Tag Archives: Professional Standards

Why the Consumer Will Benefit from a New Real Estate Industry

I remember when NAR first started to get extremely active about blocking banks from participating in the ownership of real estate brokerages. A couple of agents (who interestingly now own their own big real estate company locally) laughed in the break room and said “when the banks own real estate companies, we’ll just go to work for them.” Their thoughts WERE NOT “ooh, this is bad for business, bad for the industry, bad-bad-bad!” It was more complacent. It was, “so what? Banks come in and start running things, they’re just the new boss. Same business, different owner. nothing really changes this industry.”

NAR now believes that the credit meltdown is a great reason to block banks from the ownership of real estate brokerages, and there is some juice to that argument. But the reality is that it’s like blaming the cow for tipping the lantern in a barn full of hay. chicago_fire2

Much more adroit was (I can’t believe I’m saying this) Glenn Kelman in May, 2007 in his interview with Leslie Stall on “60 Minutes”. Mr. Kelman said “The real estate industry is the most screwed up industry in America. By far.” That knee-jerk part of me wanted to throttle him on the spot. Didn’t he know he was blaspheming his own profession? Couldn’t someone slap remedial ethics training on him for saying this in front of millions of Sweeps-Month Viewers?

A year and a half later, I agree with Mr. Kelman far more than NAR. The real estate industry was operating well beyond critical mass in terms of

Glenn Kelman

Glenn Kelman

agents during the booming heyday of 2005. More members continued to pour in through early 2007 when membership ballooned to just under 1.4 million members. A trade organization of that many members only makes sense when the population of the US is around 420 million, and as affluent as ever. Since it is about 110 million light of that number, the simple laws of supply and demand dictate a Darwinian die-off. What is now effecting the real estate industry is something tragic and sad, a lot like chronic wasting disease decimating a herd of elk, or ips beetle eating a pinon pine from the inside out. It is organic and fast moving, it is opportunistic when drought sets in, and like environmental pandemics, it is creating a helluva population crash.

Where Mr. Kelman and I agree is that the modern REALTOR must be positioned to produce far more transactions that in the past. Where we disagree is why. Mr. Kelman would offer the low-fee model as the reason, the only way someone stays in business is by being able to do dozens of transactions a quarter, if not a month. I offer that the reason a producing agent ought to do 40 to 60 transaction sides a year is competence. Far and away the number one quality a consumer is looking for in a REALTOR is trust. You can call it ethics, accountability, competency, respectability or even honesty, they are simple answers to a complicated problem: buying and selling a home. When the business was “easy”, it had to do simply with which one and could you write an offer of higher value than the other three clammoring for the property. It really doesn’t take brains to right a one-way, seller-friendly offer, or drive over to the golf club to deliver it to the exalted listing agent. I did it. My offers usually won. What does take brains is getting a seller out from underneath $40,000 in debt they obtained due to a bad re-finance. It does take brains to get two sellers who are divorcing to agree on a price, inclusions/exclusions, terms and contingencies before ever listing the home. It does take brains to put back together a deal that has gone south on inspection issues. It does take brains to forecast how much further below appraisable value one must drop a house in 80921 if it backs to Baptist Road.

No one sets out at the age of 16 to be in real estate. The best people in this business that I know came to it from other career paths. REALTORs truly are not born; they are made. One doesn’t inherit  good REALTOR genes. You have to exercise your gray matter via experience.

This year I have learned more than any year previous. I feel like I’m on my fifth set of teeth from having them kicked in so often. Never have I had a buyer walk from a closing at the walk-through. Never have I had a listing get three offers in the first 30 days, and all of them were crap. Never have I had a property with mold (I’ve had 2 this quarter). Never have I had so many listings. Never had I had so many people I know lose their jobs. Never have I had buyers pick up such great buys. Never have I had deals fall on lender issues after contract. Never have I had so many sewers scoped before closing. Never have I sold a home next door to an abandoned cemetery.

