(Written in the epistolary style, that is to say, as if I were writing a letter to my Trialogues partner, Matthew Shadbolt.)
Read your post on misalignment of opportunities and… well, it’s a masterpiece as usual. The level of research and analysis is fantastic, and I imagine you’re not watching a whole lot of TV putting out stuff like that. But I wanted to add my $0.02 as there are a couple of areas where you don’t go deep enough, and if we’re advocating for real change and real reform, I’m afraid you’re putting the cart before the horse in at least one major way.
The Status Quo, and the Breaking of It
Let’s start here. You point out, rightly, that the real estate industry is busy developing solutions to nonexistent problems:
You believe that the lightweight “reach and promotion” marketing of the kind practiced in virtually every single brokerage in America is at least partly responsible:
The solution, then, is for real estate marketing to change, to ennoble if you will, the entire industry:
But you then turn to discussion of meaning, of passion, of startup cultures and clarity of purpose. It isn’t clear to me that any of those are currently under the purview of any marketing department anywhere, but that’s a minor quibble. The larger issue, I think, is that the structure of how the industry is set up is inherently flawed and cannot survive the Information Age.
If we’re going to discuss misalignment of opportunities, if we’re going to look at real reform, I think we need to begin with root causes. Because as you and I both know as marketers, there’s only so much that marketing can fix without control over Product — which is why it is one of the Four P’s of Marketing, I suppose.
Let’s get into the inherent structural flaws, and they’re not, of course, anything like lack of mentorship or lack of higher licensing requirements.
The Inherent Structural Problem
Let’s start with the premise, the actual problem I think you want to solve. If I read you correctly, the problem here is that the landscape of real estate has changed so much that economic, political, and technological factors are causing consumers to have agita about homeownership itself. And then, at a point where the consumer’s concerns have to do with whether he should risk his entire net worth, decrease mobility, and a thousand other concerns that range from what zoning changes might be on the horizon to concerns about whether they’d like their neighbors, the real estate agent can offer very little useful advice.
At a minimum, the problem is that consumers already know or can have access to most of the “advice” from real estate agents, rendering them little more than taxi drivers cum lockbox openers. It reminds me of having to setup a booth at Jacob Javits Convention center, where union contracts force one to pay a unionized electrician $75 to come over and plug in a power strip.
At worst, we’re talking about out and out breach of the duty of fair dealing and possibly even fraud, as the broker or agent is motivated by nothing beyond the transaction and making commission dollars.
So if those are the problems, then the solution is… well, if I read you correctly, the solution is something like what Jeff Turner likes to talk about: purposeful culture. The solution is for a brokerage to create a truly consumer-centric culture — as someone like the GoodLife Team has managed — and then recruit only to that purposeful culture, providing meaning and clarity of purpose beyond just making a buck.
It’s better than nothing. But at least at a place like RETSO, let’s push this.
Problem: Who Is The Customer?
The first place we have to push things is to ask who the customer actually is. Before marketing can get involved with anything, before the CEO can give rousing speeches, the company has to understand just who the customer is. I’ve been in my share of debates about this, and the real estate folks typically give some mealy-mouthed half-assed answer that provides no clarity apart from the fact that they’d desperately like to preserve the way things are.
The customer, in my definition, is the person who pays you. Period, full stop.
Seen in the proper light, the customer of every single real estate agent is the seller. I know, I know, buyer agents will jump up and down claiming otherwise, talking about how much they loooove and caaaare about their clients, etc. but truth is truth, no matter how uncomfortable. Buyer agency is merely an outgrowth of sub-agency, created to shift litigation risk from listing brokers. It was never intended to provide a higher level of service to buyers by creating a true fiduciary relationship between the buyer and his agent. If that were the real purpose, a simple fix exists: buyer agents should be paid only by the buyer, out of the buyer’s own pocket.
But that only goes so far. The other half of the problem is that the broker — the entity that is the real fiduciary under the law — doesn’t regard the consumer as the customer. And why should he? His customer is the agent. What the industry calls “recruiting” isn’t recruiting; it’s sales.
Problem: Compensation, Cooperation
The inherent structural problem stems from the way that real estate brokers are paid. If consumers paid for services directly out of pocket, the financial risk to brokers changes dramatically. But as long as no one gets paid, and no one except the seller/mortgage company is paying the bill, true innovation is well nigh impossible.
