Welcome back to the deep dive. Today we are going
to talk about something that is hiding in plain
sight. It's a system that pretty much every single
person listening to this has interacted with
if they've ever looked for a place to live, but
almost nobody actually knows how the machine
works. That's so true. We are talking about the
real estate market. It's deceptive, isn't it?
You open an app, you see a house, you see a price
and you just assume, OK, this is just how the
world works. It feels like a public utility,
you know. Like water coming out of a tap. Right.
You assume there's this giant cloud of data out
there, freely available, just waiting for you
to browse it. But the reality is so much weirder
and more territorial than that. Exactly. We're
talking about the invisible engine that powers
the entire residential real estate industry.
We are talking about the MLS. The multiple listing
service. And I'm glad you used the word territorial
right off the bat because that is the defining
characteristic of this whole story. Oh, really?
Yeah. This isn't really a story about software
or databases. It's a story about a 100 -year
-old turf war, a social contract between bitter
competitors and a, well, a cartel -like structure
that keeps the whole industry moving. Cartel
-like structure. OK, we are definitely going
to have to unpack that. But let's start with
the biggest misconception I had before we started
digging into the research for this. I think I
know where you're going. I always assumed the
MLS was a single thing, you know, like there
is a master server in a government basement somewhere,
maybe next to the alien bodies that lists every
house for sale in America. That is what everyone
thinks. But it's completely 100 percent wrong.
There is no such thing as the MLS. It just doesn't
exist. OK, so then what am I looking at when
I go on Zillow or Redfin? What is that information?
You're looking at an aggregation of data. It's
pulled from hundreds of tiny independent fiefdoms.
In the United States alone, as of the last major
count back in 2020, there were roughly 580 different
individual multiple listing services. 580. That
seems incredibly inefficient. Why do we need
580 different databases just to sell houses?
Because real estate is hyperlocal. It's always
been hyperlocal. And historically, the people
who controlled the data didn't want to share
it with the town over, let alone the state over.
So who owns them? They're all owned by different
entities. Some are owned by local associations
of realtors. Some are regional conglomerates
that have merged a few smaller ones. And some
are just independent cooperatives. But each one
has its own rules, its own fees, its own leadership,
and its own territory. So it's a patchwork quilt.
A very expensive, legally complex patchwork quilt.
And our mission today is to figure out why it
was built this way. And more importantly, whether
it's actually good for you, the consumer, or
if it's just good for the brokers. Okay, so that's
the plan. We're going to cover the mechanics
of how this social contract actually works, then
get into the massive antitrust battles where
the government literally had to step in and say,
play nice. Well, the lawsuits are the best part.
And then this is the part I'm really excited
for. We are going to do a global tour because
apparently this whole system we have in the U
.S. is a total anomaly. It is almost entirely
unique to North America. If you try to explain
the U .S. MLS system to a real estate agent in
London or, you know. Hanoi, they look at you
like you're speaking Martian. It makes no sense
to them. Okay, so if you're listening and you
think you know how buying a house works, get
ready to have that completely dismantled. Let's
start at the foundational level. What is an MLS,
really? If I strip away the computer screens,
the apps, all of it, what is the core definition?
At its most fundamental level, an MLS is a facility.
It's an organization that provides a suite of
services to brokers. But the definition that
really matters... the legal heartbeat of the
whole thing, is that it is a facility to establish
contractual offers of cooperation and compensation.
OK, those are big words. Cooperation and compensation.
Let's break that down, because usually when I
think of competitors like Coke and Pepsi or Ford
and GM, they don't cooperate. They try to destroy
each other. Exactly. So why would competing real
estate brokers cooperate? Because of the nature
of the product. Let's role play this for a second.
Imagine it's 1890. You're a broker. You have
a listing, a nice farmhouse on the edge of town.
I'm a broker across town and I happen to have
a buyer who's looking for a farmhouse. If I call
you up and say, hey, I have a buyer for your
listing, what is your immediate fear? My fear
is that you're going to steal my client or you're
going to go directly to my seller and try to
cut me out of the deal entirely. Precisely. Or
even if I'm on the level and I... bring the buyer
and we close the deal, you might just stiff me
on the commission. You might say, thanks for
the buyer, see ya, and keep all the money for
yourself. There's no trust. So it's a classic
prisoner's dilemma. If we don't trust each other,
the deal doesn't happen and nobody gets paid.