Never have I seen so many people buying and selling what this industry sells, crying. Never have I seen so many people working the buys and the sales of this industry, crying.

I will finish this year with 34 transactions and $7.9 million in closed sales. It’s almost an identical year to 2003, when my overhead was about $35,000 less than it was this year, and we only had a single child and not three.  Yet what I learned in 2003 was to treat real estate like a job, which is hardly anything more than an arrogant jerk getting his comeuppance, and “breaking out” due to the pending burdens of fatherhood. I did the business I did in 2003 on accident. I busted my butt to do what I did this year. I’ve never been better at what I do, but that’s because I’ve never been more experienced. It sounds obvious. But the variety of experiences I’ve had in the last calendar year have been remarkable in their scope.

Plumford The Magnificent

Plumford The Magnificent

In the process of busting my butt, I learned how unbelievably true purple cows are. As I wind down 2008 and begin revving up 2009, The Competence Factor I will provide my customers is the ability to make their product (sellers) or experience (buyers) REMARKABLE. There is no longer room for the mediocore in this profession. Brown cows, indeed, are boring.

The real estate industry has for years been an organization that flocked to labels to describe competency. A good example is the Council of Residential Specialists, or the Graduate REALTOR Institute. The CRS and GRI desginations frequently follow a REALTOR’s name on a business card, or maybe their listing input in the MLS. I don’t know of a consumer alive who knows what these letters mean. I’ve been around for a decade now and no longer aspire to get my CRS “like I’m supposed to.” The reason is it means as much to a consumer as QSC or E-Pro, which could both be banged out in a week and neither of which make me more competent, personable, nicer, or in flow with my client. Yes, the CRS course quality is outstanding. Yes, CRS still makes you a better agent. But the lie real estate has lived with for two decades is that labels make you something in the eyes of the consumer. They don’t. It’s internal-industry posturing, and that’s all.

What the consumer will receive in the huge shake-out of 2008 to 2011 will be an industry that is freed of it’s dead weight. There are thousands of agents who should retire that aren’t. There are unfortunately thousands of agents that can’t retire, and won’t. I know what the first group will do. As evidence of the CRS education being REALTOR-friendly, their 2009 Directory is a good 1.5 inches slimmer than the 2008 edition. They obviously could retire. The have-nots? I don’t know what they will do. But as a consumer, do you want someone with the very real conflict of interest of “I haven’t had a closing in 90 days and I need you to buy this house tonight?” working with you? Or do you want Mr. Kelman’s option, an individual who may have never set foot in your neighborhood, but at least did the paperwork on a deal last night, did three last week, is ahead on their own mortgage and is setting up their retirement? Or do you want someone who is several months ahead on their mortgage, who was referred to you by your best friend, who has worked at your pace, who allows you to speak 3/4 of the time, who offers advice when asked and operates with respect and professionalism in every course of action?

It’s my opinion that the real estate industry is moving from a “price is the only differentiation” marketplace, to a vastly different one characterized by either high conformity (and low fee) or high skill (and higher fee). The consumer will actually have a choice.

For the practitioner, the place not to be: is anywhere in between.

Nuclear Options: Changing the Real Estate Industry

My industry must change. I’ve known this for some time. But a couple brilliant posts today shook the cobwebs out of my brain.

If this reads a bit like a manifesto, it’s because it is.

As usual, Seth Godin is right. Today, he’s talking about Detroit. I think the same model ought to apply to the real estate profession.

America needs cars.

America needs this industry.

America doesn’t need stagnation.

America needs innovation.

Those are Seth’s words on cars.

But they get heretical as usual. Which is what you have to love about Seth.

“Not only should Congress encourage/facilitate the organized bankruptcy of the Big Three, but it should also make it easy for them to be replaced by 500 new car companies.Or perhaps a thousand.

That’s how many car companies there were 90 years ago.

