Well, 2010 is here … and I don’t see any black monoliths or a second sun. But then, I have it on good authority that the world will end in two years, so what’s the point of worrying? Now, it’s still very early, but 2010 is looking like a year that could be interesting in all sorts of horrifying ways.
The commercial real estate meltdown is nigh upon us, with unpredictable impact across the board. And those who think we’re out of the woods in residential real estate are probably the same people who like to play the proposition bets in craps: incorrigible optimists.
When the only reason the unemployment rate didn’t creep up over 10 percent in December is because some people are leaving the workforce altogether, and with the large shadow inventory of distressed properties that hasn’t hit the market yet, there’s not a lot of reason for thinking we’ve turned the corner.
At the same time, seismic changes are happening just beneath the surface in the real estate industry, driven by the twin forces of technology and economy. The economic changes may be temporary; the technology changes are not.
And yet, the first major discussion of the year on the RE.net is on professionalism and "raising the bar" on becoming a real estate agent. It’s actually a fascinating discussion. By the time you read this column, some folks may even have come up with a solution or two.
I do think, however, that there are some interesting preconceived notions whenever this topic is raised. For one, the National Association of Realtors comes in for some heavy criticism, and by its own members at that.
Some hold the view that NAR is among the reasons that the real estate brokerage industry is plagued with crappy agents.
Like any red-blooded American, I do enjoy bashing on the trade association now and again; but the fact is that amidst such massive technological and economic changes roiling the industry, the biggest reason why the "real estate agent" won’t go the way of "stagecoach driver" is the existence of NAR (and its subsidiary state and local associations).
Raising the bar on professionalism is all well and good, but throwing out the baby with the bathwater is probably not what Realtors want to do.
NAR: the envy of professional associations everywhere
From where I stand, as a (retired) member of the New York State Bar Association (and therefore the American Bar Association), I simply marvel at the power of NAR. Many of those calling for raising licensing requirements and such, and calling on NAR for tougher standards and stronger enforcement of the Code of Ethics and so on appear to have forgotten one very important fact: NAR is a political lobby first and foremost. And as a political lobby, it is incredibly powerful.
Consider this: The homebuyer tax credit extension passed the Senate by a vote of 85-2 last year. This is in a political climate in Washington, D.C., that is as partisan, as poisonous, and as adversarial as the republic has ever seen.
In an environment where Republicans have been trying their best to paint the Democrats as the party of irresponsible spending, and Democrats have been trying their damnedest to appear as saviors for the poor and the underprivileged, 85 senators from both parties voted "aye" to give people who can afford to buy homes a tax break. NAR is, in my humble opinion, the most powerful industry lobby in the country. …CONTINUED
From 1989-2009, NAR gave $35.4 million to politicians at the federal level, according to the OpenSecrets.org Web site, which qualifies them as No. 3 on the list of "heavy hitters" in Washington, D.C., just behind the American Federation of State, County, and Municipal Employees — people who actually make a living off of our tax dollars.
It is unknown how much is spent at the state and local levels, but I think it’s safe to assume that the No. 3 lobby in the country probably has inroads into the statehouse and the mayor’s offices.
Given that real estate is a heavily regulated industry, wrapped on all sides with federal, state and local laws and regulations, the importance of political power can hardly be overestimated.
It is no accident that most states require a license before one can do a variety of things connected to real estate. For New Jersey, the relevant section is N.J.S.A. 45:15-3, which states, in part:
"A real estate broker, for the purposes of this article, is defined to be a person, firm or corporation who, for a fee, commission or other valuable consideration, or by reason of a promise or reasonable expectation thereof, lists for sale (emphasis added), sells, exchanges, buys or rents, or offers or attempts to negotiate a sale, exchange, purchase or rental of real estate or an interest therein, or collects or offers or attempts to collect rent for the use of real estate or solicits for prospective purchasers or assists or directs in the procuring of prospects or the negotiation or closing of any transaction which does or is contemplated to result in the sale, exchange, leasing, renting or auctioning of any real estate or negotiates, or offers or attempts or agrees to negotiate a loan secured or to be secured by mortgage or other encumbrance upon or transfer of any real estate for others, or any person who, for pecuniary gain or expectation of pecuniary gain conducts a public or private competitive sale of lands or any interest in lands."