And that is the problem that the MLS solves.
It is, at its core, an insurance policy against
greed and mistrust. It establishes what's called
a unilateral offer of compensation. Unilateral
meaning? What goes one way? It means is a blanket
offer to the entire network. When a listing broker
puts a property into the MLS, they are legally
binding themselves. They are typing into the
system, I am offering X percent or X dollars
to any cooperating broker in this MLS who brings
a buyer that successfully closes. Ah, so it's
not a negotiation. It's not a request. It's a
promise. It's written into the rules of the organization.
So that removes all the friction. I, as the buyer's
broker, don't have to call you and haggle over
my fee before I show the house to my client.
I just look it up in the database. I see the
offer right there. And I know that if my buyer
buys it, I'm safe. I'm getting paid. Right. It
creates liquidity in the market. Without that
preset guaranteed offer. Every single home showing
would require a separate contract negotiation
between the agents. The gears of the market would
grind to a halt. It would be impassable. But
hold on. I have to play devil's advocate here.
This sounds fantastic for the agents, you know,
making sure they all get paid. But doesn't this
blanket offer system basically lead to price
fixing? It's the billion dollar question. If
every listing in the MLS says offering 2 .5 percent
or offering 3 percent. Aren't we just removing
the ability for the consumer to negotiate? It
becomes the standard price. And that's the argument
that has been at the center of decades of lawsuits
from the Department of Justice. Now, if you ask
the National Association of Realtors, NAR, they
will tell you explicitly in all of their official
documents, commissions are negotiable at any
time. At any time. But what's the reality? In
practice, it feels very, very sticky. Many agents
feel that once it's in the MLS, it's set in stone.
But technically, the MLS is just the vehicle
for the offer. The initial negotiation happens
between the listing broker and the seller. They
agree on a total commission, let's say 6%. Then
the broker decides how much of that to offer
to the buyer side. The MLS just makes that offer
transparent to all the other professionals in
the market. OK, so that's the money side. That's
the compensation. Let's talk about the other
part, the information itself, because I think
most people believe the value of the MLS is the
photos. You know, look at this kitchen, look
at this backyard. The photos are just the fluff.
They're the marketing. The real deep value is
the structured data. We're talking about hundreds
of specific fields that define a property. And
this isn't just three bedrooms, two baths. This
is deeply local proprietary knowledge. Give me
an example of how local we're talking. What kind
of data field would exist in one MLS but not
another? Okay, perfect example. If you're in
Phoenix, Arizona. The MLS data fields regarding
air conditioning systems, what type of refrigerant
they use, the age of the unit, and the details
on any swamp coolers are incredibly specific
and detailed. Because that's life or death there.
Right. That's critical information. But if you're
in, say, rural Vermont. Nobody cares about that.
The critical fields there are about the type
of heating oil tank, the condition of the septic
leach field, whether there's a wood stove, and
if it's permitted. A generic national database
can't possibly handle that level of local nuance.
These fields were determined by local professionals
over decades of selling homes in that specific
area. And who owns all that granular data? Because
when I see it on Zillow, it feels public. It
feels like I own it, or at least the public owns
it. And that is the great illusion. You do not
own it. Zillow does not own it. The data belongs
unequivocally to the broker who signed the listing
agreement with the seller. It is their proprietary
intellectual property. So when we're browsing
listings, we are just looking through a keyhole
that they've allowed us to look through. Exactly.
The brokers have collectively decided it is in
our best financial interest to let the public
see some of this because it helps us find buyers
and sell the house. But they control the keyhole.
They can make it bigger. They can make it smaller.
And in the old days, they tried to keep it closed
entirely. It's a bit unnerving to realize that
the information we rely on for what is usually
the biggest purchase of our entire lives is actually
held in a private vault. And we're only ever
seeing the marketing brochure version of it.
And for a long time, the different vaults couldn't
even talk to each other. I mean, it was a complete
mess. We should probably mention the Real Estate
Standards Organization or RISO. RISO. Sounds
like a villain organization from a Marvel movie.
We meet again, Riso. It does, right. But they're
actually the peacekeepers in this whole story.
Because when you have 580 different MLSs, you
had 580 different ways of saying master bedroom.
