X-Pert Knowledge: January 2008 Archives
Expertise and attitude, not control of an informational chokepoint, is the way that things are going.
Let's analyze this from both sides of the problem. The current owner looking to sell really needs a marketer. For better or worse, most of their choices have been made; their main dilemma reducing to how to get rid of the result of those choices in the most effective manner. If I were Ambrose Bierce, I'd say their problem was how to convert their mistakes into cash, because they have that property, and they want is the person willing to pay largest amount of cash possible as quickly as possible. It's worth what it's worth; mistakes and omissions can cost them a huge percentage of what the property might have sold for but it's unlikely that even the best marketing program is going to sell the property for more than it's worth. Here's a beautiful explanation why.
It's the buyer that has more need of an all-around expert on housing. They have cash or the ability to get it via a loan, and the want the property that best meets their needs for the lowest possible price. Note that nobody has an unlimited budget; despite all the attempts to pretend otherwise in the era of Make Believe Loans. Even if you're wealthier than Midas (Which many of the wealthy are, if you really think about it. Gold just sits there - it doesn't produce more wealth), you have to accept some constraints upon the property you decide to purchase, and knowledge of how those constraints compare to each other and how they work out down the road can keep you from being in the situation I joked about above, of needing to convert your mistakes to cash, later on.
But the current business models are all built around listing agency. Especially, the large nationwide chains and huge brokerages. Ridiculous as it may seem upon sober reflection, people do approach listing agents about buying property, especially the ones they have listed. I've written more than one article covering how Dual Agency is an invitation for disaster, especially for buyers, as have others, but still it happens. It's not like it's risk free for sellers, either. Some agents do get listings primarily for "buyer bait" and lose their best bait when the listing actually sells, and that's fairly benign compared to some other things that really do happen. The entire current model of agency is built around listing, with only minor exceptions around the edges, and it's mostly oriented on the big name national chains with ongoing advertising campaigns. Those chains control pretty much everybody from the NAR on down, and through the NAR's ownership of MLS. Due to the way the business is structured, It's very hard to succeed in real estate without listings, and it's much harder for independents to get listings than it is for the major chains. This is going to change, at least to a degree and possibly completely.
This whole set-up is a holdover from days when agents and brokerages could control access to market information. I shouldn't need to say this era is over, and the agent (or brokerage) that pretends they are entitled to three (or six) percent commission for access to the market is doomed, but the NAR seems to be leading the charge off the cliff, most recently with the move towards requiring agents to have hardware "dongles" in addition to a user ID and password to access the various local MLS services. They justify it as security, but what they're really trying to do is "protect agents from themselves" by making it difficult to share their MLS access with outsiders - attempting to control information. Where 99% of the information needs no access to MLS in order to obtain, this is ridiculous. Note to NAR: Most real estate information is public record, and can be obtained these days by visiting the appropriate county website. A lot of it can be retrieved automatically, via what we called "batch file" thirty years ago. There are dozens if not hundreds of places to obtain information on properties for sale, and a goodly percentage of them do not have their sources in MLS. Therefore, trying to justify what you make by creating an artificial information chokepoint is not going to succeed - all you're going to do is succeed in encouraging alternate pathways to the information.
There is no reason why any given local MLS can't have competition. The NAR doesn't own the concept - only the name. There's no reason why some smart techies can't set up their own service in competition, national or local, supported by whatever mechanism they can get to pay their bills. Furthermore, agents (Realtor or not) will line up to submit their properties to any competing service - it's fiduciary duty, after all. It's only the non-existent policing efforts of most such sites that have prevented them from taking more market share from official MLS affiliates. When this changes, so that a member of the general public can read a listing advertisement on competitor A and have some confidence that it represents a real listing, these competitors will lose most of their handicap. If I had a dollar for every time a client called me asking why I hadn't shown them this wonderful bargain they found on a non-policed site, I could pay my office rent for a couple of months at least out of it (Buyer's agent recording 2201: "Because it's not a real listing - it's someone chumming for leads, and to avoid wasting your time with salespeople advertising things they haven't got is a very small part of why you hired me"). It is only this lack of policing that is holding the competition back now. But sooner or later, those that are trying to be destination sites will figure it out. When they do, you can kiss MLS' dominance goodbye, and with it any illusions as to holding an information chokepoint.
