180 The critical fields there are about the type 00:08:02.180 --> 00:08:04.519 of heating oil tank, the condition of the septic 00:08:04.519 --> 00:08:06.800 leach field, whether there's a wood stove, and 00:08:06.800 --> 00:08:09.420 if it's permitted. A generic national database 00:08:09.420 --> 00:08:12.079 can't possibly handle that level of local nuance. 00:08:12.660 --> 00:08:15.060 These fields were determined by local professionals 00:08:15.060 --> 00:08:17.779 over decades of selling homes in that specific 00:08:17.779 --> 00:08:21.639 area. And who owns all that granular data? Because 00:08:21.639 --> 00:08:24.420 when I see it on Zillow, it feels public. It 00:08:24.420 --> 00:08:26.500 feels like I own it, or at least the public owns 00:08:26.500 --> 00:08:29.379 it. And that is the great illusion. You do not 00:08:29.379 --> 00:08:33.139 own it. Zillow does not own it. The data belongs 00:08:33.139 --> 00:08:37.320 unequivocally to the broker who signed the listing 00:08:37.320 --> 00:08:40.000 agreement with the seller. It is their proprietary 00:08:40.000 --> 00:08:42.139 intellectual property. So when we're browsing 00:08:42.139 --> 00:08:44.860 listings, we are just looking through a keyhole 00:08:44.860 --> 00:08:46.980 that they've allowed us to look through. Exactly. 00:08:47.240 --> 00:08:49.960 The brokers have collectively decided it is in 00:08:49.960 --> 00:08:52.179 our best financial interest to let the public 00:08:52.179 --> 00:08:54.840 see some of this because it helps us find buyers 00:08:54.840 --> 00:08:57.519 and sell the house. But they control the keyhole. 00:08:57.620 --> 00:08:59.399 They can make it bigger. They can make it smaller. 00:08:59.679 --> 00:09:01.879 And in the old days, they tried to keep it closed 00:09:01.879 --> 00:09:04.840 entirely. It's a bit unnerving to realize that 00:09:04.840 --> 00:09:07.200 the information we rely on for what is usually 00:09:07.200 --> 00:09:10.039 the biggest purchase of our entire lives is actually 00:09:10.039 --> 00:09:12.580 held in a private vault. And we're only ever 00:09:12.580 --> 00:09:14.539 seeing the marketing brochure version of it. 00:09:14.620 --> 00:09:16.620 And for a long time, the different vaults couldn't 00:09:16.620 --> 00:09:18.259 even talk to each other. I mean, it was a complete 00:09:18.259 --> 00:09:20.720 mess. We should probably mention the Real Estate 00:09:20.720 --> 00:09:23.850 Standards Organization or RISO. RISO. Sounds 00:09:23.850 --> 00:09:26.509 like a villain organization from a Marvel movie. 00:09:27.070 --> 00:09:30.110 We meet again, Riso. It does, right. But they're 00:09:30.110 --> 00:09:32.049 actually the peacekeepers in this whole story. 00:09:32.269 --> 00:09:35.450 Because when you have 580 different MLSs, you 00:09:35.450 --> 00:09:37.690 had 580 different ways of saying master bedroom. 00:09:38.090 --> 00:09:40.950 One called it MBR, another master BR, another 00:09:40.950 --> 00:09:44.350 primary suite. It was chaos. So a computer couldn't 00:09:44.350 --> 00:09:46.470 understand it. A computer couldn't search across 00:09:46.470 --> 00:09:49.379 different systems. Riso came in and created the 00:09:49.379 --> 00:09:51.600 data dictionary. They forced everyone to speak 00:09:51.600 --> 00:09:53.460 the same language. They standardized the terms. 00:09:53.940 --> 00:09:56.779 This field is how you describe a half bath, period. 00:09:57.080 --> 00:09:59.320 So they created a universal translator for houses. 00:09:59.899 --> 00:10:03.179 Exactly. They also created the Web API, which 00:10:03.179 --> 00:10:04.940 is the modern transport system for the data. 00:10:05.059 --> 00:10:07.399 The old standard was called Ries, which is now 00:10:07.399 --> 00:10:09.940 deprecated. Without Riso's work, the apps we 00:10:09.940 --> 00:10:11.960 use on our phones today simply wouldn't function. 00:10:12.039 --> 00:10:14.059 You'd look for a three -bedroom house and get 00:10:14.059 --> 00:10:16.340 results for three -car garages because the codes 00:10:16.340 --> 00:10:19.379 didn't match. OK, so we have this system that 00:10:19.379 --> 00:10:22.759 is fragmented, proprietary, controlled by local 00:10:22.759 --> 00:10:25.340 interests and held together by a complicated 00:10:25.340 --> 00:10:28.299 promise to split the money. How on earth did 00:10:28.299 --> 00:10:30.840 we get here? Because this doesn't sound like 00:10:30.840 --> 00:10:32.919 a system anyone would design from scratch in 00:10:32.919 --> 00:10:36.080 2024. No, you would never, ever design it this 00:10:36.080 --> 00:10:38.440 way today. It's a complete historical accident. 00:10:39.209 --> 00:10:41.409 To understand the MLS, you have to go all the 00:10:41.409 --> 00:10:43.669 way back to the late 1800s. The horse and buggy 00:10:43.669 --> 00:10:46.690 days. Literally. Picture a small town in, say, 00:10:46.710 --> 00:10:50.049 1890. There are no phones, no internet, no cars. 00:10:50.549 --> 00:10:52.690 If you are a real estate broker with a house 00:10:52.690 --> 00:10:55.269 to sell, how do you let other brokers know about 00:10:55.269 --> 00:10:56.929 it? How do you know what they have for sale? 00:10:57.110 --> 00:10:59.070 I guess I'd have to walk around. Talk to people 00:10:59.070 --> 00:11:01.250 at the general store. Maybe put a notice up on 00:11:01.250 --> 00:11:03.350 a town bulletin board. Or you'd go to the office 00:11:03.350 --> 00:11:05.870 of the local real estate association. The brokers 00:11:05.870 --> 00:11:08.009 would physically gather, sometimes daily, sometimes 00:11:08.009 --> 00:11:10.970 once a week, for what they called a listing exchange. 00:11:11.350 --> 00:11:14.149 Like a town hall meeting for houses? Pretty much. 00:11:14.409 --> 00:11:16.509 And they would physically exchange information, 00:11:16.610 --> 00:11:19.169 often on handwritten index cards. Yeah. I have 00:11:19.169 --> 00:11:21.230 a colonial on Main Street. Price is $4 ,000. 00:11:21.690 --> 00:11:24.029 Okay, great. I have a small cottage on the edge 00:11:24.029 --> 00:11:26.090 of town. Need some work. They'd stand up and 00:11:26.090 --> 00:11:28.049 announce their inventory. And this is where that 00:11:28.049 --> 00:11:31.529 social contract was born, in that room. This 00:11:31.529 --> 00:11:33.909 is the very moment. It was a handshake deal. 00:11:34.049 --> 00:11:37.090 The philosophy was incredibly simple. Help me 00:11:37.090 --> 00:11:41.309 sell my inventory, and I will help you sell yours. 00:11:41.919 --> 00:11:43.799 It was a revolutionary concept for the time. 00:11:44.120 --> 00:11:46.600 Instead of hoarding information, which was the 00:11:46.600 --> 00:11:49.379 natural instinct, they created a system to share 00:11:49.379 --> 00:11:52.120 it. But, and this is the most important part, 00:11:52.340 --> 00:11:54.440 they agreed to share it only with each other. 