One called it MBR, another master BR, another
primary suite. It was chaos. So a computer couldn't
understand it. A computer couldn't search across
different systems. Riso came in and created the
data dictionary. They forced everyone to speak
the same language. They standardized the terms.
This field is how you describe a half bath, period.
So they created a universal translator for houses.
Exactly. They also created the Web API, which
is the modern transport system for the data.
The old standard was called Ries, which is now
deprecated. Without Riso's work, the apps we
use on our phones today simply wouldn't function.
You'd look for a three -bedroom house and get
results for three -car garages because the codes
didn't match. OK, so we have this system that
is fragmented, proprietary, controlled by local
interests and held together by a complicated
promise to split the money. How on earth did
we get here? Because this doesn't sound like
a system anyone would design from scratch in
2024. No, you would never, ever design it this
way today. It's a complete historical accident.
To understand the MLS, you have to go all the
way back to the late 1800s. The horse and buggy
days. Literally. Picture a small town in, say,
1890. There are no phones, no internet, no cars.
If you are a real estate broker with a house
to sell, how do you let other brokers know about
it? How do you know what they have for sale?
I guess I'd have to walk around. Talk to people
at the general store. Maybe put a notice up on
a town bulletin board. Or you'd go to the office
of the local real estate association. The brokers
would physically gather, sometimes daily, sometimes
once a week, for what they called a listing exchange.
Like a town hall meeting for houses? Pretty much.
And they would physically exchange information,
often on handwritten index cards. Yeah. I have
a colonial on Main Street. Price is $4 ,000.
Okay, great. I have a small cottage on the edge
of town. Need some work. They'd stand up and
announce their inventory. And this is where that
social contract was born, in that room. This
is the very moment. It was a handshake deal.
The philosophy was incredibly simple. Help me
sell my inventory, and I will help you sell yours.
It was a revolutionary concept for the time.
Instead of hoarding information, which was the
natural instinct, they created a system to share
it. But, and this is the most important part,
they agreed to share it only with each other.
That distinction is absolutely key. Only with
each other. It was a club, a closed loop. It
was a gated community for professionals. And
that's actually why the name is so generic, Multiple
Listing Service. It wasn't a brand name. It was
just a simple description of what they were doing.
They were listing multiple properties together
in one service. And that's why you can't trademark
MLS in the U .S., right? I read that in the research.
It's like trying to trademark the words grocery
store. Correct. The term has been deemed generic
by the courts. Anyone can technically start something
and call it an MLS. But to make it work, you
need the listings. You need the inventory. And
the inventory has always been controlled by the
established brokers. Okay, this brings us to
the juicy part. The fights. Because whenever
you have a powerful club that controls access
to a lucrative market, eventually someone is
going to get locked out and they are not going
to be happy about it. The modern history of the
MLS is written in lawsuits. It's a constant tug
of war between the gatekeepers, the traditional
brokers, and anyone, anyone at all, trying to
disrupt their model. Let's start with the discount
controversy, because this seems to be the biggest
and most direct threat to the traditional 6 %
commission model that everyone knows. It is.
The tradition model relies on Everyone's sort
of playing by the same general rules. But what
happens when a new type of broker comes along
and says, hey, I'll list your house for a flat
fee of $500. I'll put it in the MLS. I'll handle
the paperwork. But I'm not doing open houses.
I'm not baking cookies. And I won't hold your
hand through the process. That's the no frills
airline model of real estate. You get a seat,
but you pay extra for bags and a drink. Exactly.
And the traditional brokers hated this. They
absolutely despised it. They felt it devalued.
valued their profession and their service. So
in some MLSs, they tried to block these listings.
Block them how? Like literally just say, no,
you can't put that in our database. Or even worse,
let them in, but then hide them. Yeah. We have
to look at the case of RealComp. This was a big
MLS in Michigan and it became a landmark case.
Okay. So what did RealComp do specifically? This
was in the mid 2000s. when discounters were really
starting to gain traction. RealCop's board, which
was made up of traditional brokers, decided they
didn't want to support this business model. So
they created a set of rules that said, effectively,
if you are a limited service or flat fee broker,
we will accept your listing into our system,
but we won't send it out to the big public websites,
and we might not even show it by default to the
other agents in their main search. Wow. So they
were basically shadow banning the competition.
They were saying, you can join our club, but
you have to sit in the corner with a bag over
your head. That's a perfect way to put it. And
they argued they had a right to do it. Their
argument was, this is our system. We built it.