Eventually, people will be able to put their properties on the market by going to a website and entering the information, or calling a toll free number if they're luddites. They'll need to show they are authorized to do so, but that will be the essential nature of the process. Buyers will be able to access the information for some very nominal price, like putting up with advertising or paying some nominal fee. That's where we're heading; the only items in doubt are how long to get there and what the exact pathway will be. Agents are in no way mandatory to this process of putting a property for sale on the internet or finding out which properties are for sale on the internet. The only way to survive and prosper as a profession will be to provide expertise that the average person has little to no opportunity to acquire. In other words, really learn things such that buyers and sellers of real estate can make a profit (or avoid a loss) by paying you, and make a living selling that expertise, not access to the system. Question 1: In the general economy, are there fewer expert consultants today than thirty years ago, or more? Question 2: Do the good ones among them command lower fees (even adjusting for inflation) or higher?
The issue lies in convincing people your advice really is that good. Holding an information chokepoint won't do it, and the chokepoint is going away within the next few years. But knowing what to make of that information is an expertise for which well-informed clients will pay and pay well, knowing that they'll be passing along those costs (along with a hefty markup) to those too stupid to pay. In other words, we've got to demonstrate and emphasize the fact that our compensation is an investment that returns more than it costs.
I'm not going to be saying listing is easy - it isn't. I learn more about the listing game, and how much more there is to learn, with every one I list, and not infrequently, I learn something important about listing from working the buyer's side (and vice versa, as well). As I have said in the past, I figure I'll have it completely down sometime in the next century or so. That said, the future of the listing game is easy enough to predict: How to make this property stand out amongst all the others, and how to attract the attention of the buyer who is suited to the property. Every property is unique; but for the vast majority of all buyers, there is a substantial list of properties that will serve their needs about as well. If you're any kind of a decent listing agent, you're going to be able to answer the questions of why this property is worth more to that buyer than the alternatives that are cheaper, and why the alternatives that are more expensive aren't worth the extra, secure in the knowledge that if they don't agree, they aren't the right buyers for this property and another set will be along shortly who are. If you're a top-of-the-line listing agent, you can do this without ever meeting prospective buyers. The seller's problem reduces to how to attract those suitable buyers, and the value of the listing agent to sellers lies in getting them a better offer sooner (Hint for those consumers reading this: It's not agreeing to list the property for a higher price! That's actually counter-productive on both counts).
That said, everything the listing agent needs to know pales beside what a good buyer's agent needs to take into account. I doubt I or anyone else will ever have the buyer's game completely down. It isn't that I know everything or will ever be some sort of shining exemplar of buyer's agents; I'm simply one of the best that happens to be available. I look at between 20 and 30 properties most weeks, every week of the year - 1000 to 1500 properties per year - and I learn new things pretty much every time I go looking. I learn things about the clients needs and desires by listening, and keep on listening. The future of the buyer's agent side is making sense of the information overload, debunking bogus information which lazy sellers and listing agents insist upon proliferating, and sorting better alternatives from those not so good, including knowing how to spot a Vampire Property. This starts at learning what a given buyer's priorities and needs are, and figuring out what areas they may be happy in and can best afford, and going from there to making comparisons between available alternatives.
In neither of these alternatives is simply having your real estate license and NAR membership certificate up on the wall going to help you extract an agent concession, particularly a larger one as opposed to a smaller. That license may get you in the door at the dance, but it's not going to fill your dance card. For that, you've got to bring something real to the situation, and the one thing clients are after, and always are going to be after, is expertise. Access, they're going to be able to get anywhere, but someone who really understands what's going on in this hugely complex transaction involving debt that most people are going to be paying for the rest of their life, and distills the specifics into something these clients can understand. Furthermore, agents relying upon chain affiliations to bring walk-ins to their door? The days of that happening are numbered, and the number is no more than the number of days until someone puts their ducks in the row to really compete with the MLS.
