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sign-inWhen a Model no Longer Works...it's Time to Adapt
Date: August 4, 2009 6:10 AM
Permalink: When a Model no Longer Works...it's Time to Adapt
There are 3 comments.
As I write this, the US government is embroiled in wrangling over how to overhaul our health care system. It seems to me that the system is not so much broken as it is hopelessly dated because as times changed, it never adapted. Our health care system was designed in years past, when you would hold a job for a lifetime. In that world, it made perfect sense to have your health care as a benefit of that job. But how many of us today stay in one job for our entire lives? And what about the growing legions of independent contractors and self employed entrepreneurs who have no access to a "company" plan? Health care tied to one's employment makes about as much sense in today's world as using a typewriter to write a letter.
Likewise, in the real estate industry, we continue to practice in a way that is not so much broken but hopelessly outdated. The traditional sales model was conceived in years past when we, as real estate practitioners had a very different role. If you think about it, real estate as a sales profession, paid by commission, made total sense when the agent's only job was to "move the merchandise". But in the 1990's our national and state associations expanded our role - it was no longer enough to simply sell the product, we now were asked to act as fiduciaries: working in the best interest of our client and putting their needs above all others, including, and most especially our own. In fact, our responsibilities as a fiduciary became a part of the NAR's (National Association of Realtors®) code of ethics that we are obliged to adhere to.
Yet, when our role was expanded and fundamentally changed, when we were asked to provide objective counsel that was in the client's best interest, no attention was given to how this new role fit with a compensation system that is geared toward salespeople who are free to work in their own best interest. Consequently, real estate professionals today are put in an impossible bind that no amount of "ethics training" can address: we are being asked to provide objective counsel that is in the best interest of our client when how much we are paid, (or whether we are paid at all) is wholly dependent on the client's decisions which we are advising them on!
Performing in these two conflicting roles is an incredible balancing act. I believe that most real estate agents are hard-working, honest, and ethical professionals who strive, sometimes at great financial sacrifice, to do right by their clients. I've seen many an agent counsel buyers and sellers to not buy or sell when the market doesn't favor a profitable transaction, even though they have talked themselves out of a job. The fact that the vast majority routinely put the needs and interests of their clients before their own is a testament to our industry and makes me very proud but the truth is that agents are doing so in spite of the commission system, not because of it.
Here is the truth boys and girls: no matter how it's presented or dressed up, there is an inherent conflict of interest when a real estate professional is expected to act as a fiduciary providing objective, unbiased counsel to clients, while at the same time being limited to contingent-on-an-outcome compensation. In my book, "Ripping the Roof off Real Estate" I call this conflict of interest the elephant in the room. Deep down, our industry knows there's a problem because the consumer just doesn't "buy" us as fiduciaries when we're being paid like salespeople, but no one wants to acknowledge it and certainly no one wants to talk about it.
Please understand: there is nothing wrong with being a successful salesperson. I personally have the highest regard for good salespeople. But that is not what we, as real estate professionals today, are being asked to be. And like health care being tied to our "employer", the sales model, payable only by commission, just doesn't fit today's reality.
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Sherry Lynn Bell
Mollie, this is a great article and so true. I agree with you about the payable only commission doesn't fit in today's reality. I am currently trying to get my new agents into training so they can see that consulting is a huge benefit. My clients are becoming so appreciative and I'm starting to see referrals. I'm proud to be a consultant and even prouder that it helps make everything ethical. As more clients and the general public see this model and realize that the consultant doesn't have conflicts it will become the way people go.
Judi Bryan
Much as our industry has tried to "elevate our role" in the consumer's mind by presenting the many "lists of tasks" that an agent does to earn those commissions, as technology and resources have improved, the consumer still asks "so why should I pay you such a large chunk of the value of my home?" because they know they could do those things themselves a whole lot cheaper. That's even more true today, when, if they are lucky enough to have any equity left in their home at all, they've watched it dwindle away. What we have been woefully remiss in doing is helping the consumer understand where a real estate "agent" differs from, say, the travel "agent" or the insurance "agent". We may understand the concept of "fiduciary", but very few consumers do, and they certainly don't understand its implications to how we work with THEM!
One of the great benefits of this consulting model is how it "opens the door" to that dialogue. When the consumer is given the opportunity to understand that the real "value" in an agent isn't how many open houses they conduct, or how many times their house appears in advertising, but rather in that agent's understanding of the real estate market and the real estate process, and how those things impact that consumer's situation. By offering the consumers CHOICE in which services they receive and how they are paid for, the true real estate consultant is providing the transparency in the process that has been sorely lacking. It's that very transparency that will, in my opinion, be at the core really elevating our industry in the consumer's mind!
Great article, Mollie. And great book, by the way. After reading it myself it occurred to me that "Ripping the Roof Off Real Estate" should be required reading for consumers and agents alike! While very "easy reading", it gives consumers and agents alike great insight into our industry and public perceptions. I highly recommend it!
Paula Bean
I have sold real estate since 1979 and never once have I thought we should charge for our services by a percentage amount.
If you think about it, unless you have a unique property that will cost more to market, there is nothing else that matters when selling a house for a specific price.
It costs me the same to market a $200,000 house as it does a $500,000. house, so why should the consumer pay me more?
I like the idea of total transparency. It is a little like going to the grocery store. You can buy brand name items or you can buy generic. Now Advil is still ibuprofen, so is the generic less costly brand. The difference is the price.
When selling or buying a house, each situation is unique. No house sale is the same. You have people who have to sell quickly for reasons such as foreclosure or perhaps relocation. You have people who are retiring, and want to downsize or families who've had more children and need a bigger house. No situation is the same. I like to be able to consult with these people and based on their unique and specific needs, advise and consult with them what I think their best options for the least amount of money would be.
One day in the near future, I see real estate being conducted soley in this fashion. If I were going to buy or sell a house, there is no reason to pay a percentage of the sale when the marketing costs on my end are basically the same no matter what the price of the house is (with certain exceptions as mentioned above).
Real estate has changed much in the last 30 years and I feel that if I am representing a client I owe allegiance to that person. Why is it that we get paid by commission then? Why is it that commissions have to be so high? Because of all the houses we try to sell that don't. It's risk aversion. Some people might like that, others not, but at least if you use an Accredited Consultant in Real Estate, you'll know what is your best option and you'll feel more comfortable that you have someone looking out for your best interest without the money being a factor. CPA's charge a fee for their service, and it does not depend on how much you get back from Uncle Sam.
The same thing with Doctors, they don't get paid only IF they cure you. Why should real estate services be any different?