We paid for it. Why should we be forced to use
our infrastructure to help a competitor who is
actively undercutting our prices and threatening
our livelihood? I mean, I have to admit, from
a purely business perspective, I kind of see
their point. If I built the only railroad into
town, why should I be forced to let the guy offering
half -price tickets use my tracks? That is the
free rider argument. It's a powerful one. But
the Federal Trade Commission, the FTC, saw it
very differently. They saw it as a classic antitrust
violation. What was the FTC's argument? The FTC's
position was simple. You, real comp, have a monopoly
on the data. The MLS is the only game in town.
By hiding these discount listings, you are directly
harming the consumer. You are preventing them
from seeing a cheaper option, and you are artificially
keeping commission rates high by colluding to
suppress a new, more affordable business model.
So it went to court. It did. And unlike many
other MLSs who just settled with the FTC, Real
Comp fought hard. They took it all the way. And
interestingly, they actually won the initial
trial in 2007. The judge sided with them. But
that wasn't the end of it. Not even close. The
FTC appealed. And in 2009, a higher court delivered
a unanimous 4 -0 ruling, completely overturning
the initial verdict and ruling against RealCom.
And what did that ruling establish? What was
the precedent? The precedent was huge. It established
that an MLS cannot discriminate against a member
based on their business model or the commission
they charge. If you meet the qualifications to
be a member, you get full access and your listings
get full exposure. The government effectively
said you cannot use the MLS as a weapon to punish
discounters. But that wasn't the only war being
fought at the time. There was an even bigger
one, right? The war over the Internet itself.
I remember when the first real estate website
started popping up, places like HomeGain and
the traditional agents were absolutely freaking
out. This was the battle of the virtual office
website or VOW. And we need to be really careful
with our terms here because there's a critical
difference between a simple advertising website
and what a VOW is trying to be. Okay, so walk
me through that. What's the difference between
what Zillow does today and what a VOW was back
then? Zillow, for the most part, is an advertising
portal. It syndicates data. It shows you a picture
of a house and says, this is the listing agent.
Call this person. A VOW was a much more radical
idea. A VOW was an attempt to take the entire
brokerage office and put it online. How so? They
wanted to give you, the consumer, a login. Once
you logged in and registered as a client, their
goal was to show you everything the agent could
see. Not just the public facing stuff. We're
talking sold prices, days on market, price change
history, agent only remarks. The secret data,
the stuff behind the curtain. Exactly. And the
traditional brokers looked at that and said,
absolutely not. No way. They saw it as giving
away the crown jewels. So the National Association
of Realtors passed a series of rules that allowed
brokers to opt out. of sharing their data with
these specific virtual companies. So they could
say, I'll share my listing with the brick and
mortar office down the street, but I will not
share it with that website. Right. And their
argument was that these VOWs weren't really brokerages.
They were just data scrapers. They were tech
companies who would just solicit clients online
and then refer them out to local agents for a
huge 25, 35 percent cut of the commission without
doing any of the actual local work. So the Department
of Justice got involved. Yeah. The DOJ sued NAR
in 2005 over this. But again, let me play devil's
advocate for a second. The traditional broker
did the work. They met the seller. They got the
listing agreement. They took the photos. They
measured the rooms. Why should a tech company
get to just scrape all that valuable data for
free and build a national business on top of
it? Isn't that kind of parasitic? That was an
error's exact argument. They said, this is our
copyrighted data, our intellectual property.
These websites are just profiting off our labor.
But the DOJ's comeback was. You are using your
collective market power to stifle innovation.
You are scared that the Internet is going to
make your business model obsolete, so you are
colluding to break the Internet. It's the Luddites
smashing the looms all over again. In a legal
sense, yes. The DOJ argued it was a group boycott
that illegally restricted competition. The case
dragged on for years, a real battle of titans.
Finally, in May of 2008, they reached a settlement.
And what was the outcome of that settlement?
NAR agreed to get rid of the opt -out rule. The
settlement mandated that Internet brokerages
had to get access to the same listings as traditional
ones. They couldn't be discriminated against
just because their office was a website. And
that settlement essentially created the world
we live in today, where we can sit on our couch
at 2 a .m. and scroll through not just active
listings, but sold listings from six months ago.