There are two ways this problem gets fixed. One is the industry itself deciding that it will no longer be paid as salespeople, recognizing that the Internet improves efficiency of sales and therefore drives down the cost of sales (this is probably a long article in and of itself). Advisors get paid for advice; salespeople get paid a commission. Realtors will need to decide who they are, and evidence it by how they get paid and for what.
The other is a significant change on the expense side of the equation. Simply put, the Federal Government can simply decide that real estate agents are actually employees, and start forcing brokers to pay Social Security, Medicare, Unemployment Benefits, and whatever else they can come up with. When agents become an overhead item, brokers will be forced to change the way they charge consumers in any event… but not before a major bloodbath inside the industry. (Bonus: for anyone who thinks that will never happen… I wonder if they’ve looked at the CBO projections for the costs of Obamacare, Medicare, and Social Security over the next couple of decades. You know when politicians talk about eliminating “loopholes”? Real estate agents as statutory non-employees is just that: a loophole.)
Closely related to this inherent defect is the structure of Cooperation and Compensation (the other Compensation). If both sides get paid for advice by the respective clients (buyer pays buyer agent, seller pays listing agent), then the need for Cooperation and Compensation more or less disappears. Since the entire Association-MLS-Broker trifecta is based on that Cooperation and Compensation, and has been for over a hundred years, it isn’t clear what the solution and outcome will be.
Problem: Continued Bifurcation of American Society
This is a deeper issue, but there is little doubt in my mind that American society continues to fracture into the Elites and Everyone Else. The postwar society of a large middle class is more and more quickly going the way of the $0.99 per gallon gasoline. I touched on this on Notorious discussing Charles Murray’s Coming Apart.
The Elites — the highly educated professionals whose personal earnings will not be significantly compromised — will continue to be Elite, and will continue the kind of lifestyles that leads to their children being Elites. They will concentrate into SuperZips, with other Elites.
Who is likely to be homeowners in the next ten to twenty years? Hint: it won’t be the guy without a college degree, two kids by baby mamas in two counties by the age of 23, and an on-again-off-again relationship to work. And that phenomenon is now multiracial and multicultural in these United States according to Murray.
What you pointed out, Matthew, I think is the fact that most real estate agents in the industry today simply cannot provide much value to these highly educated, highly technocratic Elites. Marketing departments stick with the tried and true promotions and messages that worked in 1960, without recognizing that the Elites of today are totally different from the Elites of 1960 in terms of information access, cultural tastes, and self-reliance.
The question is, how does residential real estate attract the knowledge-economy Elites to work within it so that they can provide high-value services to the knowledge-economy Elites that are likely to be their main consumers going forward? We know that commercial real estate does attract more of these Elites than residential; the economic incentives are totally different there. Can residential real estate duplicate that?
Cart Before Horse
So far, I know that we do not disagree. So let’s sharpen this a bit, and bring it down to a level where we can try to arrive at a solution.
I say you’re putting the cart before the horse here, because unseen, intrinsic drive to do things for their own sake, autonomy and mastery of content matters, understanding of purpose and so on cannot happen without fundamental economic change.
As a point of reference, all of those wonderful startups you cited have employees who are paid. You can have the best purpose in the world, enormously talented and autonomous people, etc. but if you can’t make payroll, those driven and passionate people will be forced to go somewhere else and be driven and passionate doing something else that pays the bills.
Marketing will have a major role in reform, but it cannot lead the reform, because the needed changes are fundamentally economic. A 19th century economic model cannot long survive contact with the 21st century reality; we’re seeing this in all sectors of the economy. Big smokestack companies with big labor unions cannot survive the globalized world of today. An industry based fundamentally on a pre-silicon assumptions cannot survive the Internet age.
You know what the best (or worst) part of this is? This change is coming, whether brokers and agents want it or not. It’s going to happen. Maybe later, maybe sooner. But that which cannot last, won’t. The only question for everyone in real estate is whether they want to be proactive and get ahead of the change, or if they want to wait and see and react to the change.
Anyhow, thanks for the awesome article, because it really juiced my brain. And I can’t ask for a greater gift than stimulating thought. 🙂
Talk to you on the podcast!
Your friend and fellow revolutionary,