Mega team leader Carl Medford points to several massive shifts that have caused the current commission crisis and the path he sees forward.

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As Realtors and consumers alike continue to react to the NAR settlement, it is becoming obvious that a fundamental shift in mindset is underway, and those who understand the psychology behind the shift and successfully adapt to the new realities will be the ones who come out ahead. 

Those of us who have been in the business for a significant number of years have seen a myriad of changes in the industry. While we have adapted and morphed to the best of our ability, in many cases, we have changed our methods and practices without fully realizing what is happening in the culture around us.

Even though we know that change is inevitable, it does not keep us from failing to understand the changes as they occur. Like the proverbial frog in a pot of boiling water, we sometimes discover our new circumstances after the damage has been done.

The following are issues I believe have gone unnoticed by-in-large — we have seen the effects but have not recognized the fundamental issues under the surface. To succeed going forward, we have to see these changes for what they really are and adapt accordingly.  

1. The evolution of customer to consumer

Customer loyalty used to be a thing. In the not-to-distant past, a person buying a car would purchase the same brand their parents or even grandparents had traditionally driven.

Rather than doing a lot of market research, they simply went with what they knew. Companies could count on their customers being brand loyal. That is simply no longer the case. 

Historically, we bought what we needed. Henry Ford, recognizing the need for a better alternative to the horse and buggy, began producing the Model T. Its outstanding success underscored the fact that it met a perceived need. As for what a buyer might actually want, however, such as a choice in colors, Ford famously quipped, “Any color the customer wants, as long as it’s black.”

Over the years, however, we have transitioned from being customers (buying what we needed) to consumers (buying what we want). When I was a kid, if I wanted toasted whole grain oat cereal in a shaped like a miniature doughnut, Original Cheerios was the only option.

However, over the years, General Mills has expanded the choices from original to a current product line of 20 varieties, including Oat Crunch Berry, Multi-Grain, Honey Nut, Frosted, Cinnamon and more. And that is just General Mills.

A quick walk down the cereal aisle reveals competitive brands in addition to the ubiquitous store brand versions. There are now 32 flavors of Mountain Dew, but the all-time winner would have to be Pringles, which has had about 166 flavors (subject to change by the time you read this, of course). 

Another way to categorize this change would be to label it “the shift from logic to impulse.” If you have ever ventured down the cereal aisle with a young child in tow, you will immediately understand the principle I will be explaining here.

Historically, if you needed shoes, you went to a shoe store. For groceries, you went to the local supermarket, for hardware the local hardware store, for clothing, you get the idea.

You went in as a customer, bought only what you needed and then left and, in many cases, headed off to another specialized store to satisfy another need. It might have been tedious, but you ended up — in most cases — only buying what you needed.

Big box stores such as Walmart, however, changed everything. With everything under one roof, you had a more convenient way to handle your needs. The problem has become, especially in the case of stores like Costco or Sam’s Club, that you no longer enter only to get what you need.

As you venture through the store, things just end up in your cart: You went in to buy a few key items, but based on your surroundings, you switched from being a customer to becoming a consumer. You no longer went in to buy only what you needed; you went in to shop. This meant that you left with more than you planned when you went in, not because you needed it but because you wanted it. And in many cases, you did not even know you wanted it until you saw it. 

A significant downside to this transition from customers to consumers has been the move away from relationships.

Going into a shoe store decades ago, you were greeted by a clerk who was there to assist you in buying shoes and engage in conversation. Nowadays, the idea of a shoe clerk in a Walmart is laughable.

In fact, try to find anyone who can help with anything. Want to find something in a large box store today? Forget trying to ask someone — just go to their app on your phone and punch in the item you need. Its location in the store will pop up immediately.

Better yet, check the app before you leave to make sure your local store actually has inventory. Yes, it’s faster but completely impersonal. 

This mindset has also emerged in real estate.

In the evolution from customer to consumer, there has been a loss of relationships because, at least in the minds of the consumer, the majority of the homebuying process can be done online.

Additionally, consumers no longer buy a home based on their actual needs; they are propelled by their wants.

For this reason, to entice buyers to look at our listings, we work with the sellers to upgrade as much as possible, provide staging, and more to enhance any given home so it no longer just meets a buyer’s needs but stimulates their wants. 

Since we are now a nation of consumers driven by impulse instead of logic, the adage, “You have between 7-10 seconds to sell your home” is more true than ever. 

2. The transition from service to commodity

In December 2020, I wrote, “Somewhere along the line, our society has transitioned from being service-based to commodity-based. With service no longer anticipated in most areas of our lives, we focus on securing commodities in its place.”