00:11:54.559 --> 00:11:57.539 That distinction is absolutely key. Only with 00:11:57.539 --> 00:12:00.299 each other. It was a club, a closed loop. It 00:12:00.299 --> 00:12:02.720 was a gated community for professionals. And 00:12:02.720 --> 00:12:04.740 that's actually why the name is so generic, Multiple 00:12:04.740 --> 00:12:06.879 Listing Service. It wasn't a brand name. It was 00:12:06.879 --> 00:12:08.580 just a simple description of what they were doing. 00:12:08.679 --> 00:12:10.419 They were listing multiple properties together 00:12:10.419 --> 00:12:12.830 in one service. And that's why you can't trademark 00:12:12.830 --> 00:12:15.809 MLS in the U .S., right? I read that in the research. 00:12:15.870 --> 00:12:17.830 It's like trying to trademark the words grocery 00:12:17.830 --> 00:12:21.509 store. Correct. The term has been deemed generic 00:12:21.509 --> 00:12:24.850 by the courts. Anyone can technically start something 00:12:24.850 --> 00:12:28.190 and call it an MLS. But to make it work, you 00:12:28.190 --> 00:12:30.169 need the listings. You need the inventory. And 00:12:30.169 --> 00:12:32.049 the inventory has always been controlled by the 00:12:32.049 --> 00:12:34.169 established brokers. Okay, this brings us to 00:12:34.169 --> 00:12:37.549 the juicy part. The fights. Because whenever 00:12:37.549 --> 00:12:39.990 you have a powerful club that controls access 00:12:39.990 --> 00:12:43.350 to a lucrative market, eventually someone is 00:12:43.350 --> 00:12:45.509 going to get locked out and they are not going 00:12:45.509 --> 00:12:47.350 to be happy about it. The modern history of the 00:12:47.350 --> 00:12:50.070 MLS is written in lawsuits. It's a constant tug 00:12:50.070 --> 00:12:52.409 of war between the gatekeepers, the traditional 00:12:52.409 --> 00:12:55.669 brokers, and anyone, anyone at all, trying to 00:12:55.669 --> 00:12:57.889 disrupt their model. Let's start with the discount 00:12:57.889 --> 00:13:00.269 controversy, because this seems to be the biggest 00:13:00.269 --> 00:13:02.950 and most direct threat to the traditional 6 % 00:13:02.950 --> 00:13:05.600 commission model that everyone knows. It is. 00:13:05.700 --> 00:13:08.539 The tradition model relies on Everyone's sort 00:13:08.539 --> 00:13:10.700 of playing by the same general rules. But what 00:13:10.700 --> 00:13:12.860 happens when a new type of broker comes along 00:13:12.860 --> 00:13:15.840 and says, hey, I'll list your house for a flat 00:13:15.840 --> 00:13:19.639 fee of $500. I'll put it in the MLS. I'll handle 00:13:19.639 --> 00:13:21.940 the paperwork. But I'm not doing open houses. 00:13:22.019 --> 00:13:24.340 I'm not baking cookies. And I won't hold your 00:13:24.340 --> 00:13:26.519 hand through the process. That's the no frills 00:13:26.519 --> 00:13:28.860 airline model of real estate. You get a seat, 00:13:28.899 --> 00:13:32.159 but you pay extra for bags and a drink. Exactly. 00:13:32.320 --> 00:13:34.720 And the traditional brokers hated this. They 00:13:34.720 --> 00:13:37.259 absolutely despised it. They felt it devalued. 00:13:37.259 --> 00:13:40.000 valued their profession and their service. So 00:13:40.000 --> 00:13:42.519 in some MLSs, they tried to block these listings. 00:13:42.759 --> 00:13:45.100 Block them how? Like literally just say, no, 00:13:45.159 --> 00:13:47.220 you can't put that in our database. Or even worse, 00:13:47.379 --> 00:13:49.360 let them in, but then hide them. Yeah. We have 00:13:49.360 --> 00:13:51.500 to look at the case of RealComp. This was a big 00:13:51.500 --> 00:13:54.039 MLS in Michigan and it became a landmark case. 00:13:54.320 --> 00:13:57.500 Okay. So what did RealComp do specifically? This 00:13:57.500 --> 00:14:00.370 was in the mid 2000s. when discounters were really 00:14:00.370 --> 00:14:04.029 starting to gain traction. RealCop's board, which 00:14:04.029 --> 00:14:06.870 was made up of traditional brokers, decided they 00:14:06.870 --> 00:14:09.269 didn't want to support this business model. So 00:14:09.269 --> 00:14:12.110 they created a set of rules that said, effectively, 00:14:12.409 --> 00:14:15.110 if you are a limited service or flat fee broker, 00:14:15.470 --> 00:14:18.190 we will accept your listing into our system, 00:14:18.309 --> 00:14:20.830 but we won't send it out to the big public websites, 00:14:21.129 --> 00:14:23.529 and we might not even show it by default to the 00:14:23.529 --> 00:14:26.120 other agents in their main search. Wow. So they 00:14:26.120 --> 00:14:27.720 were basically shadow banning the competition. 00:14:27.879 --> 00:14:29.759 They were saying, you can join our club, but 00:14:29.759 --> 00:14:31.360 you have to sit in the corner with a bag over 00:14:31.360 --> 00:14:33.740 your head. That's a perfect way to put it. And 00:14:33.740 --> 00:14:35.659 they argued they had a right to do it. Their 00:14:35.659 --> 00:14:38.240 argument was, this is our system. We built it. 00:14:38.259 --> 00:14:40.559 We paid for it. Why should we be forced to use 00:14:40.559 --> 00:14:42.879 our infrastructure to help a competitor who is 00:14:42.879 --> 00:14:45.299 actively undercutting our prices and threatening 00:14:45.299 --> 00:14:48.120 our livelihood? I mean, I have to admit, from 00:14:48.120 --> 00:14:50.039 a purely business perspective, I kind of see 00:14:50.039 --> 00:14:52.509 their point. If I built the only railroad into 00:14:52.509 --> 00:14:54.710 town, why should I be forced to let the guy offering 00:14:54.710 --> 00:14:56.830 half -price tickets use my tracks? That is the 00:14:56.830 --> 00:14:59.769 free rider argument. It's a powerful one. But 00:14:59.769 --> 00:15:02.450 the Federal Trade Commission, the FTC, saw it 00:15:02.450 --> 00:15:04.769 very differently. They saw it as a classic antitrust 00:15:04.769 --> 00:15:08.210 violation. What was the FTC's argument? The FTC's 00:15:08.210 --> 00:15:12.110 position was simple. You, real comp, have a monopoly 00:15:12.110 --> 00:15:14.590 on the data. The MLS is the only game in town. 00:15:14.850 --> 00:15:17.450 By hiding these discount listings, you are directly 00:15:17.450 --> 00:15:19.850 harming the consumer. You are preventing them 00:15:19.850 --> 00:15:22.389 from seeing a cheaper option, and you are artificially 00:15:22.389 --> 00:15:24.750 keeping commission rates high by colluding to 00:15:24.750 --> 00:15:27.330 suppress a new, more affordable business model. 