It broke the dam. is the moment the industry
was forced, kicking and screaming, into the digital
age. It fundamentally changed how consumers access
real estate data forever. Now, before we leave
these legal battles, we have to look slightly
north because you mentioned earlier that the
U .S. and Canada are different. Canada has an
MLS, too, but it operates under a different structure.
They do, but it's a much more centralized and
branded system. In the U .S., as we said, MLS
is a generic term. In Canada, both MLS and realtor
are registered trademarks. They're owned by one
entity, the Canadian Real Estate Association,
or CREA. So they actually own the words themselves.
That's an incredibly powerful position to be
in. It's immense. It gives them a level of control
that NAR in the U .S. can only dream of. And
unsurprisingly, they had their own version of
the antitrust fight against discounters. There
was a company in Ontario called Realty Sellers.
Let me guess. Another flat fee discounter. A
huge one. And they were trying to offer a very
basic flat fee listing service. And they ran
into roadblock after roadblock from the establishment
boards. Eventually, the pressure was so intense
that they shut down their operations. But then
they went nuclear. What'd they do? They sued
CREA and the Toronto Real Estate Board for $100
million. Wow. They essentially alleged, you conspired
to change the rules specifically to put our business
model out of commission. And just like in the
U .S., the federal regulators, in this case,
Canada's Competition Bureau, stepped in. In 2010,
they forced a settlement that opened the door
for flat fee listings on the Canadian MLS. But
I heard that even after the settlement, some
Canadian boards still tried to find loopholes
to resist. Oh, always. The resistance is creative.
Some boards argued, well, provincial licensing
law says a broker has to actively manage a listing
and provide a certain level of service. If you
just post it on the MLS and walk away, you aren't
fulfilling your duties as a broker, so we can
kick you out on those grounds. It was a way of
trying to use provincial rules to get around
the federal competition settlement. It really
feels like the industry is just constantly trying
to find new ways to justify its existence and
its fee structure in the face of technology that
relentlessly wants to make things cheaper and
more efficient. That is the eternal struggle
of this industry. It's full service versus maximum
efficiency and they are always at odds. Speaking
of struggles and doing things differently, let's
talk about the one place in the U .S. that seems
to be completely immune to all of this. New York
City. Ah, Manhattan. Ah. The island that plays
by its own rules in everything, including real
estate. I was absolutely shocked to learn this
during our research. Manhattan, arguably the
most famous and valuable real estate market on
the entire planet, does not use the traditional
MLS. How is that possible? It just never took
hold there. You have to understand the culture
of Manhattan real estate. It is fierce. It is
shark infested waters. For decades, the big brokerages,
the Corcorans, the Douglas Elliman's, the Brown
Harris Stevens of the world were titans. And
they didn't want to cooperate. Their thinking
for a long time was, we have enough inventory
on our own. We have the best listings. Why should
we share our valuable information with the little
guys and make it easier for them to compete with
us? But eventually, even they realized they needed
some kind of system for co -broking. So they
built their own. It's called the RLS. The R -E
-B -N -Y Listing Service. Exactly. Operated by
the Real Estate Board of New York, or R -B -N
-Y. And R -B -N -Y is a fascinating organization
because they actually seceded from the National
Association of Realtors way back in 1994. They
basically said, we don't need your rules. We're
New York. That is the most New York thing I have
ever done in my life. We're seceding from the
Realtors. It really is. And their system has
a hilarious backstory regarding its name. Back
in the early days of digital, they tried to launch
an online exchange called R -O -L -E -X. Rolex,
like the luxury watch. R -O -L -E -X. It stood
for R -B -N -Y Online Listing Exchange. I'm going
to go out on a limb and assume the Swiss watchmakers
didn't love that. They definitely did not. They
slapped R -E -B -N -Y with a trademark infringement
claim so fast it would make your head spin, so
they had to change it. But it just shows you
the mindset. They viewed their exclusive listings
as luxury goods, like a high -end watch. So is
the system actually different today? If I'm a
buyer looking for an apartment in Manhattan,
is the experience better or worse because they
use the RLS instead of an MLS? It's different.
One key difference is speed. The RLS has a very
strict 24 -hour rule. If you as a broker get
an exclusive listing agreement signed, it must
be entered and disseminated through the system
to all other members within 24 hours. And what's
the reason for that rush? Because in a market
as fast as Manhattan, information is everything.
