Last week, the U.S. Department of Justice’s Antitrust Division announced that it was withdrawing from the proposed settlement with the National Association of Realtors (NAR) “to permit a broader investigation of NAR’s rules and conduct.”
As the Justice Department withdraws from this settlement regarding real estate agent’s commissions, it has me asking myself an all-consuming question:
What has our industry done over the past decade of an ever-appreciating market to deserve these commissions?
In light of this news, my wife and I were dining with a few friends out of state when I posed a question to two couples who had just sold their house in Texas: “Did you find your experience with your agent valuable?”
At first, provoking a bit of an uncomfortable mumble, I mentioned my thoughts on the recent news, and in turn, they answered honestly: “To be honest, the market is so strong we didn’t even need a Realtor right now. The reason we went for one is because we left our home and went on vacation for a month, so it was more the convenience of it because we didn’t want to deal with it while we were away.”
When I inquired about the selling process once it went under contract, they mentioned: “Well, now there are services out there that handle the contract end of the sale — and we’ve heard at less commission than a regular agent. We were happy to pay our agent commission because she did the work while we were out of town, but we did negotiate a reduced percentage of commission with her, though we think we could’ve gotten some service for even less, 3 percent or so if we had checked that out.”
It got me thinking again.
The real estate industry has been begging for disrupters for the past 50 years, and they have finally started to arrive in droves. Flat-fee models, low-cost agencies, minimal or no service: We have found larger companies even stepping in with a commission rebate as a large part of their service.
Ten years ago, a real estate agent was vital to get a home sold. As we sat at what would be the end of the recession, there was inventory everywhere. Listing agents and buyer’s agents had true showdowns where negotiation was the most vital service a real estate agent could provide a buyer or seller.
A house had to be immaculate, and the listing agent had to know what to do exactly to get a home sold. The buyer’s agent knew there were numerous other options for their buyers, but “this house” was the one. Realtors, in turn, had to be at the top of their craft.
Fast forward to today’s world, and I’m having conversations like the above. A home hits the market, multiple offers come in, the seller picks the best one, and that is it.
Has the need for perfection gone away? Has negotiation become a lost art? The market thinks so, NAR thinks so, and now, so does the Justice Department.
My conversation concluded with them saying: “We know plenty of friends who are selling their home by owner and then seeking a service to help from the contractual end. It’s probably what we’ll do next time.”
As the home prices rise, we have to ask ourselves as Realtors: What has the typical real estate agent done to earn the commission? Agents rely on technology, photos, the MLS, while the big disruptors come into the real estate market and have lapped agents.
The real estate industry has been hyper-focused on the commission issue for years while large gaping cracks have appeared. There are some of the lowest barriers to enter the real estate industry, working with the largest transaction of most of the public’s lives.
What separates a real estate agent from a Realtor in Colorado? A measly, four-hour ethics class with an open book test at the end (and this doesn’t vary much within other states as Colorado is notorious for having the hardest entry requirements).
Within the automotive industry, there is a separation between a luxury car and a very nice car. In most trades, there are certifications, for example, a Master Electrician.
In real estate, there is no actual separation between good and great. Instead, this industry has raced toward the bottom with a thought process protecting the agents and their deserved commissions.
Meanwhile, the Zillows and Redfins have entered and started providing more and more information that was once a real estate agent’s domain. Meanwhile, the overriding body is fighting for commissions — but not to make the industry better. Depending on the state, 14-48 continuing education credit hours are all it takes over a three-year period to remain.
Commissions will continue to drop nationwide as the public sees more and more value from the disruptors and less from a real estate agent or a Realtor.
So what should the industry do?
I believe we should begin focusing on crafting and creating a program that forces the real estate industry to improve. As part of my company mission, we revamp education to make the real estate agent the expert again.
In general, the industry needs to hyper-focus on raising the bar of entry and the bar to remain within this industry and start a concerted effort to create public-facing sites that rival the information of the larger disruptors.
Overall, we need to stop fighting to keep equal pay for an industry that is currently racing toward the bottom and force agents to become the experts: the master of their craft, the luxury brand.
Currently, consumers compare a real estate agent to a used car salesman. NAR is focused on making sure that all of the used car salesmen get paid.
Instead, I think it would be wise to focus on making all of the real estate agents Realtors and make sure that the word Realtor has real meaning and value behind it.