00:15:27.450 --> 00:15:29.830 So it went to court. It did. And unlike many 00:15:29.830 --> 00:15:32.809 other MLSs who just settled with the FTC, Real 00:15:32.809 --> 00:15:35.509 Comp fought hard. They took it all the way. And 00:15:35.509 --> 00:15:37.529 interestingly, they actually won the initial 00:15:37.529 --> 00:15:40.610 trial in 2007. The judge sided with them. But 00:15:40.610 --> 00:15:42.870 that wasn't the end of it. Not even close. The 00:15:42.870 --> 00:15:46.330 FTC appealed. And in 2009, a higher court delivered 00:15:46.330 --> 00:15:49.549 a unanimous 4 -0 ruling, completely overturning 00:15:49.549 --> 00:15:51.590 the initial verdict and ruling against RealCom. 00:15:51.710 --> 00:15:53.330 And what did that ruling establish? What was 00:15:53.330 --> 00:15:56.350 the precedent? The precedent was huge. It established 00:15:56.350 --> 00:15:59.370 that an MLS cannot discriminate against a member 00:15:59.370 --> 00:16:01.570 based on their business model or the commission 00:16:01.570 --> 00:16:04.450 they charge. If you meet the qualifications to 00:16:04.450 --> 00:16:07.210 be a member, you get full access and your listings 00:16:07.210 --> 00:16:09.529 get full exposure. The government effectively 00:16:09.529 --> 00:16:12.830 said you cannot use the MLS as a weapon to punish 00:16:12.830 --> 00:16:15.320 discounters. But that wasn't the only war being 00:16:15.320 --> 00:16:16.820 fought at the time. There was an even bigger 00:16:16.820 --> 00:16:19.019 one, right? The war over the Internet itself. 00:16:19.299 --> 00:16:21.480 I remember when the first real estate website 00:16:21.480 --> 00:16:24.059 started popping up, places like HomeGain and 00:16:24.059 --> 00:16:26.559 the traditional agents were absolutely freaking 00:16:26.559 --> 00:16:28.659 out. This was the battle of the virtual office 00:16:28.659 --> 00:16:31.980 website or VOW. And we need to be really careful 00:16:31.980 --> 00:16:33.919 with our terms here because there's a critical 00:16:33.919 --> 00:16:36.059 difference between a simple advertising website 00:16:36.059 --> 00:16:39.070 and what a VOW is trying to be. Okay, so walk 00:16:39.070 --> 00:16:40.549 me through that. What's the difference between 00:16:40.549 --> 00:16:43.029 what Zillow does today and what a VOW was back 00:16:43.029 --> 00:16:45.429 then? Zillow, for the most part, is an advertising 00:16:45.429 --> 00:16:48.230 portal. It syndicates data. It shows you a picture 00:16:48.230 --> 00:16:50.309 of a house and says, this is the listing agent. 00:16:50.429 --> 00:16:53.350 Call this person. A VOW was a much more radical 00:16:53.350 --> 00:16:56.129 idea. A VOW was an attempt to take the entire 00:16:56.129 --> 00:16:59.429 brokerage office and put it online. How so? They 00:16:59.429 --> 00:17:02.950 wanted to give you, the consumer, a login. Once 00:17:02.950 --> 00:17:05.150 you logged in and registered as a client, their 00:17:05.150 --> 00:17:07.369 goal was to show you everything the agent could 00:17:07.369 --> 00:17:09.660 see. Not just the public facing stuff. We're 00:17:09.660 --> 00:17:12.779 talking sold prices, days on market, price change 00:17:12.779 --> 00:17:15.880 history, agent only remarks. The secret data, 00:17:16.000 --> 00:17:18.579 the stuff behind the curtain. Exactly. And the 00:17:18.579 --> 00:17:20.059 traditional brokers looked at that and said, 00:17:20.140 --> 00:17:23.059 absolutely not. No way. They saw it as giving 00:17:23.059 --> 00:17:25.799 away the crown jewels. So the National Association 00:17:25.799 --> 00:17:28.500 of Realtors passed a series of rules that allowed 00:17:28.500 --> 00:17:32.950 brokers to opt out. of sharing their data with 00:17:32.950 --> 00:17:34.829 these specific virtual companies. So they could 00:17:34.829 --> 00:17:36.529 say, I'll share my listing with the brick and 00:17:36.529 --> 00:17:38.369 mortar office down the street, but I will not 00:17:38.369 --> 00:17:40.349 share it with that website. Right. And their 00:17:40.349 --> 00:17:42.589 argument was that these VOWs weren't really brokerages. 00:17:42.670 --> 00:17:44.670 They were just data scrapers. They were tech 00:17:44.670 --> 00:17:47.329 companies who would just solicit clients online 00:17:47.329 --> 00:17:50.029 and then refer them out to local agents for a 00:17:50.029 --> 00:17:53.069 huge 25, 35 percent cut of the commission without 00:17:53.069 --> 00:17:55.410 doing any of the actual local work. So the Department 00:17:55.410 --> 00:17:58.490 of Justice got involved. Yeah. The DOJ sued NAR 00:17:58.490 --> 00:18:01.759 in 2005 over this. But again, let me play devil's 00:18:01.759 --> 00:18:04.299 advocate for a second. The traditional broker 00:18:04.299 --> 00:18:07.019 did the work. They met the seller. They got the 00:18:07.019 --> 00:18:08.759 listing agreement. They took the photos. They 00:18:08.759 --> 00:18:11.559 measured the rooms. Why should a tech company 00:18:11.559 --> 00:18:14.759 get to just scrape all that valuable data for 00:18:14.759 --> 00:18:17.700 free and build a national business on top of 00:18:17.700 --> 00:18:19.779 it? Isn't that kind of parasitic? That was an 00:18:19.779 --> 00:18:22.559 error's exact argument. They said, this is our 00:18:22.559 --> 00:18:24.700 copyrighted data, our intellectual property. 00:18:24.940 --> 00:18:27.140 These websites are just profiting off our labor. 00:18:27.579 --> 00:18:31.119 But the DOJ's comeback was. You are using your 00:18:31.119 --> 00:18:33.599 collective market power to stifle innovation. 00:18:34.140 --> 00:18:36.119 You are scared that the Internet is going to 00:18:36.119 --> 00:18:38.259 make your business model obsolete, so you are 00:18:38.259 --> 00:18:40.980 colluding to break the Internet. It's the Luddites 00:18:40.980 --> 00:18:43.319 smashing the looms all over again. In a legal 00:18:43.319 --> 00:18:46.259 sense, yes. The DOJ argued it was a group boycott 00:18:46.259 --> 00:18:49.079 that illegally restricted competition. The case 00:18:49.079 --> 00:18:51.960 dragged on for years, a real battle of titans. 00:18:52.420 --> 00:18:55.160 Finally, in May of 2008, they reached a settlement. 00:18:55.400 --> 00:18:56.759 And what was the outcome of that settlement? 