In the old days, it used to be a 72 -hour rule,
which agencies without weekend staff complained
about. But before that, agencies would get a
hot new listing on a Friday and hold it as a
pocket listing over the weekend. They'd try to
sell it internally to their own buyers first
to get both sides of the commission before sharing
it with the rest of the market on Monday. Double
-ending the deal. Exactly. The RLS cracked down
on that. They want immediate fair dissemination
to the entire brokerage community. So in that
sense, it's actually a very pro -cooperation
rule. OK, so we've established that North America
is completely obsessed with this cooperation
and compensation model. We have this elaborate,
legally defended system to force competitors
to work together. But this is where the story
gets really wild, because if you leave this continent,
the concept of the MLS basically disappears.
It completely vanishes. And this is what is so
hard for Americans and Canadians to wrap their
heads around. In most of the world, there is
no unilateral offer of compensation. The whole
foundation of our system doesn't exist. So let's
go on this global tour. Let's start with the
United Kingdom. They speak the same language.
They have a similar legal system. Surely they
sell houses the same way we do. Not at all. In
fact, the UK serves as a powerful cautionary
tale of what happens when you don't have an MLS.
They went through a period in the late 1990s
that people in the industry there actually refer
to as the dark years. The dark years. That sounds
ominous. Paint the picture for me. I'm a potential
buyer in London in 1999. It's raining, obviously.
I want to buy a flat. What do I do? You put on
your raincoat and you walk down to the high street.
You go into an estate agent's office. Let's call
him Agent Smith. You look at the photos of listings
taped to his window. You go inside and ask, do
you have anything with two bedrooms near the
tube station? He shows you the three listings
his office has. None of them are quite right.
Okay, so I ask him, what about that other agency
I see across the street? Agent Jones. Do you
know what they have? And Agent Smith says, I
have absolutely no idea what Agent Jones has,
and I certainly can't show it to you because
if you bought it, he wouldn't pay me a penny.
There's no co -broking agreement. So I have to
thank him, leave, go back out into the rain,
cross the street, and walk into Agent Jones'
office and start the whole process over again.
Exactly. And you have to register with him, give
him your name and number, and then you go to
the next one and the next one. As a buyer, you
might have to register with 10 different agencies
just to get a view of the available inventory
in one single neighborhood. That sounds miserable.
It's incredibly inefficient for the consumer.
It was total fragmentation. The market liquidity
was terrible. Deals fell apart. But then technology
came along and solved the problem that the brokers
themselves refused to solve. The internet. Specifically,
what we call vertical portals. In the UK, this
means two giants. Right move. and Zoopla. So
how is a portal like Rightmove different from
an MLS? It's a fundamental difference in structure.
In the US, the MLS is a horizontal network. It's
broker -to -broker cooperation. In the UK, the
portals completely replaced that. Every agent,
Agent Smith and Agent Jones, decided it was in
their best interest to upload their own listings
directly to Rightmove. So Rightmove becomes the
central marketplace, not some private broker
network. Correct. The agents are not cooperating
with each other. They are competing with each
other on the portal. If you, the buyer, find
a house on Rightmove that's listed by Agent Jones,
you call Agent Jones directly. You don't call
your own buyer's agent and have them set up the
showing. So that means the role of the dedicated
buyer's agent, that person whose whole job is
to represent you, drive you around and protect
your interests, that doesn't really exist in
the UK? It's extremely rare. It's a very niche
service. In the UK system, you're almost always
dealing directly with a seller's agent, which
means, and this is a key consumer protection
point, the person showing you the house and negotiating
with you is legally and financially working for
the seller, not for you. That is a massive difference.
In the U .S., we're told we pay a commission
of, say, 5%, 6 % in part to have professional
representation on both sides of the transaction.
In the U .K., they pay much less, usually only
1 % to 2 % total. But the buyer is essentially
on their own navigating against a professional.
That is the fundamental tradeoff. Lower transaction
fees, but much less advocacy and support for
the buyer. Fascinating. Let's jump over to the
Czech Republic. You mentioned in the notes that
this is a case study in... economic surplus and
how it affects the market structure. Yes, the
Czech Republic is a perfect example of how local
market conditions completely dictate the system.
