Do consumers get the real estate marketplace they ask for?
Overheard at a gas station:
"I hate the oil companies for ripping us off."
"Sure you do. That's why you're here every day, filling up your SUV."
Yes, consumers do have choices. Choices give consumers the power to change marketplaces. Even marketplaces that might look like monopolies or oligopolies. Even marketplaces allegedly manipulated by overpaid crooks and phonies. Like one I could mention but won't.
I'm going to postulate the radical idea that consumers get the marketplace they ask for. And if they ask for that marketplace, then it must be the marketplace they want.
The idea has two parts. First let’s take a macro view of all marketplaces, a view not limited to real estate. Consumers get the marketplace they ask for because, over the long run, business can only be done the way consumers want it done, using the service providers consumers want to use.
Is this naïve? I don't think so. I think the opposite and widely-accepted belief, that consumers are victims, is naïve. An industry can’t be stonewalling consumers over here while consumers are milling about over there, at least not for long. Inevitably, the more flexible part of the industry edges over to where the consumers are, because that's where the business is, and the rest of the industry either grudgingly follows or wastes away from attrition.
I'll give you the perfect example. In 1998, no real estate agent wanted listings to appear on the Internet. The public did. Listings promptly appeared on the Internet. In retrospect this change was good, or at least inevitable, but nine years later it’s hard to remember what a huge shift in the real estate business model this was, and what a huge ruckus it caused in the industry.
Okay, now let’s bring the theory down to the micro level. Here I’m going to postulate that the real estate industry can't force consumers to use service providers or business models they perceive as contrary to their interests. In other words, “they” (some heavy-handed monolithic real estate cartel) can’t make “you” (supposedly powerless home-buyers and home-sellers) do or use what you don’t want to do or use.
Why not? Because every one of the hundreds of agents and tens of brokerages in your area compete with every other agent and brokerage for your business. All of them are searching for some competitive edge however slight. Anyone who thinks that “they” (some heavy-handed monolithic real estate cartel) can keep this swirling mass of competitive and business-hungry humanity pointed in the same nefarious direction (think “herding cats”) probably also thinks “they” can drive up home prices. Hey it’d be exciting if we could—and we’ve got our best minds working on it—but right now we can’t.
So where does all this postulating take us? To a place that some of real estate’s consumers and all of real estate's critics would prefer not to go: it's buyers and sellers who shape this misshapen industry. The next time consumers indignantly ask why agents are sleazy or their service is lousy, they might want to look in the mirror. Because any industry is a reflection of its consumers.
But guess what? They’re not complaining, at least according to the National Association of Realtors® surveys. Most buyers and sellers are happy with their agents and would use them again. But wait, they are complaining because, according to the latest Gallup Poll, real estate agent credibility runs neck-and-neck with car salespersons and just ahead of professional bounty hunters.
Just kidding about the bounty hunters. A little.
So it looks like most consumers think they had a good agent, and that most of the public at large thinks agents are no good. In other words, the public seems to have an ambivalent attitude toward the real estate industry. How do we explain this? With at least five possible scenarios, each varying in degree of likelihood.
1. Most buyers and sellers think their agent is crooked but did a good job. Don’t laugh. Ever heard, “Yea, though I walk through the valley of death, I shall fear no evil, for I’m the baddest SOB in the valley”? Some people deliberately pick what they think is the baddest real estate agent in the valley. It’s like paying the schoolyard bully to be your friend. I call this the "heavy blunt instrument” approach to agent selection.
2. Most buyers and sellers think their own agent is honest and competent but think other agents aren’t. Perhaps you've already spotted the contradiction inherent in this distinction between “our agent” and “other agents”. “Our agent” is part of someone else’s “other agents”, unless one hard-working agent made all these consumers happy. In other words, we’re in the statistically shaky realm of “our baby is cuter than anyone else’s”.
3. Most agents are honest and competent but agents as a whole are terribly underappreciated and misunderstood. There’s truth in this, but it puts the public’s general loathing of agents into the shaky “what we have here is a failure to communicate” category.
4. Most buyers buy and sellers sell so infrequently, and understand so little of the process when they do, that they can't accurately judge whether their agent is honest and competent. All they know is that they got what they wanted: a house bought or sold; and an agent with a winning smile, a firm jaw, and that starry-eyed look of destiny.
5. Note the distinction I made between "consumers" (who've actually used agents) and "the public at large" (which includes many who haven't used agents but have heard about them and therefore know all about them). Maybe this ambivalence I mentioned means that the more likely you are to have used an agent, the more likely you are to think that your agent was at least okay. Maybe this means that the less likely you are to have used an agent (think "bubblehead" and other leading real estate experts) the more likely you are to think they're not okay. It's that collective wisdom thing. Maybe it's a lot more "collective" than "wisdom".