00:18:57.220 --> 00:19:00.470 NAR agreed to get rid of the opt -out rule. The 00:19:00.470 --> 00:19:02.809 settlement mandated that Internet brokerages 00:19:02.809 --> 00:19:05.150 had to get access to the same listings as traditional 00:19:05.150 --> 00:19:07.430 ones. They couldn't be discriminated against 00:19:07.430 --> 00:19:09.690 just because their office was a website. And 00:19:09.690 --> 00:19:12.190 that settlement essentially created the world 00:19:12.190 --> 00:19:14.710 we live in today, where we can sit on our couch 00:19:14.710 --> 00:19:17.390 at 2 a .m. and scroll through not just active 00:19:17.390 --> 00:19:20.269 listings, but sold listings from six months ago. 00:19:20.349 --> 00:19:22.990 It broke the dam. is the moment the industry 00:19:22.990 --> 00:19:26.269 was forced, kicking and screaming, into the digital 00:19:26.269 --> 00:19:29.410 age. It fundamentally changed how consumers access 00:19:29.410 --> 00:19:32.660 real estate data forever. Now, before we leave 00:19:32.660 --> 00:19:34.539 these legal battles, we have to look slightly 00:19:34.539 --> 00:19:36.599 north because you mentioned earlier that the 00:19:36.599 --> 00:19:38.680 U .S. and Canada are different. Canada has an 00:19:38.680 --> 00:19:41.339 MLS, too, but it operates under a different structure. 00:19:41.559 --> 00:19:43.400 They do, but it's a much more centralized and 00:19:43.400 --> 00:19:46.420 branded system. In the U .S., as we said, MLS 00:19:46.420 --> 00:19:49.960 is a generic term. In Canada, both MLS and realtor 00:19:49.960 --> 00:19:52.519 are registered trademarks. They're owned by one 00:19:52.519 --> 00:19:54.940 entity, the Canadian Real Estate Association, 00:19:55.200 --> 00:19:58.539 or CREA. So they actually own the words themselves. 00:19:58.660 --> 00:20:00.680 That's an incredibly powerful position to be 00:20:00.680 --> 00:20:03.779 in. It's immense. It gives them a level of control 00:20:03.779 --> 00:20:07.279 that NAR in the U .S. can only dream of. And 00:20:07.279 --> 00:20:09.900 unsurprisingly, they had their own version of 00:20:09.900 --> 00:20:12.279 the antitrust fight against discounters. There 00:20:12.279 --> 00:20:14.480 was a company in Ontario called Realty Sellers. 00:20:14.539 --> 00:20:17.660 Let me guess. Another flat fee discounter. A 00:20:17.660 --> 00:20:20.420 huge one. And they were trying to offer a very 00:20:20.420 --> 00:20:23.559 basic flat fee listing service. And they ran 00:20:23.559 --> 00:20:25.859 into roadblock after roadblock from the establishment 00:20:25.859 --> 00:20:28.799 boards. Eventually, the pressure was so intense 00:20:28.799 --> 00:20:31.319 that they shut down their operations. But then 00:20:31.319 --> 00:20:34.140 they went nuclear. What'd they do? They sued 00:20:34.140 --> 00:20:37.640 CREA and the Toronto Real Estate Board for $100 00:20:37.640 --> 00:20:42.359 million. Wow. They essentially alleged, you conspired 00:20:42.359 --> 00:20:44.700 to change the rules specifically to put our business 00:20:44.700 --> 00:20:46.980 model out of commission. And just like in the 00:20:46.980 --> 00:20:49.559 U .S., the federal regulators, in this case, 00:20:49.579 --> 00:20:52.589 Canada's Competition Bureau, stepped in. In 2010, 00:20:52.789 --> 00:20:54.730 they forced a settlement that opened the door 00:20:54.730 --> 00:20:58.009 for flat fee listings on the Canadian MLS. But 00:20:58.009 --> 00:20:59.650 I heard that even after the settlement, some 00:20:59.650 --> 00:21:01.789 Canadian boards still tried to find loopholes 00:21:01.789 --> 00:21:05.009 to resist. Oh, always. The resistance is creative. 00:21:05.289 --> 00:21:07.849 Some boards argued, well, provincial licensing 00:21:07.849 --> 00:21:10.410 law says a broker has to actively manage a listing 00:21:10.410 --> 00:21:12.829 and provide a certain level of service. If you 00:21:12.829 --> 00:21:15.390 just post it on the MLS and walk away, you aren't 00:21:15.390 --> 00:21:17.470 fulfilling your duties as a broker, so we can 00:21:17.470 --> 00:21:20.069 kick you out on those grounds. It was a way of 00:21:20.069 --> 00:21:22.430 trying to use provincial rules to get around 00:21:22.430 --> 00:21:24.670 the federal competition settlement. It really 00:21:24.670 --> 00:21:26.710 feels like the industry is just constantly trying 00:21:26.710 --> 00:21:29.710 to find new ways to justify its existence and 00:21:29.710 --> 00:21:32.190 its fee structure in the face of technology that 00:21:32.190 --> 00:21:34.230 relentlessly wants to make things cheaper and 00:21:34.230 --> 00:21:36.309 more efficient. That is the eternal struggle 00:21:36.309 --> 00:21:39.170 of this industry. It's full service versus maximum 00:21:39.170 --> 00:21:42.230 efficiency and they are always at odds. Speaking 00:21:42.230 --> 00:21:44.150 of struggles and doing things differently, let's 00:21:44.150 --> 00:21:46.190 talk about the one place in the U .S. that seems 00:21:46.190 --> 00:21:49.279 to be completely immune to all of this. New York 00:21:49.279 --> 00:21:53.220 City. Ah, Manhattan. Ah. The island that plays 00:21:53.220 --> 00:21:55.660 by its own rules in everything, including real 00:21:55.660 --> 00:21:58.099 estate. I was absolutely shocked to learn this 00:21:58.099 --> 00:22:00.720 during our research. Manhattan, arguably the 00:22:00.720 --> 00:22:02.940 most famous and valuable real estate market on 00:22:02.940 --> 00:22:05.420 the entire planet, does not use the traditional 00:22:05.420 --> 00:22:08.359 MLS. How is that possible? It just never took 00:22:08.359 --> 00:22:10.460 hold there. You have to understand the culture 00:22:10.460 --> 00:22:13.920 of Manhattan real estate. It is fierce. It is 00:22:13.920 --> 00:22:17.880 shark infested waters. For decades, the big brokerages, 00:22:17.900 --> 00:22:20.299 the Corcorans, the Douglas Elliman's, the Brown 00:22:20.299 --> 00:22:23.519 Harris Stevens of the world were titans. And 00:22:23.519 --> 00:22:25.799 they didn't want to cooperate. Their thinking 00:22:25.799 --> 00:22:28.240 for a long time was, we have enough inventory 00:22:28.240 --> 00:22:31.380 on our own. We have the best listings. Why should 00:22:31.380 --> 00:22:33.359 we share our valuable information with the little 00:22:33.359 --> 00:22:35.440 guys and make it easier for them to compete with 00:22:35.440 --> 00:22:38.400 us? But eventually, even they realized they needed 00:22:38.400 --> 00:22:41.059 some kind of system for co -broking. So they 00:22:41.059 --> 00:22:43.740 built their own. It's called the RLS. The R -E 00:22:43.740 --> 00:22:46.839 -B -N -Y Listing Service. Exactly. Operated by 00:22:46.839 --> 00:22:49.220 the Real Estate Board of New York, or R -B -N 00:22:49.220 --> 00:22:51.980 -Y. And R -B -N -Y is a fascinating organization 00:22:51.980 --> 00:22:54.539 because they actually seceded from the National 00:22:54.539 --> 00:22:57.460 Association of Realtors way back in 1994. They 00:22:57.460 --> 00:22:59.299 basically said, we don't need your rules. We're 00:22:59.299 --> 00:23:01.460 New York. That is the most New York thing I have 00:23:01.460 --> 00:23:03.319 ever done in my life. We're seceding from the 00:23:03.319 --> 00:23:05.920 