There is no MLS there. And when you ask why,
the answer is simple. Demand is so high and supply
is so tight that they don't need one. Explain
that connection. Why does high demand mean no
MLS? Okay, imagine you're an agent and you list
a desirable flat in the center of Prague. In
the current market, you might have 10 qualified
buyers lining up at the door within an hour of
it going live. Okay. That's a good problem to
have as a seller's agent. It's a best problem.
So if you are that listing agent. Why on earth
would you agree to split your commission with
another agent who brings you one of those 10
buyers? You don't need their help finding a buyer.
The buyers are already finding you. So the whole
cooperation model, the foundation of the MLS,
only makes sense if selling is hard and you need
to maximize your reach. Exactly. The MLS is a
tool for balanced or difficult markets. In a
high -demand, low -surplus market like the one
in the Czech Republic, agents hoard their listings.
They want to sell them alone and keep 100 % of
the fee. The economic incentive to share simply
is not there. So in that case, the invisible
engine isn't a cooperative database. It's just
raw, overwhelming demand. Precisely. The market
dynamics make cooperation unnecessary. What about
Vietnam? The notes mention something called open
agency. This sounds completely chaotic. It is
the Wild West of real estate. In the U .S., the
standard is an exclusive right to sell agreement.
You, the seller, sign a contract with one agent
for a set period of time. In Vietnam, they often
use what's called an open agency or non -exclusive
listing. Meaning I, as a homeowner, can hire
five different agents at the same time to sell
my one house. Yes. And it's not uncommon to drive
down a street in Ho Chi Minh City and see one
house with five different forced sale signs on
the front lawn, all from different companies,
sometimes even listed at slightly different prices.
That sounds like an absolute nightmare. Who gets
the commission when it sells? The one who crosses
the finish line first. It is a straight up race.
Whichever agent brings the buyer who closes the
deal gets paid. The other four get nothing. That
creates a terrible incentive structure, doesn't
it? If I'm one of those five agents, I'm not
going to spend any real money marketing your
house. If there's a four in five chance, I'll
get zero return. I'm just going to try to flip
it as fast as humanly possible with minimal effort.
Exactly. It leads to very low quality service.
It's all about quantity over quality. They did
try to build an MLS in Vietnam starting in 2010.
based on the U .S. model, to try to fix this
and bring some order to the chaos. But it's an
enormous struggle to change a market culture
that is so deeply ingrained. It seems like the
common theme here is that you can't just install
software and expect it to change how people do
business. You have to change the psychology of
the agents. Culture eats strategy for breakfast,
and that is especially true in real estate. Speaking
of culture shock, let's talk about Latin America.
Mexico and Costa Rica. The research we have here
describes this as the gringo effect. It's a very
real phenomenon. Think about the big resort and
expatriate towns, Cabo San Lucas, Puerto Vallarta,
San Miguel de Allende, who is the primary buyer
of high -end real estate there. Americans and
Canadians, mostly. And what do Americans and
Canadians expect when they go to buy real estate?
They expect an MLS. They arrive, and they say
to a local agent, OK, show me everything on the
market. And the local agents... Historically,
had no centralized way to do that. So they built
MLS systems just to appease the foreign buyers.
Essentially, yes. The very first MLS systems
in Mexico were started in the late 1980s, specifically
in these expatriate enclaves. It was a completely
imported structure. American brokers down there
essentially copy pasted the US model, the rules,
the code of ethics, the lock boxes, the offer
of compensation into Mexico to make the American
and Canadian buyers feel comfortable and secure.
It's like bringing your own electrical adapters
on vacation. We are going to bring our own entire
real estate system with us. But here's the catch.
It often only exists in those pockets. For example,
MLS -BCS serves Baja California Sur, where Cabo
is. It's a corporation owned by the brokers.
But if you go to the interior of Mexico or to
a place like Costa Rica, it's often right back
to the Wild West. And the notes say that Costa
Rica has no licensing for agents at all. That's
right. In Costa Rica, you do not need a license
to call yourself a real estate agent. You, me,
the listener, we could land in San Jose tomorrow,
print up some business cards and start selling
multimillion dollar properties. There's no educational
requirement, no test, no oversight. That is genuinely
terrifying. It is buyer beware on steroids. There
is a small. Professional Association, CRGR, the
Costa Rica Global Association of Realtors, that
tries to run a proper MLS and enforce a code
of ethics. But as of a few years ago, they only
had about 120 members. They are a tiny island
of order in a vast sea of chaos. So we've seen
the U .S. cooperative cartel model, the U .K.
portal model, a check hoarding model, and the
Latin American imported model. It really makes
you realize that the way we do things isn't the
only way or even the default way. It is just
one evolutionary path the market took, and it's
not necessarily the fittest one to survive the
next century. That leads us perfectly to the
present day and the future. We have the Internet.
