Charles Schwab vs. Flat Fee MLS Pioneers
By FFMLSM Staff Writer
In 1971 Charles Schwab incorporated First Commander Corporation and in 1972 he bought out his partners and renamed it Charles Schwab and Company. In 1974, Schwab had the good fortune of an SEC pilot program that deregulated some brokerage transactions and in 1975 the SEC mandated negotiated commissions for stock trades. At this point most brokerages raised their fees. Schwab in contrast started what he called a discount brokerage.
Schwab’s discount brokerage was really an unbundling of trading and advice much like Flat Fee MLS Listings are an unbundling of marketing and transaction management. This meant that instead of Schwab supporting a force of trained advisors that demanded high pay, he could use back office staff to place the trades and investors would be free to do their own research. For investors that wanted research and advice, he offered separate services.
To understand how this compares to Real Estate, one has to examine the different structure between the stock brokerage industry and the real estate brokerage industry. Stock is largely national. The National Association of Securities Dealers (NASD) is a trade group that is closely supervised by the Securities and Exchange Commission (SEC). In contrast the National Association of Realtors (NAR) has little or no oversight. State Real Estate Commissions have power over licensees but little power over National, State or Local trade associations.
Schwab got his start in a nationally (or even internationally) regulated medium. Flat Fee MLS Pioneers, immediately came up against the wrath of local Realtor® associations. Schwab was free to grow without persecution where Flat Fee MLS Brokers were taken out back and tarred and feathered. Sellers were told by local brokers (and still are as of this writing), you can’t List in the MLS for a Flat Fee; that’s illegal. Sellers were told by traditional Realtors® (and still are as of this writing) if you list with a flat fee firm, we won’t show your listings. Perplexed sellers asked….Why? We are still offering you a 3±% commission? Traditional Realtors® rarely have a response. However, Realtors® did not count on one major change; Realtor.Com. Realtor.Com empowered buyers to begin telling Realtors® what they wanted to see. Realtors® were no longer picking the houses. This was the gateway that opened for Flat Fee MLS Listings.
The different type of regulatory environment made Flat Fee MLS a more local and regional industry. In the late 1990s, one firm, Homebytes, actually acquired 50 state licenses and operated in 40+ markets but due to poor management they ceased operatations in under two years. Today the only national firms are referral firms that farm out work to local and regional brokers. Four to five regional brokers exist and two brokers cover both the east and west coast with many gaps in service in between.
To be continued…..as more changes occur.