Realtors. It really is. And their system has 00:23:05.920 --> 00:23:08.619 a hilarious backstory regarding its name. Back 00:23:08.619 --> 00:23:10.740 in the early days of digital, they tried to launch 00:23:10.740 --> 00:23:14.119 an online exchange called R -O -L -E -X. Rolex, 00:23:14.460 --> 00:23:17.809 like the luxury watch. R -O -L -E -X. It stood 00:23:17.809 --> 00:23:21.430 for R -B -N -Y Online Listing Exchange. I'm going 00:23:21.430 --> 00:23:23.250 to go out on a limb and assume the Swiss watchmakers 00:23:23.250 --> 00:23:25.769 didn't love that. They definitely did not. They 00:23:25.769 --> 00:23:28.609 slapped R -E -B -N -Y with a trademark infringement 00:23:28.609 --> 00:23:30.789 claim so fast it would make your head spin, so 00:23:30.789 --> 00:23:32.910 they had to change it. But it just shows you 00:23:32.910 --> 00:23:34.970 the mindset. They viewed their exclusive listings 00:23:34.970 --> 00:23:38.420 as luxury goods, like a high -end watch. So is 00:23:38.420 --> 00:23:40.519 the system actually different today? If I'm a 00:23:40.519 --> 00:23:42.359 buyer looking for an apartment in Manhattan, 00:23:42.640 --> 00:23:45.000 is the experience better or worse because they 00:23:45.000 --> 00:23:47.200 use the RLS instead of an MLS? It's different. 00:23:47.279 --> 00:23:50.859 One key difference is speed. The RLS has a very 00:23:50.859 --> 00:23:54.539 strict 24 -hour rule. If you as a broker get 00:23:54.539 --> 00:23:57.000 an exclusive listing agreement signed, it must 00:23:57.000 --> 00:23:59.200 be entered and disseminated through the system 00:23:59.200 --> 00:24:01.759 to all other members within 24 hours. And what's 00:24:01.759 --> 00:24:04.019 the reason for that rush? Because in a market 00:24:04.019 --> 00:24:06.579 as fast as Manhattan, information is everything. 00:24:07.039 --> 00:24:09.980 In the old days, it used to be a 72 -hour rule, 00:24:10.160 --> 00:24:12.880 which agencies without weekend staff complained 00:24:12.880 --> 00:24:15.960 about. But before that, agencies would get a 00:24:15.960 --> 00:24:18.099 hot new listing on a Friday and hold it as a 00:24:18.099 --> 00:24:21.079 pocket listing over the weekend. They'd try to 00:24:21.079 --> 00:24:23.500 sell it internally to their own buyers first 00:24:23.500 --> 00:24:26.440 to get both sides of the commission before sharing 00:24:26.440 --> 00:24:28.640 it with the rest of the market on Monday. Double 00:24:28.640 --> 00:24:30.980 -ending the deal. Exactly. The RLS cracked down 00:24:30.980 --> 00:24:33.720 on that. They want immediate fair dissemination 00:24:33.720 --> 00:24:36.450 to the entire brokerage community. So in that 00:24:36.450 --> 00:24:38.130 sense, it's actually a very pro -cooperation 00:24:38.130 --> 00:24:41.089 rule. OK, so we've established that North America 00:24:41.089 --> 00:24:43.150 is completely obsessed with this cooperation 00:24:43.150 --> 00:24:46.130 and compensation model. We have this elaborate, 00:24:46.250 --> 00:24:48.529 legally defended system to force competitors 00:24:48.529 --> 00:24:51.210 to work together. But this is where the story 00:24:51.210 --> 00:24:53.730 gets really wild, because if you leave this continent, 00:24:53.970 --> 00:24:56.470 the concept of the MLS basically disappears. 00:24:56.630 --> 00:24:59.009 It completely vanishes. And this is what is so 00:24:59.009 --> 00:25:00.829 hard for Americans and Canadians to wrap their 00:25:00.829 --> 00:25:03.190 heads around. In most of the world, there is 00:25:03.190 --> 00:25:06.200 no unilateral offer of compensation. The whole 00:25:06.200 --> 00:25:09.019 foundation of our system doesn't exist. So let's 00:25:09.019 --> 00:25:10.759 go on this global tour. Let's start with the 00:25:10.759 --> 00:25:13.000 United Kingdom. They speak the same language. 00:25:13.000 --> 00:25:15.720 They have a similar legal system. Surely they 00:25:15.720 --> 00:25:18.500 sell houses the same way we do. Not at all. In 00:25:18.500 --> 00:25:21.680 fact, the UK serves as a powerful cautionary 00:25:21.680 --> 00:25:24.079 tale of what happens when you don't have an MLS. 00:25:24.819 --> 00:25:27.180 They went through a period in the late 1990s 00:25:27.180 --> 00:25:29.279 that people in the industry there actually refer 00:25:29.279 --> 00:25:33.380 to as the dark years. The dark years. That sounds 00:25:33.380 --> 00:25:36.109 ominous. Paint the picture for me. I'm a potential 00:25:36.109 --> 00:25:39.049 buyer in London in 1999. It's raining, obviously. 00:25:39.509 --> 00:25:41.990 I want to buy a flat. What do I do? You put on 00:25:41.990 --> 00:25:43.769 your raincoat and you walk down to the high street. 00:25:44.269 --> 00:25:46.529 You go into an estate agent's office. Let's call 00:25:46.529 --> 00:25:49.089 him Agent Smith. You look at the photos of listings 00:25:49.089 --> 00:25:52.029 taped to his window. You go inside and ask, do 00:25:52.029 --> 00:25:53.390 you have anything with two bedrooms near the 00:25:53.390 --> 00:25:55.589 tube station? He shows you the three listings 00:25:55.589 --> 00:25:57.670 his office has. None of them are quite right. 00:25:57.809 --> 00:26:00.049 Okay, so I ask him, what about that other agency 00:26:00.049 --> 00:26:02.349 I see across the street? Agent Jones. Do you 00:26:02.349 --> 00:26:05.299 know what they have? And Agent Smith says, I 00:26:05.299 --> 00:26:07.700 have absolutely no idea what Agent Jones has, 00:26:07.839 --> 00:26:09.640 and I certainly can't show it to you because 00:26:09.640 --> 00:26:11.339 if you bought it, he wouldn't pay me a penny. 00:26:11.539 --> 00:26:13.980 There's no co -broking agreement. So I have to 00:26:13.980 --> 00:26:16.119 thank him, leave, go back out into the rain, 00:26:16.240 --> 00:26:18.839 cross the street, and walk into Agent Jones' 00:26:19.000 --> 00:26:21.279 office and start the whole process over again. 00:26:21.519 --> 00:26:23.819 Exactly. And you have to register with him, give 00:26:23.819 --> 00:26:25.539 him your name and number, and then you go to 00:26:25.539 --> 00:26:28.579 the next one and the next one. As a buyer, you 00:26:28.579 --> 00:26:30.859 might have to register with 10 different agencies 00:26:30.859 --> 00:26:33.819 just to get a view of the available inventory 00:26:33.819 --> 00:26:36.599 in one single neighborhood. That sounds miserable. 00:26:36.759 --> 00:26:38.900 It's incredibly inefficient for the consumer. 