Study Reveals Homeowners Are Losing Over $34,000,000,000 Per Year By Participating in the MLS.

The Multiple Listing Service (MLS) has long been a central part of the U.S. real estate industry, offering a platform for real estate agents to share property listings. However, recent analysis suggests that the costs associated with MLS participation may outweigh its benefits for homeowners. If the MLS were abolished and the market were left to determine commission rates naturally, homeowners could potentially save billions annually.

U.S. Real Estate Commission Rates Among the Highest in the Developed World

Real estate commission rates in the U.S. and Canada are among the highest in the developed world, with the average commission in these countries significantly exceeding that of many European and Asian markets. What do these two markets have in common? A dominant MLS system. The structure of the MLS in both countries creates a system where commission rates are effectively maintained at high levels, limiting competition and preventing the kind of natural price discovery that occurs in less regulated markets. In contrast, countries with lower commission rates typically have a more competitive and open real estate marketplace, allowing consumers and agents greater flexibility in determining service costs.

The Cost of MLS Participation

Currently, the U.S. real estate market operates with an average commission rate of 5.5% per transaction, significantly higher than the international average of 3.5%. This 2% difference translates to an average of $8,000 per sale. Given that approximately 4.3 million homes were sold last year in the U.S., this excess commission results in a staggering $34.4 billion in additional costs for homeowners.

The Case for a Free Market in Real Estate Commissions

In most international markets, real estate commissions are significantly lower, averaging around 3.5%. The higher commission rates in the U.S. are largely sustained by the MLS system, which enforces traditional pricing structures that benefit real estate professionals rather than consumers. If commission rates in the U.S. were to align with international standards, homeowners would retain more of their home equity upon sale.

The Impact of the Clear Cooperation Policy

The passage of the Clear Cooperation Policy (CCP) by the National Association of Realtors (NAR) has further solidified the dominance of the MLS, reducing freedom of choice for both consumers and real estate agents. This policy mandates that once a property is publicly marketed, it must be listed on the MLS within one business day. While intended to promote transparency, this rule effectively removes the ability of homeowners and agents to explore alternative marketing strategies, such as private sales or exclusive listings. By forcing participation in the MLS, the CCP restricts competition and reinforces the existing high commission structure, making it even more difficult for consumers to seek cost-effective alternatives.

Does MLS Justify Its Cost?

The primary question remains: does the MLS add over $8,000 in value to each home sale? Proponents argue that MLS provides exposure, networking, and standardized data, leading to higher sale prices. However, with the rise of digital platforms, direct buyer-seller transactions have become more viable, reducing the necessity of MLS involvement. Many argue that modern technology could replace much of the MLS’s functionality at a fraction of the cost.

Potential Savings and Economic Impact

If commission rates were adjusted to a free-market standard, the $34.4 billion saved annually could be reinvested into the economy in various ways. Homeowners could use these savings for home improvements, investments, or other financial priorities, rather than paying inflated commissions. Additionally, a reduction in commission rates could make homeownership more accessible by lowering transaction costs.

Conclusion

The real estate industry is at a crossroads. The continuation of the MLS-enforced commission structure costs homeowners billions each year. By allowing free-market competition to dictate commission rates, homeowners could benefit from significant savings, aligning the U.S. market with international norms. As digital platforms continue to evolve, the necessity of the MLS is increasingly called into question, making this an opportune time to reconsider its role in real estate transactions.