What about the minority of consumers who apparently got poor service and sleazy ethics from their agents? It's entirely possible. I have to say that I've run across remarkably few agents who were what I'd call overtly sleazy. Many I've dealt with have what might be called "average" or "customary" ethics. They won't qualify for sainthood but then, most of their clients won't either. Far more common is the agent who should never have tackled any business challenge more demanding than running a lemonade stand. This agent is far more likely to block traffic on the high road of real estate than divert the transaction onto unethical byroads.
And let's ask another question: how many of the consumers who claim they were injured by agents bothered to check the qualifications and references of those agents? Just a handful, if my experience is any indication.
Just one more question: how many of these disgruntled consumers had realistic expectations about what their agents could and would do for them? Did they think they were hiring Joe Louis to go fifteen rounds with Jersey Joe Woolcott? The sale of a home is a business transaction, not a blood sport.
Oddly enough, I don’t see any political will (read "voters" and "regulators") clamoring to raise the bar of professionalism. In California, the agency charged with policing agents, the Department of Real Estate, is so strapped for funding that it can barely keep its head above water. That’s ostensibly because of a flood of new agents. I'll guess it's really because no one in or out of government thinks that policing agents is all that important. Funding always tells you where a body politic's priorities lie.
Meanwhile the real estate license factories crank out as many agents as the industry needs—more, in fact. Fed answers to typical licensing exam questions, new agents enter the real world so unprepared that, according to a recent California Association of Realtors® study, only 43 percent are still in real estate after five years (and at least some of those 43 percent have left sales for the less-demanding fields of lending, appraisal and property management). What’s the social cost of this many people spending this much money, time and hope to get into a business for which they’re that ill-suited and ill-prepared? Let's then add the time, hope and savings they burn through trying to establish a career that has a snowball's chance. And what’s the social cost of the marginally-qualified agents who, hanging on by their fingertips, undercut the rest of the industry to stay in business?
In California the bar doesn’t get any higher once the new agent is out of the classroom and working with clients. Sure, requiring forty-five hours of continuing education every four years sounds fairly rigorous. It did to me too, until I found out that thirty-nine of those hours come just from reading a poorly written textbook. Except that no one needs to read it because no one verifies that you read it. The other six of those forty-five hours come from classroom instruction, which means giving up one morning or afternoon every four years to hear what you heard four years ago. After that you take what’s loosely called a “test”, which no one who’s stayed awake during those six hours fails.
I’ll give you an idea of how stringent California's continuing education requirements are. A few years ago I sat near an agent who spent most of an ethics class writing thank-you notes to her clients. Not that she spent the entire class period doing this. No. She ducked out a half-hour early and asked the agent sitting next to her to take the test for her. She got credit for the class. For an ethics class. Someone is unclear on the concept.
Every quarterly issue of the state Department of Real Estate Bulletin has the names of hundreds of agents busted for code infractions. Pretty vigilant, huh? Not really. Most of them were busted for violations of arcane trust fund handling regulations that probably didn't injure a single client.
Poor service? Sleazy
ethics? I think you can make a strong case that consumers get a better
real estate industry than anyone could reasonably expect, given the amount of
due diligence consumers use when choosing their agents, and given the level of
regulatory enforcement they implicitly demand. Like good kids, consistently
superior service and reliably elevated ethics don't happen by accident or
neglect. Yet I don’t see consumers taking the obvious steps to protect
themselves, and I don't see consumers pushing regulators to make sure that
agents are rigorously screened both before they get into the industry and while
they're in it.
What I do see is market forces (read "consumers" and self-serving "entrepreneurs") pushing to lower the cost of the real estate transaction, ostensibly to benefit the consumer but in fact just to cash in on the unsophisticated consumer’s willingness to believe in Santa Claus. Because “lowering the cost of the transaction” invariably translates into beating the real estate agent, the lowest and most vulnerable rung on the ladder, out of a big part of her commission. That’s not exactly out-of-the-box thinking, despite the surface flash it's given and the uncritical media attention it attracts. Because anyone who thinks that squeezing money out of a profession increases its professionalism missed the sign that says, “There is no free lunch”.
If the public gives any thought to this subject at all, it seems to be to the idea that the answer is fresh-faced kids working for online discounters who lose a little on each transaction but make it up in volume. This turns one of the most intimate and time-intensive of business relationships into Henry Ford's assembly line—and the consumer into an interchangeable part. It also denies one of the tenets of American free enterprise, that talent flows to opportunity, that the best people follow the best money. You may not agree that the best people now get into real estate sales. But if you want a guy who was flipping burgers the day he passed his licensing exam to help you buy or sell the biggest asset you'll ever own, then by all means, cut the “fat” out of real estate’s pay scale.
Is that really what real estate consumers want? It's their choice. And as always, the real estate marketplace will faithfully mirror the choices they make.