Coming back to this, with my apologies for the delay. I realized I was never going to have time for the whole feast at one sitting, so I resolved to take it on one bite at a time.
I want to examine some of the ideas and objections people have raised with respect to supplanting the NAR with a more rigorous predictor of quality representation. And: I’m being as vague as I can because, while I think we’re all interested in hearing specific ideas — or caveats about those specific ideas — I don’t think we’re anywhere near ready to erect or enact anything. In construction terms, we are not building, drafting plans, designing or even site planning. At this stage, we are talking about whether or not to build anything at all.
For what it’s worth, my natural inclination is to do nothing. For more than a year I’ve been talking about the kinds of things we do to obviate our competition. We get better day by day and they’re all standing around with their thumbs… duly engaged. Our reputation grows with every home run we hit. In the market niche we farm, we don’t need a third-party imprimatur of quality. Res ipse loquitur.
However: If we argue that there are too many would-be real estate practitioners, that many of these folks have much too little training and experience, and that buyers and sellers would have a safer and more satisfying experience if they learned to seek out higher-quality practitioners, then there is an argument to be made for creating something like an Underwriters’ Laboratories rating organization for real estate agents.
One of the commenters to my original post on this subject wrote:
If we want to eliminate half the licensees just raise the barriers to entry…require an apprenticeship…or raise the licensing fee…or make the licensing test harder…or make the continuing education harder…or all of the above. These steps alone will raise the quality of service in the industry.
These are ideas we hear all the time, of course. So why are they never ratified in law?
The real estate licensing laws are controlled by the brokers, and the brokers like our very low barriers to entry. In a 100% shop, a desk fee is a desk fee, and the broker will not hesitate to take your desk fee no matter how little you produce. In split shops, new licensees are the most profitable warm bodies, because their splits are so outrageous. This is why brokers are constantly recruiting new dupes stooges valued associates. You’ll have a mother-in-law deal or two in you before you fail, and, in the mean time, you’ll need to buy marked-up business cards, overpriced letterhead and envelopes, etc. If brokers ever propose new real estate licensing legislation, it will require you to have more teats to be milked before you go broke.
Interestingly, if we were to completely repeal the real estate licensing laws, all of the problems we’re talking about would go away in very short order. The sort of quality-rating organization we are talking about would come into existence virtually overnight. And, while people with little training and experience in real estate could lawfully broker transactions, no sane person would let them. The Minnesota Association of Realtors wants to know why the incipient failures won’t quit the business. It’s because the stupid license told them they are “professionals.”
There are three things that could happen with the real estate licensing laws:
- They could be repealed — when hell freezes over
- They could be fortified — when the brokers come to fear an eternally frozen afterlife
- Or nothing of importance will change
We already know what has happened, so we already know what will happen. The only time brokers make significant changes in policies and procedures is when they incur new liability — as with the largely fake implementation of buyer brokerage.
This doesn’t mean that something else might not work, and I’ll explore other ideas on other days. But it seems certain to me that, short of repeal, nothing that is done (or, more likely, not done) with the licensing laws will make any difference in the quality of real estate representation.
More viewpoints, pro and con, on supplanting the NAR:
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Technorati Tags: real estate, real estate marketing
Apella says:
Greg,
I am glad to see you come back to this topic. Because my company does not sell real estate from time to time we will have a client or customer that may need a real estate sales person. In order to establish ourselves as a resource that can be trusted we set up a rough guide line for who we refer to. It should be noted that we do not receive referral fees. While that may seem odd at first there are many reasons why. We maintain a network of brokers and sales people that we first seek that are in the area of specialty such as residential, farm, commercial etc. Then we seek those that are experienced with 10 to 25 years. Before they are considered we interview them for general reasons and request that they have a marketing plan to cover with the customer. This is not a set in stone system but one that we attempt to operate with. Two problems we have is no real way to track experience and the other is the real lack of those that operate with specialty or marketing plans. Because the broker system is structured the way it is with no benefit or ranking related to training or experience our system is reliant on the old 80/20 rule. Finding the 20 percent that see the whole business as a business with liability is time consuming and slow going. Should a real estate agent or broker lack in areas we request that they work with a mentor. This idea comes from the appraiser USPAP requiring competence and if lacking then to find a competent appraiser to work with while being mentored in the assignment. The idea of working with a mentor is not easy to express due to the current commission pay structure and that it is not required. I think that a great place to start is a required transaction tracking system or log similar to what appraisers are required to keep should they seek to upgrade their license. There is a ton of ways to sell real estate with some deals involving self financing, income property issues, part ownership, and commercial areas that real estate agents and brokers need to take part in before they can be specialized. What is different then just having the class completed is the transaction experience actually worked. In keeping with the idea of the post these are only suggestions.
September 13, 2007 — 3:59 pm
Jillayne Schlicke says:
Realize that change comes slowly when you’re up against a big, powerful group such as NAR, and change will often come from a need that’s been unrecognized in the market.
If buyers and sellers NEED something different from a Realtor or a real estate agent, then the market will fill the need.
OR a company could create a perceived need for a different kind of real estate salesperson.
I recommend starting from scratch; creating the ideal real estate agent from the perspective of the consumer, and then building the required curriculum (and required continuing ed courses) from there. You could start with requiring no less than an undergraduate BA degree minimum, in business, economics, finance, etc.
The change you’re looking for will never come from within NAR. They are simply too big, and too powerful to want to upset their existing power structure, which is intimately entwined with state Department of Licensing Real Estate Commission power positions.
Within the history of any profession, you will always find movement toward requiring more pre and post education, tougher exams, stronger ethical codes, and higher barriers to entry.
September 13, 2007 — 10:28 pm
short_on_real_estate says:
The NAR is setting realtors ™ up for long-term trauma. The market will only get worse when the spring bounce Yun promised fails to materialize. And when things are really improving, no one will believe Yun or whatever moronic shill replaces him.
September 14, 2007 — 4:50 pm
rob aubrey says:
You mentioned 100% shops to split shops. Actually they both are 100% shops. In what you called split shops, the way they are 100% is. They take some franchise royalty off the top, let’s 6% to their marquee, then the divide the balance up 50/50 which is really 47/47. So the broker gets, their 47% and then teaches the valued associate how to use the remaining 47% to market the broker’s good name. So you see the broker gets 100%
September 14, 2007 — 4:55 pm
Teresa Boardman says:
It isn’t just NAR, or here in MN MAR too. Our industry has a whole set of practices and business models designed to make real estate brokerages profitable. Under existing business models brokerages make a profit by recruiting agents, who will sell a few houses before they decide that real estate is not for them. The brokerage will keep up to half of the commission and will actually make more money off of the lesser producing agents than off of the top producers. Here in MN the most profitable agents for most brokerages are those who sell between 2.5 and 4 million. New agents do not always serve consumers as well as experienced agents (well duh) but they are the agents that keep the big brokerages in the black. As for NAR I agree with the comments above in that a huge powerful organization like NAR won’t change very quickly, change in our industry is starting with the consumer.
September 17, 2007 — 4:51 am