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This ain't gonna be popular
The real estate industry is broken. It has been for some time now, and there seems to be little interest in fixing it any time soon. The government getting involved is the last thing we need right now.
For those of you who haven’t been keeping track, there have been several lawsuits filed against The National Association of Realtors (NAR), many national brokerages and their local Multi Listing Services (MLS). These lawsuits were regarding alleged price fixing. The NAR, brokers and the local MLSs (the Industry), decided to settle these cases and the payouts have been enormous. But what’s concerning is the downstream ripple effect on consumers.
But first, back to the broken system. For decades now, the Industry (NAR, MLS and brokers) has refused to keep up with the changing landscape of the world, in particular, the internet. They have been short-sighted at every single step. For the last 20 years or so, the ease of accessing information has changed how most industries do business, but not real estate. The ability to sit on your couch and order just about anything has changed consumer behavior… and more importantly, expectations. The real estate industry gladly syndicated its listing information to sites like Zillow and Trulia. When those sites flipped the script and started charging agents to gain access to buyer/user information (i.e. lead generation) the industry panicked and built Realtor.com. But again, being short-sited, they sold it and lost its foothold. You mean the consumer can get direct access to any of the property info – taxes, photos, square footage, etc??? Oh. Dear.
Let’s go back a few decades for a second. Pre-internet a broker and its agents were the keepers of the info. They had a monopoly on listings and all the associated information. They would come to your home with a giant binder of properties and flip through them with you. Without an agent, there was really no way to see the inside of the house. They were the gatekeepers. And the sellers counted on them to market the home, get the word out, and importantly screen potential buyers. For the agent, it was a lot of leg work. Digging through paper files and collecting the appropriate public records, etc. Also, communicating those data to potential buyers. Keep in mind buyer’s agents didn’t really become a thing until the early 1990s.
Today, life is different. Someone in California can not only see what’s on the market in Pittsburgh, but see the interior photos, tax records, previous sales, aerial photos, satellite images and virtual tours. There is literally nothing they cannot find online. So why does anyone need an agent, right?
Great question. And one that the industry has not adequately answered; they’re still working off the old model. They’re clinging to a power they once had. I happen to believe agents are valuable and important, but not for the reasons they were in the 80’s and 90s. We are experts, advisors, general contractors, and project managers. Our role is no longer gatekeeper. It’s a more sophisticated and nuanced role. We are no longer salespeople; We are asset advisors.
Why doesn’t the industry want to embrace this? Simply because they don't have to. It requires a higher level of education, more training, better mentorship, and it requires a different compensation structure.
The NAR has no interest in raising the barrier to entry. They depend on thousands of agents entering the industry every year who are forced to pay their $600 dues. The NAR has a constant churn of new, bright-eyed, and bushy tailed agents who willingly pay the fees for three years (on average) before they quit and look for greener pastures. They’re not in the industry long enough to question what the necessity of the NAR even is, or what their dues pay for.
The brokers don’t want to have a higher barrier to entry either. They pay nothing to have agents doing the work that the experienced (and profitable) agents need done. Higher qualifications require more training, i.e. work on the broker’s end. Brokers pay a handful of salaried employees, lease office space and watch the money pour in.
If it ain’t broke, right?
Well, it just got broke. Bad.
The incredibly fast, abnormal, and unhealthy home value appreciation over the last four years has made home ownership extremely difficult for most Americans. Most first-time wannabe buyers can’t even get in the game. Currently, the average price of a home in the US is an astonishing $420,000! That’s up a whopping 28% since 2020! If a buyer wants to get a conventional loan with 20% down (LTV 80%) they’d have to come up with over $84,000 (downpayment plus closing costs)! And now with this new ruling, they just may need to foot an additional 3% or $12,600.
So, here’s the question: is the percentage driven commission structure still a sustainable compensation model? More importantly, is it the right and ethical thing? I would argue that it’s not. Trust me, I love getting those fat checks deposited into my account too. But we need to change with the times. We no longer serve the same role we did in the 70s and 80s. We are a fiduciary. We should be trained and paid as one. It would create a much stronger relationship with our clients. We would earn trust from our clients; They would no longer feel cheated and taken advantage of.
Yes, many agents would leave the Industry. But doesn’t that tell you something? Those agents never cared about their clients to begin with. They were just in it for the money. I’m not saying agents shouldn’t be compensated fairly, but c’mon, a realtor being paid like a surgeon?!?!? Does anyone think that it takes the same type and level of expertise to transfer the title of a house as it does to reconstruct a knee or remove a brain tumor??? Let’s get real.
To best serve our clients, to ensure the preservation of our jobs, and frankly, to start to be held with some esteem, realtors must honor our duty as fiduciaries, stop charging commissions, and move to a flat fee model.
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