Are real estate agents commodities?

Let me rephrase this exchange as it applies to today's real estate consumer:

Today's consumer clearly wants choices in the real estate services they can receive and how they can pay for them. They are so hungry for choices that in their absence from professionals, they will listen to anyone who says that they offer the same services for less. But when they find out that the "same services for less" promise is just a mirage, it only serves to harden their belief that agents are all the same and not worth much at that.

In an environment where online portals are popping up almost daily, promising something for almost nothing, and Internet-savvy consumers who often believe that the Internet can replace an agent, real estate services with little or no professional guidance attached are increasingly being purchased. But overwhelmingly, consumers aren't buying these pared-down services because they want cheaper. They're buying these services because they don't know the difference.

In my book, Ripping the Roof off Real Estate, I note that the first thing that smart consumers do when shopping for a product or service is determine whether it's a commodity, which can and should be shopped by price, or a service professional whose quality of work, level of expertise, talent, or years of experience make a big difference in the outcome.

A good example of a commodity would be Brand X socks that are sold in a package of three pairs and available in a variety of outlets. Whether one buys this package of Brand X socks at the fanciest department store or at the cheapest discounter, the package of socks is the same. It's a commodity, and therefore, a smart consumer will shop it by price.

Now let's contrast that with the following scenario: suppose you just found out you won the lottery. After you finished your initial celebration and polished off some champagne, my guess is the next day you would go out and hire yourself the best tax attorney you could get your hands on. And you would know that they were the best, because they wouldn't come cheap. But you'd gladly pay their hefty fee because you would know that whatever they charged would be greatly eclipsed by what they would save you from Uncle Sam. That's because the tax attorney is NOT a commodity; their expertise and experience make an enormous difference in how much of your lottery winnings go to the government, and how much will stay in your pocket. You would not try to save money by using someone who just started in the business, because here is where experience COUNTS.

Expertise and experience are the key factors when judging most service professionals. For instance, many of us have learned the hard way that when we need our house painted, it's worth the extra money to hire a painter who is known for their quality work. This is because a cheap painter isn't so cheap when you have to have the job done over. And what about using a cheap plumber who takes shortcuts that result in your bathroom flooding? Once you've had that happen, I guarantee you'll go with an experienced plumber next time, even if they cost more. Most of us learn fairly quickly that hiring cheap service providers is what my mom calls, "penny wise and pound foolish."

If hiring a quality painter or plumber is wise, choosing a qualified professional to handle more important concerns, like your finances and your health, is imperative. An experienced financial planner, who manages your portfolio well, will make you money, whereas a bad one will just cost you money. Do you want the cheapest attorney if you're in legal trouble, or the cheapest dentist doing your root canal? If your child is ill, do you want to go to a pediatrician fresh out of medical school or a more seasoned practitioner, even if they will cost you more?

Most consumers would say to the previous examples, "Of course, I would hire a quality person; these are important issues to me." Yet, often when the public looks for a real estate agent--someone to guide them in purchasing or selling their largest financial asset--their outlook often gets cloudy. That's because our industry has done a terrible job of articulating where our real value lies. We've been so busy trying to compete with emerging technologies in performing the traditional functionary activities (that technology can actually do better) that we have failed to communicate our true value proposition - that of providing experience, judgment, expertise, and guidance to our clients (something that technology can NEVER provide).

The price of real estate's failure to articulate our value proposition has been high: not only has our industry suffered in the increased demand by consumers for agents to work for less (remember, when a consumer perceives a product to be a commodity, they will shop the product by price) but more importantly, the huge financial losses the consumer absorbs when they don't have a professional guiding them who can provide the vital counsel on buying or selling their largest financial asset. It's no coincidence that just a few years ago there was a feeding frenzy of online lenders offering too-good-to-be-true loans with little or no guidance and what we are seeing today: the rash of foreclosures and short sales that have ruined the lives of so many. Those consumers were shopping lenders by price, and there will always be someone who will undercut their services while providing no guidance (usually the newest or greediest).

A few years ago, I penned my Real Estate Internet Warning© that is timelier today than it was when I wrote it:

Despite advertising claims to the contrary, the Internet is not an experienced real estate professional. It cannot consult, counsel, advise, apply knowledge of local real estate laws and market conditions, make judgments, own the result, or most importantly, understand your individual goals and needs and care about you as a client. Furthermore, while the Internet can provide information, it cannot interpret it.

The consumer clearly wants choices. But the choices should be in their being able to choose the quality services they want and need and how they can pay for them, not choosing by price. Most consumers don't know the value that a professional providing expert judgment and guidance can provide. They don't know the difference between gathering data and interpreting what it means. Most simply don't have the background to distinguish between real estate choice and real estate cheap. It's about time that we start telling them.