Limitations of Online MLS

 

Most MLS systems now export much of their data on homes for sale to publicly accessible web sites like those for which we’ve provided links to on this site. These sites make it possible for you to conduct a home search on your own in a manner that was unimaginable years ago. Prior to the advent of these public MLS systems, it was simply impossible for buyers to obtain a systematic list of homes for sale without working through a real estate agent.

Access to Data, but Buyer Beware

Access to this data can be a big plus for home buyers if you use them right, but you need to understand that this data has been put on the web not as a service to home buyers but as a marketing device for home owners and for listing agents. As a consequence:

  • They don’t contain critical information that is available in the full MLS systems that would be available to an agent representing you.
  • They are designed to put you in contract directly with the agent listing the property so that you lose the option of having an agent represent you in the purchase of the home you call about.
  • They are designed to provide the listing agent with your contact information so that they can contact you later to continue marketing homes to you or marketing their services as buyer agents to help you through the home purchase process.

We’ll outline of the specific limitations of these system from the buyer’s point of view below.

Loss of Assistance and Representation

Smart buyers use the seller’s commission money to hire a good buyer agent to do a lot of the leg work in locating homes and to represent their interests in evaluating homes and working through the purchase process (see Agency Law in Real Estate). Public access to a limited MLS system discourages that, to the benefit of the listing agent and seller, and to the sometimes substantial detriment of the buyer.

In How Are Agents Paid?, we’ve explained that the agent listing a home has a marketing or “listing” contract with the owner that typically obligates the owner to pay the agent a 4-7% commission when the home sells. This contract will also specify that the listing agent will split that commission with any agent who brings a buyer to the home, shows it, and submits an offer that results in the sale of the property. The seller pays the same commission whether the listing agent sells the property directly or through another agent who brings to the buyer to the property. From the seller’s point of view, this is a great marketing system. It provides an incentive for the listing agent to locate a buyer directly, since they keep the whole commission that way. It also encourages other agents in the area to bring their buyers to the home, since they’ll get a split of the commission if “their buyer” makes the purchase.

By using the web to market homes, and particularly by making their listings available through the public versions of the MLS, listing brokers dramatically increase the chances that they can make a direct sale to a buyer and thus double their money by retaining the full commission. This direct access to buyers becomes even more important with a home that is overpriced or that has deficiencies that are making it difficult to sell. If the listing agent can find a buyer who is not represented by a knowledgeable agent, and who doesn’t have access to data on prior home sales in the neighborhood to analyze pricing, they are more likely to make the sale than they would be if there were another agent getting in the way by advising the buyer to offer less or to just move on and find a better property.

Available Properties vs. Properties that are Under Contract

The full MLS systems available to real estate agents distinguish between properties that are available for sale and those that are “under contract,” but the the data making this distinction is not transmitted to the public MLS sites. As a consequence, when you search the web versions of the MLS you can’t tell the difference between:

  • Active Properties: Properties that are actually available for you to buy.
  • Under Contract Properties: Properties where the owner has already accepted an offer from another buyer and is obligated to sell that property under the terms of the contract unless the buyer backs out for one reason or another.

The failure of these systems to make this distinction can make them very frustrating to use. After looking through all of the properties in your price range, and maybe even driving by them to look at the neighborhood and the location, you call the agent and discover that someone else negotiated a contract on it two months ago.

Why isn’t this critical information on the public systems? Because the purpose of these systems is to market properties for sellers and to market real estate agents and their services. For the seller, leaving the property on the system until closing continues exposing the property to new buyers in case the current buyer backs out of the contract for some reason. For the listing agent, this provides additional contact with buyers who call on the property. The agent can encourage the buyer to look at other similar properties that she has listed or can try to convince the buyer to work with them exclusively while searching for a new home.

Data on Properties that Have Sold

A critical component of the full MLS systems used by real estate agents and appraisers is data on all the properties that have sold through the system in recent years. This makes it possible to go back to prior listings of the property and see if the condition of the property has been improved between the prior sale and the current listing, whether the counter tops or flooring have been changed or whether the basement has been finished for example. More importantly, it is this data on prior sales that agents and appraisers use to evaluate the current asking price of an active property. You can find some data on property sales for an active listing you’re considering by logging onto sites like Zillow or by doing on-line searches of tax records in some counties, but the data available in Realtor MLS systems for this purpose is substantially more extensive and easier to access.

Again, why isn’t this information exported to the public versions of most MLS systems? Because these systems are a marketing device for sellers and for listing agents. Sharing information that would help buyers evaluate the asking price for listed properties would undercut the purpose of the system.

Data on Listing History

Most Realtor MLS systems make it easy for a buyer’s agent to obtain a detailed history of listing dates, price changes and status changes on any property. It is easy for an agent to run a quick search and discover that the property that just came up as “new” on the system has actually been listed three other times in the prior 12 months and print out data on when it was initially listed, the dates and amounts of any price changes, and if there have been prior contracts on the property and how long they were in effect. This data can provide a wealth of information on the seller’s motivations and behavior that can been extremely useful in evaluating and planning negotiating strategies with a seller. In many respects, this data is probably the most valuable data in the system for buyers other than the information on what houses are actually available for sale in their price range.

Why isn’t this information available on the public systems? Because it is so valuable to buyers.

Delays and Limitations in Data Access

Data on new listings or price changes are available in the full Realtor MLS systems within moments after the listing agent enters the data in the system. Because new data is typically uploaded from these systems to the public systems only once daily (usually at night), the data on the public MLS systems is usually delayed by about 24 hours. In most cases, a 24 delay in information access will not harm buyers who are relying on the public MLS sites in their home search. It should be noted, however, that in some of our local markets 10-20 percent of the best homes are going under contract within 5 days of listing in the MLS system (see Sold in 5 Days or Less), and many of those are going under contract within 24-48 hours. Under these circumstances, buyers working closing with a real estate agent will have seen some of the best new properties and submitted offers before buyers using the public system can know they’ve hit the market.

Inconsistency of Coverage Areas

The final limitation in the data you’ll find in the publicly available MLS systems differs from those listed above in that it is limited compared to the more complete systems that Realtors have access to. Specifically, because these MLS databases have poorly defined boundaries with respect to the areas they cover, you will probably have to search two or more systems on a daily basis if you’re going to stay on top of what’s for sale in a particular target area. I’ve discussed this in some detain in What Areas are Covered?, but will include some key points in summary below:

  • Coverage Areas are Limited: Each system tends to cover a certain region, defined primarily by the communities in which the member Realtors work.
  • Coverage Areas are Overlapping: Communities in some areas may have 30% of their listings in one system and 70% in another. If you only search one system, you may miss 30% or 70% of the available homes.
  • Coverage Areas are Undefined: As indicated above, what defines the coverage area of an MLS system is not a map but the areas in which the member Realtors list homes. Longmont Realtors will generally enter all of their listings in the system we’ve referred to as Boulder & NE Colorado. But if a Longmont Realtor lists a home located in Denver, that home may still get listed in the Boulder & NE Colorado system rather than in the one that covers the Denver Metro Area because that agent hasn’t paid the membership fees that allow him to enter data in both systems.
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