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The Naïve Question

What’s working and what’s not in real estate today?

Written by Steve Murray, REAL Trends publisher

The National Association of Realtors® (NAR) recently unveiled a significant new effort to increase the efficacy and performance standards of all state and local associations. At the heart of the effort is a list of standards of performance that focus on advocacy, community involvement, code of ethics issues, regulatory focus and other subjects closely related to a new core mission for the association. While the launch of the program is making some local associations nervous, for the most part it is well received by leaders at all levels of the association.

This effort may also be followed by a similar effort focused on the organization and operation of the MLSs of the country. NAR is to be congratulated for taking the initiative to look inside its own house and do what can be done to raise the level of performance across the board.

Industry Performance
It got us thinking about the overall performance of our industry—not brokers or agents, MLSs or associations, but the industry as a whole. That leads us to think about it in terms of DePodesta’s approach—if we weren’t doing things the way we are today, how would we be doing it? Over 10 years ago, DePodesta joined an organization that was failing in its goal to win baseball games and make a profit. Rather than try to improve the situation at the margins, he and the leadership installed an entirely new system of measuring talent, performance and costs. The result has been a baseball team that, since then, has been among the winningest teams in the major leagues.

Fear of the Future
How does that apply to our industry? First, there are many things that are working fine. The number of members is increasing again, earnings of most brokerage firms and agents are well up from the downturn. More than 80 percent of consumers still think that using an agent to buy or sell is a prudent decision. Consumers still think that owning a home is preferable to renting. The MLS is still the best single source of information about the housing market. In general, things are fine.

Fear of the future remains a major issue. Whether it is the potential disruption from new government regulations or the listing portals or the recent softness in housing sales, many industry participants have a relatively high level of angst about what comes next.

Fight Over Relevance
The fight over relevancy is another issue. While brokerage firms see agents as their primary customer so, too, do MLSs, local, state and national Realtor® associations. This doesn’t address firms that are marketing their own services and products directly to sales agents. It is this fight over relevancy that, in great part, has caused friction between brokers, associations and MLSs. Each party is trying to provide services that enhance their value and relationship with agents.

This friction extends to associations at all three levels: local, state and national. Each wants to provide value to the members, whether brokers or agents. There are no well-defined boundaries between these three parties. In some cases, all three are competing to provide similar products and services.

Fragmented Responses
This friction leads to fragmented responses to new challenges. The most recent is the entry and growth of the listing portals. In the past, a significant issue was the development of listing portals by MLS operators. Brokers, agents, MLSs and associations often have their own differing views and responses. It leads, among other things, to large brokers and national networks investigating the development of their own data system.

Is this friction destructive? Over the long term, yes. And, it has already been going on for some time. If we want to fix the issue of this friction how would we go about doing it?

Fixing the Friction
Let us propose some broad thoughts about the goals of each party:

  • At the national level, the association’s main goal would seem to be legislative and regulatory matters. Secondary to this would be the oversight of the use of their brand by state and local associations.
  • At the state level, regulatory and advocacy would seem to be most critical. Secondarily may be legal issues and education (as educational requirements are mostly a statewide issue).
  • At the local level, the enforcement of the rules and practices of market-place participants would appear to be paramount. Secondary objectives may be educational programs and community awareness and advocacy.
  • The MLSs main goal would seem to be providing both data and certain tools that participants use to perform duties in their daily businesses. Secondary to this would be the governance of the rules of the marketplace.
  • A brokerage firm’s main goal is to recruit and develop real estate agents and to provide all the tools desirable for the improved productivity of the agents. Secondary to this would be the marketing of related, or core, services to the homebuyers and sellers their agents serve.

Member numbers and dues revenue matter most to the associations and MLSs. Agent numbers and commission revenues matter most to brokerage firms. Any changes that affect these core objectives would likely impact all parties in the industry.

How Could We Be Doing Things?
If we weren’t doing things the way we are now, how would we be doing it differently? How would a new way be designed?

First, boundaries have to be set. Among the three levels of the association, each would be assigned specific duties and responsibilities that don’t overlap with the others. This goes for associations and MLSs, as well. Clear boundaries would help in reducing friction between these parties.

Then, boundaries need to be set between the associations, MLSs and brokerages. Associations should be focused on advocacy, legal, legislative, regulatory, education and other areas closely related to their core goal.

MLSs should be there to provide data and the technology to access the data and to enforce the rules of the market (where they provide this guidance). The MLSs could separate the data from the access tools and charge separately for both. The whole concept of the MLS or association providing direct services to housing consumers should be re-examined.

Brokerage firms should refocus on the business of recruiting and developing the skills of their agents and provide the kinds of supervision that they are called to do. The responsibility for maintaining a high level of professionalism is not the job of the association or MLS. Arbitration and mediation should always be accomplished first at the brokerage level.

Here are some heretical ideas to further consider:

  • Is it time that only brokerage firms should become the only member of the association? Agents should be associate members. The broker collects the dues and would be responsible for paying for their agents.
  • Should the use of the “Realtor” brand be restricted to those who actually do business? Could minimum levels of performance and education be set and enforced?
  • Should dual agency be abolished? Should all consumers have effective independent representation in a transaction and should it then become a requirement of being a Realtor? As professionals in critical roles at important times in the life of a customer, single representation may need to become the standard.
  • New contracts should be established that outline the required services and duties of agents on both sides of the contract that are tied to their compensation. Should either agent not perform as required; then their share of any commission may be adjusted accordingly.
  • Should MLS rules be tightened such that all Realtor® members and associate members must place all listings in the MLS or the participant may not use the MLS at all?
  • Should there be one national data depository that all Realtors and associate members access? Rules and rulemaking concerning marketplace issues would remain totally a local/state issue. The costs to access the data would come down substantially. Front-end systems could be chosen by each brokerage rather than be compelled to use the one offered as a package by the MLS.

There are likely many reasons why none of these ideas may be adopted, and certainly there are many other better ideas.

This much is certain: Should the issues that we have outlined not be addressed in a deeper manner, then the frictions will remain and the ties that bind Realtors will weaken over time. The greatest loss will be to the housing consumer, who now has access to one of the most efficient systems in the world and to the agents who will find doing business to be far more complicated than in the past.

We are inviting anyone with any ideas, whether openly or confidentially, to share them with us. Where we have permission, we will publish them as part of a continuing dialog on these issues. Email me at This email address is being protected from spambots. You need JavaScript enabled to view it.

This article originally appears in the August issue of the REAL Trends Newsletter and is reprinted with permission of REAL Trends Inc. Copyright 2014

 

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