That’s right, when all the innovation hit the car industry, there were thousands of car companies, with hundreds running at any one time. From Wikipedia:

Throughout this era, development of automotive technology was rapid, due in part to a huge number (hundreds) of small manufacturers all competing to gain the world’s attention. Key developments included electric ignition (by Robert Bosch, 1903), independent suspension, and four-wheel brakes (by the Arrol-Johnston Company of Scotland in 1909).[16] Leaf springs were widely used for suspension, though many other systems were still in use, with angle steel taking over from armored wood as the frame material of choice. Transmissions and throttle controls were widely adopted, allowing a variety of cruising speeds, though vehicles generally still had discrete speed settings rather than the infinitely variable system familiar in cars of later eras.

Between 1907 and 1912, the high-wheel motor buggy (resembling the horse buggy of before 1900) was in its heyday, with over seventy-five makers including Holsman (Chicago), IHC (Chicago), and Sears (which sold via catalog); the high-wheeler would be killed by the Model T.”

Maybe it’s a different timeline, but the same words could be used about REALTORS. They could be said about dozens of professions.

I am for my profession. And for the sake of my profession, I stand before you and say: “I accept the challenge. Blow up my industry.”

The most explosive innovation in the automotive industry was the first decade of the 20th century when almost 1000 manufacturers competed with one another. Out of that intense competition came the American giants we know today. They kind of remind me of my Arrested Development friend GOB.

But when you consider that something like the Toyota Prius, a “cutting-edge” automotive hybrid is a distillation of technology essentially created a century ago… it shows how ridiculously unimaginative this industry has become.

Ditto Real Estate’s Dinosaur Act. The broker-owner-industrial complex needs to come to grips with the fact that the Jurassic age of the Owner is over. The Cretaceous Age of the Agent is also over. It is the Consumer’s age, the post-modern world of real estate. The anticipation for the market to turn is really a masquerade hoping that the old rules of the accidental and not on-purpose REALTOR will return. No market in any industry ever sinks and rises as a familiar phoenix. I’m not counting on it in real estate.

Inman News
this morning has an editorial that makes some bold, heretical ideas
look promising. I think it still falls short. Five of the six ideas are
core and basic to the future of real estate and need exploration. Social Darwinism is at play in every American industry right now. Real Estate helped create this economic malaise. Get the Spotlights ready and shine them here:

1.) People: This past week the Colorado Dept. of Regulatory Agencies raised new real estate license fees from $150 to $500. There was fear and outrage in the real estate community. A sure sign DORA did the right thing. The Colorado Springs consumer is grossly under-served by an over-population of REALTORS, a city that will have less than 18,000 total residential real estate sides and a population of REALTORS that peaked at 3700 this calendar year (now at 3300 after renewals). How on earth can the consumer be properly advised by an industry that is so over-saturated with members that has on average a practitioner closing one transaction every 10 weeks? The head count needs to be reduced in half. For broker-owners who put a requirement on no-BS, highly skilled knowledge-workers who are innovating their profession, they will actually greatly increase their income and reduce their expenditures.
2.) Expensive Applications: Here is a TwitPic I took with my iPhone yesterday, a great meshing of this idea. On the left is the 2009 Directory for the Council of Residential Specialists (CRS) a highly regarded credential in the residential real estate world. The directory on the right, that is at least a full inch thicker is the directory of membership from 2008. See the difference? People are getting out. In this case, I would assume some smart people decided to retire. A CRS is more likely to be a true adviser. They know how to run their business like a business. They also are likely to have real estate investments and assets that pay them a monthly dividend. They ain’t dummies. They decided to walk away. Good for them. But the reality is that increasingly, attaching a professional moniker or legacy to your name means next to nothing to the consumer. When Coldwell Banker advertised throughout 2006 that they were celebrating their 100th year and were the oldest real estate company in America it did absolutely zero to build their trust with the consumer in a what-have-you-done-for-me-lately culture. By comparison, a TwitPic of a real-time home preview of a home in Peregrine is a real-live interface that creates real human contact and real human interaction. I resisted getting the iPhone until I knew I was really going to use all of it’s toys. I couldn’t get MobileMe to work with an Exchange environment. So I quit. I quit MobileMe. I used Exchange. My email began to work beautifully again. When I previewed neighborhoods in Rio Rancho, NM last week, I realized then that my text only Twitter tweets would be so much better with real photos. That is when I committed to the $300 technology upgrade because I knew I would use it with passion. I am so glad I wasn’t paying for something I wasn’t using until I knew how to actually use it. It became something where the system worked for me, not me working for the system. Kroll Factual Data released a report in 2006 that said “after digitization, the only ones left will be REALTORS. But only the ones with sufficient skill.” You don’t have to have fancy design galleries and stealth-marketing and fancy signs to sell real estate. ESPECIALLY IF YOU’RE PAYING FOR THEM BUT NOT USING THEM. But you have to have a tool bag of things you can deploy. And if you’re going to deploy them, USE THE SUCKERS. Here’s my favorite photo from an inspection on Wednesday… Yes, that’s a dish towel used as a filter in a 30 year old furnace humidifer. Here’s the asbestos that was missed in the fresh air return. As the consumer experience in everything is increasingly becoming customized, the real estate brokerage experience with agents must (fortunately or unfortunately) become increasingly a la carte.
3.) Websites: Google just went wiki giving the consumer a radical and ridiculous interface throwing SEO on it’s ear. The best web-based real estate companies at generating inbound business need 19,000 leads to convert to a closing. Personal referrals are 3:2. So what to quit? I thought maybe my blog. Until a person I know, like and trust told me how they loved my blog on Sunday, and that they regularly forward my posts to their peers. Maybe those same peers are now reading this and thinking of what  they can nuke in their own profession? Real Estate websites are among the most static and consistently banal out there. They often operate like 4.) Advertising in print media or pay-per-click. They do nothing to engage relationship. My biggest web problem? Google my name. There was a 19th century American Printer named Benjamin Day who is all over Wikipedia and a consulting company in Boston at http://www.BenDay.com. All I want my website to be is the hot or cold first impression filter for a client referred to me. I barely show up on page one of Google right now. When they get there, they get static (I stand guilty as accused). That’s why I am slowly re-engineering my website to be a consumer experience. My twitter feeds on one side. My wife’s on the other (previews, inspections, thoughts… kid life, the Cheyenne Mtn. Zoo, playgroup on the other side). Testimonials with photographs of the people who made them. Clean. Elegant. Easy to use. Easy to find. The Black Vault of Search has been busted open. The new frontier is allowing the consumer to engage with an actual survived-the-crunch pro demonstrating appropriate skil, with whom they can begin to trust from their first site visit. Overhwleming, NAR and REALTrends surveys showing this consumer plea that they badly want to trust their REALTOR. Yet only 11% work with their REALTOR again. Advertising and web for real estate are presently going the same direction: pushing individual listings or letting the consumer drive a rudderless ship. Creating a framework for trust would be a far better expenditure. Sites and advertising that promote our profession as enablers of a process where the consumer has supreme control over the outcome: that’s the revolution that needs to happen now.
5. & 6.) Desk fees are an antiquated idea that put a conflict of interest between the consumer and the REALTOR. Paradoxically, working with high skill for a high wage does not make a Starbucks Gold Card membership the equivalent of office space. The consumer doesn’t need the gilding and marble of Wall Street to appreciate trust. But a professional greeting, a warm beverage, a clean and quiet environment to make important business decisions… consumers require this and deserve this. There is a huge migration to home offices because agent’s can’t afford their physical space and when they have up to a $2000 office bill just for space lease due each month. A home office may make them lean and mean, but does it make the consumer more at ease? Are they more apt to trust someone in an office or out of their basement/wi-fi-coffee joint? The old-fashioned split structure doesn’t make much sense either because it invariably relies on agents who are producing a transaction per month and give $0.30 of every dollar to the company. This breeds an ugly mutual resentment: the broker would prefer 2 to 4 more transactions per year from this individual to justify and cover the excessive expenses they still encounter brokering and administering this business and the practitioner is surly about “their income” given away on things they don’t use. Needed: a new split structure designed around 85 to 90% splits with the services provided a la carte. Run your business like a business, and a la carte starts to make a lot of sense.