I further explained, “In a commodity-based world, sellers now search for real estate agents who will sell their house for the lowest possible commission. I frequently hear, during listing presentations, “You guys are all the same. You provide the same things as everyone else I’ve talked to — why should I choose you?”

When an item or service is viewed as a commodity, buyers start shopping for price only. This is why the lines at Costco gas stations are so long. It does not matter that other brands may have a different mix of detergents or other additives — all many care about is the cheapest price possible, and as such, they are willing to drive across town and wait in line to get it. 

Ludwig von Mises, a member of the Austrian School of Economics, warned of this trend as far back as 1949, declaring, “The consumers patronize those shops in which they can buy what they want at the cheapest price. They are merciless bosses, full of whims and fancies, changeable and unpredictable. For them nothing counts other than their own satisfaction. They do not care a whit for past merit and vested interests. If something is offered to them that they like better or that is cheaper, they desert their old purveyors. In their capacity as buyers and consumers, they are hard-hearted and callous, without consideration for other people.”

As it relates to real estate, especially in light of the current NAR settlement, buyers are already beginning to look for agents who will help them buy a house at the lowest cost possible.

Sellers are also looking for ways to shave money off their listing costs, and with the proposed decoupling of commissions, if they can find an agent who comes in with a commission structure lower than the others, the temptation will be to go with that agent regardless of past loyalties. 

3. The shift from fiduciary to functionary

NAR echoes this by stating, “A real estate broker who becomes an agent of a seller or buyer, either intentionally through the execution of a written agreement, or unintentionally by a course of conduct, will be deemed to be a fiduciary. Fiduciary duties are the highest duties known to the law. Classic examples of fiduciaries are trustees, executors, and guardians. As a fiduciary, a real estate broker will be held under the law to owe certain specific duties to his principal, in addition to any duties or obligations set forth in a listing agreement or other contract of employment.”

These duties include loyalty, confidentiality, disclosure, obedience, reasonable care,  diligence and accounting.

Unfortunately, along with the shifts mentioned above, there has been a shift among real estate agents as they have morphed from fiduciaries to functionaries.

In fact, one of the complaints levied by the Consumer Federation of America is that a glut of part-time agents has led to widespread incompetence. Stephen Brobeck, CFA Senior Fellow states, “The residential real estate industry is truly a part-time industry with most agents working sporadically and holding another job, often full-time. There is no other financial services industry or profession where part-time, marginal workers are so ubiquitous.” 

Reading between the lines, it could be said that some agents are no longer not functioning as fiduciaries; they are also doing a poor job of being functionaries.

Gary Keller, in the Millionaire Real Estate Agent (MREA) (pp 94-98), states,

“For the very best real estate agents there is a level of service they provide that goes beyond even their purpose and value proposition. It is the commitment they make to the buyer and seller to act as a true fiduciary — to place their client’s interests ahead of the interests of all others. Even their own.

This commitment to fiduciary service seems, in our observations, to go way beyond the technical issues of agency representation. While the fiduciary agent abides by the legal requirements placed on them by their profession, they also treat all of their clients with great fiduciary care.

Actually, this may be an appropriate place for us to draw a distinction between the two types of service being provided in the real estate industry: Functionary vs. fiduciary. A functionary is one who is in a specific task relationship with his clients — he does the job, while a fiduciary is one who not only does the tasks of the job, but is also in a high trust relationship with his client and feels total responsibility for the outcome.” 

Keller continues,

“Interestingly enough, a fiduciary can easily do functionary work, but a functionary cannot easily do fiduciary work. Top agents understand this and, as a result, work really hard to provide fiduciary services to all their buyers and sellers. In many ways, this is the true difference between average service and exceptional service. Fiduciary service is the highest quality of service you can provide any buyer or seller with whom you work.”

(To see a side-by-side comparison chart of the differences between functionaries and fiduciaries, go to page 96 in the MREA book)

So, what is the point of all of this? 

Put succinctly, due to the evolution of customers into consumers and the accompanying transition from a service to commodity mindset, some real estate agents, facing increasing pressure to remain financially viable, have been lowering their fees with the result that their standards have also been losing ground.

While certainly not true of many agents across the country who have clung to their standards and embraced their full fiduciary responsibilities, all the while increasing their service offerings, the overall effect has been a deterioration of the public’s view of our industry, which has subsequently led to our current crisis. 

What is the way out? 

I believe it should be nothing less than a full return to a recognition of the importance of our fiduciary responsibilities and an active campaign to demonstrate our value as advocates at the highest level. As an industry we have allowed our standards to deteriorate — it is now up to us to press up the mountain and plant the flag at the pinnacle once again. 

Carl Medford is the CEO of The Medford Team.

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