00:26:39.220 --> 00:26:41.500 It was total fragmentation. The market liquidity 00:26:41.500 --> 00:26:45.359 was terrible. Deals fell apart. But then technology 00:26:45.359 --> 00:26:48.599 came along and solved the problem that the brokers 00:26:48.599 --> 00:26:51.599 themselves refused to solve. The internet. Specifically, 00:26:51.799 --> 00:26:54.220 what we call vertical portals. In the UK, this 00:26:54.220 --> 00:26:58.180 means two giants. Right move. and Zoopla. So 00:26:58.180 --> 00:27:00.500 how is a portal like Rightmove different from 00:27:00.500 --> 00:27:03.039 an MLS? It's a fundamental difference in structure. 00:27:03.200 --> 00:27:07.160 In the US, the MLS is a horizontal network. It's 00:27:07.160 --> 00:27:10.279 broker -to -broker cooperation. In the UK, the 00:27:10.279 --> 00:27:12.779 portals completely replaced that. Every agent, 00:27:12.779 --> 00:27:15.460 Agent Smith and Agent Jones, decided it was in 00:27:15.460 --> 00:27:17.599 their best interest to upload their own listings 00:27:17.599 --> 00:27:20.019 directly to Rightmove. So Rightmove becomes the 00:27:20.019 --> 00:27:22.359 central marketplace, not some private broker 00:27:22.359 --> 00:27:24.640 network. Correct. The agents are not cooperating 00:27:24.640 --> 00:27:26.000 with each other. They are competing with each 00:27:26.000 --> 00:27:29.420 other on the portal. If you, the buyer, find 00:27:29.420 --> 00:27:31.599 a house on Rightmove that's listed by Agent Jones, 00:27:31.839 --> 00:27:34.460 you call Agent Jones directly. You don't call 00:27:34.460 --> 00:27:36.420 your own buyer's agent and have them set up the 00:27:36.420 --> 00:27:39.220 showing. So that means the role of the dedicated 00:27:39.220 --> 00:27:41.940 buyer's agent, that person whose whole job is 00:27:41.940 --> 00:27:44.039 to represent you, drive you around and protect 00:27:44.039 --> 00:27:46.400 your interests, that doesn't really exist in 00:27:46.400 --> 00:27:48.880 the UK? It's extremely rare. It's a very niche 00:27:48.880 --> 00:27:51.539 service. In the UK system, you're almost always 00:27:51.539 --> 00:27:54.079 dealing directly with a seller's agent, which 00:27:54.079 --> 00:27:56.059 means, and this is a key consumer protection 00:27:56.059 --> 00:27:58.859 point, the person showing you the house and negotiating 00:27:58.859 --> 00:28:01.400 with you is legally and financially working for 00:28:01.400 --> 00:28:04.069 the seller, not for you. That is a massive difference. 00:28:04.369 --> 00:28:06.349 In the U .S., we're told we pay a commission 00:28:06.349 --> 00:28:10.150 of, say, 5%, 6 % in part to have professional 00:28:10.150 --> 00:28:11.930 representation on both sides of the transaction. 00:28:12.130 --> 00:28:14.789 In the U .K., they pay much less, usually only 00:28:14.789 --> 00:28:18.069 1 % to 2 % total. But the buyer is essentially 00:28:18.069 --> 00:28:20.890 on their own navigating against a professional. 00:28:21.109 --> 00:28:23.650 That is the fundamental tradeoff. Lower transaction 00:28:23.650 --> 00:28:26.970 fees, but much less advocacy and support for 00:28:26.970 --> 00:28:29.009 the buyer. Fascinating. Let's jump over to the 00:28:29.009 --> 00:28:30.950 Czech Republic. You mentioned in the notes that 00:28:30.950 --> 00:28:33.349 this is a case study in... economic surplus and 00:28:33.349 --> 00:28:35.509 how it affects the market structure. Yes, the 00:28:35.509 --> 00:28:37.769 Czech Republic is a perfect example of how local 00:28:37.769 --> 00:28:40.490 market conditions completely dictate the system. 00:28:40.630 --> 00:28:43.089 There is no MLS there. And when you ask why, 00:28:43.390 --> 00:28:46.150 the answer is simple. Demand is so high and supply 00:28:46.150 --> 00:28:48.349 is so tight that they don't need one. Explain 00:28:48.349 --> 00:28:50.509 that connection. Why does high demand mean no 00:28:50.509 --> 00:28:53.769 MLS? Okay, imagine you're an agent and you list 00:28:53.769 --> 00:28:56.369 a desirable flat in the center of Prague. In 00:28:56.369 --> 00:28:58.670 the current market, you might have 10 qualified 00:28:58.670 --> 00:29:01.369 buyers lining up at the door within an hour of 00:29:01.369 --> 00:29:03.289 it going live. Okay. That's a good problem to 00:29:03.289 --> 00:29:05.289 have as a seller's agent. It's a best problem. 00:29:05.990 --> 00:29:09.099 So if you are that listing agent. Why on earth 00:29:09.099 --> 00:29:10.799 would you agree to split your commission with 00:29:10.799 --> 00:29:12.819 another agent who brings you one of those 10 00:29:12.819 --> 00:29:15.400 buyers? You don't need their help finding a buyer. 00:29:15.519 --> 00:29:17.759 The buyers are already finding you. So the whole 00:29:17.759 --> 00:29:19.880 cooperation model, the foundation of the MLS, 00:29:20.039 --> 00:29:22.380 only makes sense if selling is hard and you need 00:29:22.380 --> 00:29:25.660 to maximize your reach. Exactly. The MLS is a 00:29:25.660 --> 00:29:28.559 tool for balanced or difficult markets. In a 00:29:28.559 --> 00:29:31.000 high -demand, low -surplus market like the one 00:29:31.000 --> 00:29:33.759 in the Czech Republic, agents hoard their listings. 00:29:34.079 --> 00:29:36.680 They want to sell them alone and keep 100 % of 00:29:36.680 --> 00:29:39.730 the fee. The economic incentive to share simply 00:29:39.730 --> 00:29:41.990 is not there. So in that case, the invisible 00:29:41.990 --> 00:29:44.690 engine isn't a cooperative database. It's just 00:29:44.690 --> 00:29:48.470 raw, overwhelming demand. Precisely. The market 00:29:48.470 --> 00:29:51.250 dynamics make cooperation unnecessary. What about 00:29:51.250 --> 00:29:53.710 Vietnam? The notes mention something called open 00:29:53.710 --> 00:29:56.750 agency. This sounds completely chaotic. It is 00:29:56.750 --> 00:29:59.309 the Wild West of real estate. In the U .S., the 00:29:59.309 --> 00:30:01.690 standard is an exclusive right to sell agreement. 00:30:02.250 --> 00:30:05.369 You, the seller, sign a contract with one agent 00:30:05.369 --> 00:30:08.549 for a set period of time. In Vietnam, they often 00:30:08.549 --> 00:30:11.130 use what's called an open agency or non -exclusive 00:30:11.130 --> 00:30:14.349 listing. Meaning I, as a homeowner, can hire 00:30:14.349 --> 00:30:16.809 five different agents at the same time to sell 00:30:16.809 --> 00:30:20.210 my one house. Yes. And it's not uncommon to drive 00:30:20.210 --> 00:30:22.630 down a street in Ho Chi Minh City and see one 00:30:22.630 --> 00:30:25.450 house with five different forced sale signs on 00:30:25.450 --> 00:30:27.589 the front lawn, all from different companies, 00:30:27.750 --> 00:30:29.970 sometimes even listed at slightly different prices. 