We have Zillow. We have Redfin. We have AI that
can write contracts. Does the 19th century handshake
model still make sense in this environment? Let's
look at the modern interface that consumers actually
see. We mentioned IDX Internet Data Exchange.
That is the policy, the set of rules, that allows
brokers to show the MLS data on their own websites,
which then gets syndicated out to the big portals.
And what's the limitation there for the consumer?
The limitation is that if you find a house you
love on Zillow, you can't click a Buy Now button.
It's not Amazon. You still have to inject a human
agent into the process to get through the door.
The system is designed intentionally to keep
the agent as the indispensable gatekeeper. But
for how long can that last? I mean, we are seeing
AI that can analyze property values better than
many humans. We're seeing virtual tours where
I can walk through a house in stunning 3D without
ever leaving my couch. The traditional roles
are being eroded. That is the core tension. The
entire MLS structure was built for a world of
information scarcity. The agent's value was,
I have the data in my secret book and you don't,
so you have to pay me for access. We now live
in a world of near total information abundance.
So the value proposition of the broker just based
on access is collapsing. The value of access
is collapsing to zero. The value of advice and
negotiation might still be there. But the big
question is, does that advice cost 6 % of the
home's value? That is what the market and the
government is challenging right now. And we are
seeing consolidation as a response, right? Those
580 MLSs are shrinking in number. Yes, finally.
They are merging at a rapid pace. You now have
giants like CRMLS in California, which has over
110 ,000 members. They are realizing that maintaining
500 little servers and 500 different CEOs is
colossally stupid and inefficient. They need
to scale up to have the resources and technological
clout to compete with the portals. Because if
they don't band together, Zillow will just eat
them for lunch. Zillow. Or CoStar, which is an
even bigger commercial real estate data giant,
or a tech company we haven't even seen yet. If
the MLS doesn't evolve from a bunch of small
local clubs into a modern, efficient data utility,
then the portal model, the UK model, might just
win by default. Consumers will just go where
the data is easiest to use. That is a pretty
sobering thought for the entire industry. It
is. The invisible engine is old. It's a bit rusty
and it feels like the mechanics, the brokers
are all standing around fighting over who gets
to hold the wrench while the car is driving itself
toward a cliff. That is a very vivid image. OK,
let's try to wrap this up. We've gone incredibly
deep. We've covered a century of history, massive
lawsuits and global economics. What is the one
thing you want the listener to take away from
this entire deep dive? I want them to understand
that the price of housing isn't just about bricks
and mortar and land. It's about the friction
in the system. When you look at a home price
and the closing costs, you are paying for the
house, but you are also paying for the mechanism
that was built to sell it. You're paying the
VIG. You're paying the VIG, the cartel fee, the
cooperation insurance policy, whatever you want
to call it. The way we choose to organize the
data directly determines the cost and speed of
the transaction. The U .K. model is cheaper but
riskier for buyers. The U .S. model is more expensive
but offers more representation. Neither is perfect.
So next time you drive past a first sale sign,
remember, you aren't just looking at a house.
You are looking at a single node in a massive,
proprietary, fiercely defended, litigious network
that is desperately trying to hold on to its
power in a world that's becoming more digital
by the second. Couldn't have said it better myself.
And with that, here's a final provocative thought
for you to chew on. We saw two extremes today.
In the Czech Republic, agents don't share data
because high demand makes it unnecessary. In
the U .S., agents created a system to share data
because they wanted to guarantee their commission.
But what if a future technology, maybe AI, can
instantly and perfectly match an ideal buyer
to their ideal seller with zero friction and
handle all the paperwork? In that world, do you
need the commission or the sharing? Do you need
the agent at all? Or do you just need a server
that sends a notification? Match found. Sign
here. The tinder of real estate. It's a terrifying
and maybe brilliant thought. On that note, thanks
for listening to The Deep Dive. We'll see you
next time.