That leads me to my additions:
7.) The a la carte brokerage: Space concerns should be radically mitigated, and those that want accountability and want to deliver an exceptionally high client experience will undoubtedly pay for the benefit of surrounding themselves with a tribe of like-minded peers (me). They will refuse, question and distance themselves from accidental members of the profession that are playing Powerball with webleads and floorcalls (in my dreams). There is almost no other profession that is as egalitarian in it’s approach to spreading the wealth among the producers and accidentals. It isn’t fair to the producers who build the image of the company and generate the inbound calls. It isn’t fair to the accidentals because it is always prodding them along with a carrot promising them that one big hit. Willy Loman and Ricky Roma can not inhabit the same space.
8.) The professional future: I sat in last night on a presentation from Edward Jones and American Funds at Biaggi’s in Northern Colorado Springs. The program was built around calming investor fears over the tumultuous and unprecedented carnage on Wall Street. I will say that I was not sold on the company as the future of my money. I didn’t hear what fund offerings they had that promised future growth soon. But that was the point. I was sold on their client care. They hosted a free dinner, with four courses. It was in a nice environment. The suit-from-out-of-town was both impressive and humble, and admitted his own financial crises. He was very human. He presented big picture carnage and big picture opportunity. He wanted to spend most of his time answering investor questions. As a casual equities investor but an insanely self-examining real estate agent, I see both of our industries, equities and real estate, at key crossroads. Do you think that the client experience was enough in the boom times in real estate that the consumer is ready to trust what we, the REALTORS, have to say today? We said it was a great time to buy in 2005, didn’t we? So how can this present bloodbath also be a good time? The reality is that now is a much better time to buy. We just spent our trust on unsustainable results three years ago. Ditto equities. Do you think the consumer trust would be higher right now if people actually felt like they could trust their advisors? No one saw this coming, sure. But really, name for me the growth in equities that really happened in the last 5 years that wasn’t some derivative of the subprime nightmare? America was corrupted by subprime thinking. It wasn’t exclusive to real estate. Detroit and the SUV. Congress and tax breaks to depreciate those SUV’s of over 5000 pounds in 2 years. Consumers and their Home Equity Lines used to buy those SUV’s, tapping out their equity right before the market turned (yours truly, again). Vision traded for short-term profit. In a savage way, it makes a lot of sense that the DOW today is where it was five years ago. We are no more inventive. We are no more industrious. We are just bigger consumers of stuff we don’t need. As a card-carrying REALTOR, that last statement really resonates with me. If there was a doubling or tripling of professional standards, a Code of Ethics refreshed and modernized that put the REALTOR in the role of the PROACTIVE, TRUSTED ADVISOR, an individual who didn’t work with any old consumer shot-gunned at him or her, but instead chose to add quality of life to those they engaged with on a daily basis… I think our industry’s words today would go great lengths to restoring trust. Since we lack that trust, and probably for good reason, unifiying professional standards designed to deliver a high-value, high-touch process with the consumer in charge of the outcome, must be universally adopted by those that wish to survive the downturn. The reality is that those that survive will thrive.

The only way they will survive is if they are in flow with their consumer.

The quadrennial national intelligence briefing is presently under construction diagnosing global life in the year 2025. America’s own national intelligence agency, in a radical departure from the last report in 2004, is characterizing America in 2025 as no longer the lone world superpower, and possibly not as the premier superpower. Every American industry needs to re-examine itself for efficiency right now. But far more critically, the citizenry of America need to re-examine themselves as to what makes them quintessentially American: prosperous, yes, but industrious first. Capitalist, yes, but innovative first. Kind of hair-brained, fly-to-the-moon nutty, yes, but willing to take risks to make the world a better place, first. The future of real estate requires change. Big change.