00:30:30.289 --> 00:30:32.329 That sounds like an absolute nightmare. Who gets 00:30:32.329 --> 00:30:34.829 the commission when it sells? The one who crosses 00:30:34.829 --> 00:30:37.599 the finish line first. It is a straight up race. 00:30:38.140 --> 00:30:40.380 Whichever agent brings the buyer who closes the 00:30:40.380 --> 00:30:44.079 deal gets paid. The other four get nothing. That 00:30:44.079 --> 00:30:45.880 creates a terrible incentive structure, doesn't 00:30:45.880 --> 00:30:47.460 it? If I'm one of those five agents, I'm not 00:30:47.460 --> 00:30:49.519 going to spend any real money marketing your 00:30:49.519 --> 00:30:51.180 house. If there's a four in five chance, I'll 00:30:51.180 --> 00:30:53.119 get zero return. I'm just going to try to flip 00:30:53.119 --> 00:30:55.819 it as fast as humanly possible with minimal effort. 00:30:55.980 --> 00:30:58.259 Exactly. It leads to very low quality service. 00:30:58.420 --> 00:31:01.579 It's all about quantity over quality. They did 00:31:01.579 --> 00:31:04.099 try to build an MLS in Vietnam starting in 2010. 00:31:04.670 --> 00:31:06.549 based on the U .S. model, to try to fix this 00:31:06.549 --> 00:31:09.029 and bring some order to the chaos. But it's an 00:31:09.029 --> 00:31:10.869 enormous struggle to change a market culture 00:31:10.869 --> 00:31:13.210 that is so deeply ingrained. It seems like the 00:31:13.210 --> 00:31:15.250 common theme here is that you can't just install 00:31:15.250 --> 00:31:17.569 software and expect it to change how people do 00:31:17.569 --> 00:31:19.990 business. You have to change the psychology of 00:31:19.990 --> 00:31:22.710 the agents. Culture eats strategy for breakfast, 00:31:22.950 --> 00:31:25.470 and that is especially true in real estate. Speaking 00:31:25.470 --> 00:31:27.910 of culture shock, let's talk about Latin America. 00:31:28.410 --> 00:31:30.789 Mexico and Costa Rica. The research we have here 00:31:30.789 --> 00:31:33.609 describes this as the gringo effect. It's a very 00:31:33.609 --> 00:31:36.450 real phenomenon. Think about the big resort and 00:31:36.450 --> 00:31:39.970 expatriate towns, Cabo San Lucas, Puerto Vallarta, 00:31:40.190 --> 00:31:43.430 San Miguel de Allende, who is the primary buyer 00:31:43.430 --> 00:31:45.670 of high -end real estate there. Americans and 00:31:45.670 --> 00:31:47.589 Canadians, mostly. And what do Americans and 00:31:47.589 --> 00:31:49.490 Canadians expect when they go to buy real estate? 00:31:49.569 --> 00:31:52.569 They expect an MLS. They arrive, and they say 00:31:52.569 --> 00:31:54.349 to a local agent, OK, show me everything on the 00:31:54.349 --> 00:31:56.900 market. And the local agents... Historically, 00:31:56.920 --> 00:31:59.900 had no centralized way to do that. So they built 00:31:59.900 --> 00:32:02.579 MLS systems just to appease the foreign buyers. 00:32:02.900 --> 00:32:06.180 Essentially, yes. The very first MLS systems 00:32:06.180 --> 00:32:09.220 in Mexico were started in the late 1980s, specifically 00:32:09.220 --> 00:32:12.220 in these expatriate enclaves. It was a completely 00:32:12.220 --> 00:32:15.109 imported structure. American brokers down there 00:32:15.109 --> 00:32:17.930 essentially copy pasted the US model, the rules, 00:32:18.089 --> 00:32:20.230 the code of ethics, the lock boxes, the offer 00:32:20.230 --> 00:32:22.869 of compensation into Mexico to make the American 00:32:22.869 --> 00:32:25.690 and Canadian buyers feel comfortable and secure. 00:32:25.970 --> 00:32:28.029 It's like bringing your own electrical adapters 00:32:28.029 --> 00:32:30.650 on vacation. We are going to bring our own entire 00:32:30.650 --> 00:32:33.349 real estate system with us. But here's the catch. 00:32:33.650 --> 00:32:37.009 It often only exists in those pockets. For example, 00:32:37.170 --> 00:32:41.230 MLS -BCS serves Baja California Sur, where Cabo 00:32:41.230 --> 00:32:43.369 is. It's a corporation owned by the brokers. 00:32:43.910 --> 00:32:46.569 But if you go to the interior of Mexico or to 00:32:46.569 --> 00:32:48.750 a place like Costa Rica, it's often right back 00:32:48.750 --> 00:32:50.910 to the Wild West. And the notes say that Costa 00:32:50.910 --> 00:32:53.390 Rica has no licensing for agents at all. That's 00:32:53.390 --> 00:32:55.549 right. In Costa Rica, you do not need a license 00:32:55.549 --> 00:32:57.890 to call yourself a real estate agent. You, me, 00:32:58.130 --> 00:32:59.869 the listener, we could land in San Jose tomorrow, 00:33:00.170 --> 00:33:01.970 print up some business cards and start selling 00:33:01.970 --> 00:33:04.410 multimillion dollar properties. There's no educational 00:33:04.410 --> 00:33:07.470 requirement, no test, no oversight. That is genuinely 00:33:07.470 --> 00:33:12.470 terrifying. It is buyer beware on steroids. There 00:33:12.470 --> 00:33:16.420 is a small. Professional Association, CRGR, the 00:33:16.420 --> 00:33:18.960 Costa Rica Global Association of Realtors, that 00:33:18.960 --> 00:33:22.059 tries to run a proper MLS and enforce a code 00:33:22.059 --> 00:33:24.480 of ethics. But as of a few years ago, they only 00:33:24.480 --> 00:33:27.480 had about 120 members. They are a tiny island 00:33:27.480 --> 00:33:30.079 of order in a vast sea of chaos. So we've seen 00:33:30.079 --> 00:33:32.559 the U .S. cooperative cartel model, the U .K. 00:33:32.619 --> 00:33:35.059 portal model, a check hoarding model, and the 00:33:35.059 --> 00:33:37.420 Latin American imported model. It really makes 00:33:37.420 --> 00:33:39.299 you realize that the way we do things isn't the 00:33:39.299 --> 00:33:42.539 only way or even the default way. It is just 00:33:42.539 --> 00:33:45.059 one evolutionary path the market took, and it's 00:33:45.059 --> 00:33:47.259 not necessarily the fittest one to survive the 00:33:47.259 --> 00:33:49.400 next century. That leads us perfectly to the 00:33:49.400 --> 00:33:51.400 present day and the future. We have the Internet. 00:33:51.539 --> 00:33:54.259 We have Zillow. We have Redfin. We have AI that 00:33:54.259 --> 00:33:57.500 can write contracts. Does the 19th century handshake 00:33:57.500 --> 00:34:00.099 model still make sense in this environment? Let's 00:34:00.099 --> 00:34:02.339 look at the modern interface that consumers actually 00:34:02.339 --> 00:34:04.819 see. We mentioned IDX Internet Data Exchange. 00:34:05.099 --> 00:34:07.660 That is the policy, the set of rules, that allows 00:34:07.660 --> 00:34:10.340 brokers to show the MLS data on their own websites, 00:34:10.599 --> 00:34:12.739 which then gets syndicated out to the big portals. 00:34:12.840 --> 00:34:14.659 And what's the limitation there for the consumer? 00:34:14.920 --> 00:34:16.840 The limitation is that if you find a house you 00:34:16.840 --> 00:34:19.659 love on Zillow, you can't click a Buy Now button. 