Want to Re-Build Consumer Trust? Then Stop Ignoring Human Nature.

If we can't recognize what a conflict of interest this presents in the mind of the consumer, then we need to ask ourselves how we would feel about a bank appraiser's report if they were only paid if they produced a "favorable" one. How much trust would you give a home inspector's analysis if they were paid only if the transaction was completed? And why should it surprise us that over the last few years, when it benefited mortgage lenders to sell more loans that their advice was often not in the borrower's best interest?

Yet, we continue to ask the public to trust our profession to give objective counsel when our compensation is contingent on a favorable outcome. It makes absolutely no sense and 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 being paid exclusively by commission. In my book "Ripping the Roof off Real Estate", I call this conflict of interest the "elephant in the room". The real estate industry knows it's there because the consumer keeps pointing to it but no one wants to acknowledge it and certainly, no one wants to talk about it.

Please understand that I am in no way castigating the vast majority of real estate professionals. I believe that most real estate agents are hard working, honest, and ethical people who strive - sometimes at great financial sacrifice - to do right by their clients. When working with a seller, most agents will recommend a listing price that will get the seller the most money in a reasonable period of time, when by under pricing it, the home would sell faster and they could be assured of being paid. Most listing agents will truthfully counsel a seller on what the market is doing. They may even suggest a seller not sell their home when the market doesn't favor a profitable sale, even though they only get paid if the seller does. When a seller has outgrown their home, I have known many an agent who has counseled them to remodel rather than move, even though they have just talked themselves out of a job.

When working with home buyers, buyer agents (who have a contractual obligation to work in their buyer's best interest) do every day what makes absolutely no sense on paper: negotiate the lowest possible price for their buyer-clients even though they are paid as a percentage of that price.

That the vast majority of agents routinely put the needs and interests of their clients before their own is a testament to our industry, but the fact remains that agents are doing so in spite of the commission system, not because of it. And as long as we continue to insist that we can act as objective advisors while being paid contingent on an outcome, we will continue to be ranked at the bottom of the consumer trust list. The consumer just doesn't buy it!

The fact is that our industry is dealing with far more than a worsening market slump...we are dealing with an identity crisis because we agents are being asked to fill two roles that are in conflict, especially in the mind of the consumer.

Think about it: traditionally real estate has always been considered a sales profession, paid exclusively by commission, which means that as an independent contractor, we need to move the "inventory" as quickly as possible, and for as much money as possible, if we want to make a living in this business. And yet, if we are a REALTOR® we must follow a code of ethics which, among other things, requires us to put the needs and interests of our clients ahead of everyone else's, including and most especially, our own!

As ACRE® Ron Stuart of HarbourSide Realty in Halifax, Nova Scotia recently said:

It occurs to me that many of the problems of current practice derive from moving away from sub-agency, but not all the way. In other words, while each side of the transaction became able to have its own representation, we collectively missed the opportunity to become the trusted advisors we should have been, and instead continued to behave as sales people.

As long as we continue to limit our compensation to a commission system which made sense when our only role was strictly that of a salesperson moving the product, then we shouldn't be surprised that the public sees our role as exactly that. And as long as we refuse to offer alternatives that are not contingent on an outcome and are devoid of selling anything, then we shouldn't be surprised that the public doesn't trust our advice and counsel.