You're also going to need the right attitude. People are getting better and better at identifying shills. Even if you've got an exclusive contract, which are going to become more scarce, even those aren't forever and the chances of an agent being able to enforce it in spite of whether they helped an actual transaction or not are shrinking faster than Lily Tomlin ever did. Whether agents like it or not, it's becoming easier all the time for consumers to walk out on contracts with losers who conned them into exclusive contracts. If you want people to keep working with you, you need to demonstrate that this client's good is the most important thing in your world, and that's not something anybody can fake for very long. If they understand this and the expertise you're bringing to the table, they'll stick with you by choice unless they're con artists or agents themselves. I had one client in last year who admitted they'd been planning to ditch me for a part-time relative and decided not to because I was providing things they knew the relative wouldn't. The non-exclusive contract which is all I ask for is plenty to discourage that, while leaving them feeling free to ditch me if I don't get the job done - so I'm motivated to get the job done, and they can know they're getting my best efforts risk free for them, not to mention that it would be entirely pointless for me to try and hold them to an exclusive contract they wanted out of. It's both pointless legally and bad business - so why ask for an exclusive in the first place?
However, the real estate profession has made a horrible botch out of stressing expertise and education thus far, which is one reason why discounters have thrived by offering nothing for less. The reason for this is that it would interfere with the profits of those national chains that control NAR. They can't hire newly licensed agents that used to work fast food fresh out of the local shake and half-bake real estate school, dress them up in a suit, and expect them to bring commissions into the brokerages if it's easy for consumers to sort out who has real expertise and who doesn't. The licensing exams themselves are pathetic, and intentionally so, in order for the brokerages to have a steady supply of inexperienced shake and half-bake licensees. No math more complex than a four function calculator, and you can use a four function calculator on the test in California (which is supposedly one of the harder exams). How can it be acceptable for someone who hasn't even been tested on the ability to set up a mortgage calculation on a calculator or spreadsheet to have a real estate license? It'd be bad enough if that license didn't include the ability to originate loans, but it does. There are a couple of questions on "what is this type of structure called?" but none on usages, advantages, disadvantages or weaknesses! I understand there's only so much that can be covered in 150 questions, but the NASD has 250 questions on their series 7 exam covering a far more limited expanse of material. There is no good reason why the real estate exam should not be a minimum of three full days, and requiring all previously licensed agents to take the new exam as well. No reason except that would constrict the supply of naive freshly licensed shake and bakes (For that matter, the most important knowledge for agents can't be tested, because it's both local and changes too quickly with time. It makes no sense to ask me about the neighborhoods and market in at the other end of the state - I not only don't know, I can't take the time to learn without forfeiting the time to create and maintain the requisite market knowledge for the area I do work). Alternatively, the state can do away with licensing altogether in favor of simple registration, and let the market develop informational resources as to the competence of a given agent. Consumers would demand it, and they'd be willing to pay for it. Finally, don't get me started about all the "designations" NAR has cooked up that amount to a way to impress the ignorant and gullible ("Sell the agents the right to put some meaningless initials after their name to impress the marks!")
Above all, however, the future of real estate agency is going to be about accountability. If the industry won't develop real and reasonable performance metrics for individual agents, somebody else will. That's living in the age of transparency for you. Furthermore, you can't stand up and say you're the expert in their corner unless you're willing to defend your performance later in a court of law. Brokerages have a proliferation of forms that add nothing to the process except to make it more difficult for them to be successfully sued and distract clients from what is really important. But you can't tell the client you're an expert worthy of hiring, that's going to get paid however many thousands of dollars from their point of view, if you're going to ask them to sign fifty forms that say you're not responsible for the results of your work. Well, I guess some slick salespeople could and do, but it's hardly the sort of thing to inspire confidence in any rational client. We're neither inspectors nor appraisers, and especially not lawyers, but that doesn't absolve us of trying to solve those issues before members of those professions get involved, and do our best to help the clients understand and interpret when and if those professions do get involved. In my admittedly somewhat limited experience, ninety percent of inspector issues and ninety-nine percent of appraisal issues should be solved by the agent before there's an offer, and about the same percentage of legal problems can be prevented by agent diligence beforehand. Especially the major ones. But if you make clients sign forms that say you're not responsible for this, what are they really getting in the way of an expert they can hold accountable? And if you can't be held accountable, what are you really selling besides your winning personality? They can get a better stand up set for forty bucks down at the local comedy outlet. Why should agents make a hundred times that if they can't be held accountable for performance later? The short answer is that we've got to make this confusing process that kills a dozen mature redwoods for pulp understandable and transparent, we've got to perform by making certain our clients can show a profit on the money spent hiring us (at least in the aggregate), and if we're not to be held accountable, what real assurance does the client have that what we have represented is true? Everything we add to the process that doesn't further one of these client goals is either obstructionism or distraction from what's really important, and a counter-balancing reason not to do business with us.
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