00:34:19.780 --> 00:34:22.219 It's not Amazon. You still have to inject a human 00:34:22.219 --> 00:34:23.960 agent into the process to get through the door. 00:34:24.679 --> 00:34:27.519 The system is designed intentionally to keep 00:34:27.519 --> 00:34:30.039 the agent as the indispensable gatekeeper. But 00:34:30.039 --> 00:34:32.360 for how long can that last? I mean, we are seeing 00:34:32.360 --> 00:34:35.119 AI that can analyze property values better than 00:34:35.119 --> 00:34:37.659 many humans. We're seeing virtual tours where 00:34:37.659 --> 00:34:39.860 I can walk through a house in stunning 3D without 00:34:39.860 --> 00:34:42.579 ever leaving my couch. The traditional roles 00:34:42.579 --> 00:34:45.900 are being eroded. That is the core tension. The 00:34:45.900 --> 00:34:48.739 entire MLS structure was built for a world of 00:34:48.739 --> 00:34:51.690 information scarcity. The agent's value was, 00:34:51.809 --> 00:34:54.190 I have the data in my secret book and you don't, 00:34:54.190 --> 00:34:56.730 so you have to pay me for access. We now live 00:34:56.730 --> 00:34:58.989 in a world of near total information abundance. 00:34:59.469 --> 00:35:02.070 So the value proposition of the broker just based 00:35:02.070 --> 00:35:04.469 on access is collapsing. The value of access 00:35:04.469 --> 00:35:06.730 is collapsing to zero. The value of advice and 00:35:06.730 --> 00:35:08.909 negotiation might still be there. But the big 00:35:08.909 --> 00:35:11.269 question is, does that advice cost 6 % of the 00:35:11.269 --> 00:35:14.250 home's value? That is what the market and the 00:35:14.250 --> 00:35:16.710 government is challenging right now. And we are 00:35:16.710 --> 00:35:19.130 seeing consolidation as a response, right? Those 00:35:19.130 --> 00:35:22.369 580 MLSs are shrinking in number. Yes, finally. 00:35:22.730 --> 00:35:26.070 They are merging at a rapid pace. You now have 00:35:26.070 --> 00:35:29.389 giants like CRMLS in California, which has over 00:35:29.389 --> 00:35:32.849 110 ,000 members. They are realizing that maintaining 00:35:32.849 --> 00:35:37.070 500 little servers and 500 different CEOs is 00:35:37.070 --> 00:35:40.110 colossally stupid and inefficient. They need 00:35:40.110 --> 00:35:42.429 to scale up to have the resources and technological 00:35:42.429 --> 00:35:45.230 clout to compete with the portals. Because if 00:35:45.230 --> 00:35:47.309 they don't band together, Zillow will just eat 00:35:47.309 --> 00:35:49.940 them for lunch. Zillow. Or CoStar, which is an 00:35:49.940 --> 00:35:52.059 even bigger commercial real estate data giant, 00:35:52.099 --> 00:35:54.719 or a tech company we haven't even seen yet. If 00:35:54.719 --> 00:35:56.619 the MLS doesn't evolve from a bunch of small 00:35:56.619 --> 00:35:59.219 local clubs into a modern, efficient data utility, 00:35:59.599 --> 00:36:02.139 then the portal model, the UK model, might just 00:36:02.139 --> 00:36:04.280 win by default. Consumers will just go where 00:36:04.280 --> 00:36:06.559 the data is easiest to use. That is a pretty 00:36:06.559 --> 00:36:09.179 sobering thought for the entire industry. It 00:36:09.179 --> 00:36:11.730 is. The invisible engine is old. It's a bit rusty 00:36:11.730 --> 00:36:13.650 and it feels like the mechanics, the brokers 00:36:13.650 --> 00:36:15.489 are all standing around fighting over who gets 00:36:15.489 --> 00:36:17.610 to hold the wrench while the car is driving itself 00:36:17.610 --> 00:36:20.710 toward a cliff. That is a very vivid image. OK, 00:36:20.809 --> 00:36:23.409 let's try to wrap this up. We've gone incredibly 00:36:23.409 --> 00:36:25.849 deep. We've covered a century of history, massive 00:36:25.849 --> 00:36:29.190 lawsuits and global economics. What is the one 00:36:29.190 --> 00:36:31.090 thing you want the listener to take away from 00:36:31.090 --> 00:36:33.670 this entire deep dive? I want them to understand 00:36:33.670 --> 00:36:36.389 that the price of housing isn't just about bricks 00:36:36.389 --> 00:36:38.510 and mortar and land. It's about the friction 00:36:38.510 --> 00:36:41.199 in the system. When you look at a home price 00:36:41.199 --> 00:36:44.300 and the closing costs, you are paying for the 00:36:44.300 --> 00:36:46.860 house, but you are also paying for the mechanism 00:36:46.860 --> 00:36:48.739 that was built to sell it. You're paying the 00:36:48.739 --> 00:36:51.320 VIG. You're paying the VIG, the cartel fee, the 00:36:51.320 --> 00:36:53.179 cooperation insurance policy, whatever you want 00:36:53.179 --> 00:36:55.599 to call it. The way we choose to organize the 00:36:55.599 --> 00:36:57.980 data directly determines the cost and speed of 00:36:57.980 --> 00:37:01.320 the transaction. The U .K. model is cheaper but 00:37:01.320 --> 00:37:04.059 riskier for buyers. The U .S. model is more expensive 00:37:04.059 --> 00:37:07.440 but offers more representation. Neither is perfect. 00:37:07.659 --> 00:37:09.860 So next time you drive past a first sale sign, 00:37:09.980 --> 00:37:11.860 remember, you aren't just looking at a house. 00:37:12.019 --> 00:37:15.179 You are looking at a single node in a massive, 00:37:15.260 --> 00:37:18.079 proprietary, fiercely defended, litigious network 00:37:18.079 --> 00:37:20.500 that is desperately trying to hold on to its 00:37:20.500 --> 00:37:22.559 power in a world that's becoming more digital 00:37:22.559 --> 00:37:24.559 by the second. Couldn't have said it better myself. 00:37:24.840 --> 00:37:27.679 And with that, here's a final provocative thought 00:37:27.679 --> 00:37:30.340 for you to chew on. We saw two extremes today. 00:37:30.730 --> 00:37:33.150 In the Czech Republic, agents don't share data 00:37:33.150 --> 00:37:36.110 because high demand makes it unnecessary. In 00:37:36.110 --> 00:37:38.849 the U .S., agents created a system to share data 00:37:38.849 --> 00:37:40.489 because they wanted to guarantee their commission. 00:37:40.929 --> 00:37:44.630 But what if a future technology, maybe AI, can 00:37:44.630 --> 00:37:47.530 instantly and perfectly match an ideal buyer 00:37:47.530 --> 00:37:50.349 to their ideal seller with zero friction and 00:37:50.349 --> 00:37:52.949 handle all the paperwork? In that world, do you 00:37:52.949 --> 00:37:54.929 need the commission or the sharing? Do you need 00:37:54.929 --> 00:37:57.769 the agent at all? Or do you just need a server 00:37:57.769 --> 00:38:00.539 that sends a notification? Match found. Sign 00:38:00.539 --> 00:38:04.360 here. The tinder of real estate. It's a terrifying 00:38:04.360 --> 00:38:06.940 and maybe brilliant thought. On that note, thanks 00:38:06.940 --> 00:38:08.639 for listening to The Deep Dive. We'll see you 00:38:08.639 --> 00:38:09.019 next time.