Ah, the finest legalese: language only those who enjoy torturing language could love! That there is one sentence — even German philosophers could look at that sentence and say, "Damn!" Anyhow, the gist of 45:15-3 is the following "tragedy in one act" dramatization:
GIRLFRIEND: Honey, you know this computer stuff — can you just get on Craigslist and post my condo for sale, please?
BOYFRIEND: Sure, honey.
POLICEMAN: You’re under arrest, mister, for violation of New Jersey Statute Annotated 45:15-3.
Awesome, ain’t it? At least the practice of law or medicine or electrolytic hair removal (oh yes, New Jersey requires a license for this) is something the average citizen probably isn’t going to do by mistake. But the boyfriend in our little play is indeed guilty of performing real estate brokerage "by reason of a promise of other valuable consideration" without a license.
With technology ever-advancing, and ever-threatening every year, real estate agents are fond of saying that they’ll never be disintermediated (I love that word!) because the purchase of a home is the most important and most emotional decision ever and requires the highly trained and duly licensed professional services of a Realtor.
Maybe. Or maybe, the reason why real estate agents will never be disintermediated is because NAR and its subsidiaries are such powerful political forces and would never let things like the economy or technology get in the way.
As a parasite on the real estate industry, making a living off of advising companies and organizations connected to the ongoing success of real estate agents, I for one am thrilled that NAR is among the most powerful industry organizations in the country. …CONTINUED
I might criticize them for their extraneous activities like their advertising campaigns, but I have nothing but praise (and a little fear) for the incredible job that NAR does as a political advocacy organization.
Source of political power
So we’ve established that NAR is powerful, and that this power shields the real estate profession from the cruelties of the free market. Now, individuals may think that this is an awful state of affairs for personal political beliefs, and they are fully entitled to their opinions. They are not, however, entitled to their own facts.
And the facts are that the source of NAR’s political power is its large membership base and the significant sums of money that this large membership base generates for lobbying activities. The facts are that NAR’s political clout results in opportunities for all real estate licensees — both the "good" ones and the "bad" ones — to make a living.
I point out this fact not to disparage efforts to raise the bar or to reform the profession, but to make it clear that there is a cost involved to doing so. Fewer members doesn’t mean that the executives at NAR have less spending money. NAR is a nonprofit organization, after all, and their 990 tax form is available to the public for examination.
As a matter of fact, in 2007 NAR had about $30 million in salary expenses out of $170 million in revenues; that’s a pretty reasonable ratio given all that NAR does. The idea that NAR won’t change because of pecuniary interests largely misses the point of what NAR is and does.
Fewer members means less political power. It means fewer people to mobilize at the state and local level, or for federal elections, to support measures that benefit Realtors and oppose measures that hurt them. It means less money for campaign contributions and lobbying activities.
It means dropping from being the third-most-powerful lobby in Washington, D.C., to an organization that may or may not get its phone calls returned. Mortgage interest-rate deductions? Maybe that will survive a weakened NAR … or maybe it won’t. New Jersey’s 45:15-3 might retain its language … or perhaps it will get modified to the detriment of all real estate agents in New Jersey.
So, you have to ask yourself this question: What do I gain by raising the bar, considering what I could lose?
This is not an argument against raising the bar; however, it is an argument against bashing NAR for the sake of bashing NAR. It is an argument for having a business conversation for the sake of the industry as a whole with a clearer understanding of the underlying issues.
I’m not a Realtor; I can’t be. So speaking as an outsider, the single greatest asset that you real estate brokers and agents have is political power. If you would sacrifice it for the sake of consumers, let me be the first to praise you all for your noble selflessness. But let us not pretend that raising the bar will come without costs and unforeseen consequences.
In the next column, I’d like to explore how high the bar should be set, and why a bar should exist at all, if it should.
Robert Hahn is managing partner of 7DS Associates, a marketing, technology and strategy consultancy focusing on the real estate industry. He is also founder of The Notorious R.O.B. blog. You can reach him on Twitter at @robhahn.
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