I've long believed that the way real estate is practiced across this land makes very little sense. I'm not exactly sure who came up with the idea, way back when, that nobody paid anybody a single penny, despite whatever work was performed, or how much time and money were invested, until and unless there was a certain specific outcome that occured - an outcome, by the way, over which the person investing the time and money had very little, if any, control.
Consider this, for example. Houses often don't sell. Sometimes it's because they're not marketed well (and of course, the agent has control over that). Sometimes it's because the seller changes their mind, or gets sick or loses a job or doesn't take the transfer, or simply get's scared. And sometimes buyers don't buy...they decide they can't afford what they want to buy, or their house doesn't sell, or they lose their job, or the interest rates go up, or they simply "change their mind".
And whoever came up with the idea that just the listing broker gets paid (and that they are supposed to share what they are paid with the selling broker)? And who decided that what they are paid is based on a percentage of the price of the home?
For the longest time I thought "What am I missing here? Am I the only one who thinks there's something wrong with this picture?" Then, a couple of years ago, I was introduced to a book with what I consider a pretty provocative title, "Ripping the Roof off Real Estate....how a Multi Billion Dollar Industry Came to Have an Identity Crisis" written by Mollie Wasserman (if you've ever been on the web, visiting a real estate website and seen the "Real Estate Internet Warning", that came from Mollie!) I read a few of the excerpts in the book and decided I needed to read the whole thing!
I was amazed! This book was obviously written for the "consumer", those folks interested in real estate services, trying to understand what to expect when they worked with real estate agents. And from the title, I was expecting some sort of dramatic "expose" about an industry I'd been a part of for decades. But what struck me when I was reading the book was how much it was the "nuts and bolts" of the challenges faced by consumers trying to make sense of our business, and by agents trying to make a living being caught between the worlds of "fiduciary service" (that means putting someone else's best interests first and foremost....even ahead of your own) and "commission based selling" (where you are only paid on a specific result...one over which you often have no control). That model, OUR model in this industry for decades, has a number of inherent conflicts.
- When a prospective seller requests an "opinion of value" (the proverbial "CMA"), how much can they trust what the agent tells them is their property's "value" when the agent (1) has no relationship with that seller, fiduciary or otherwise; (2) is receiving no compensation for that information or the work that went into compiling it; (3) only has the "potential" for compensation if the consumer "likes" what they hear and decides to hire the agent.
- When a buyer wishes to make a home purchase, how confident should they be that the agent working with them is "reprenting" them when, in most cases, that agent is paid based on a sales price (the higher the price the higher the commission)
- How confident can a buyer be in the recommendations as to whether to buy or not, or which home to buy in particular when the agent's recommendations determine whether and how much that agent will be paid at all? (How often have YOU gone to your boss and gave them recommendations that basically insured that you would NOT get paid?)
- How hard can a buyer expect an agent to work for them if there is no "responsibility & compensation agreement" in the first place?
- What if you're trying to decide whether to make certain costly improvements to your current home versus selling your current home and purchasing another ... how can you trust what the agents tell you when if you decide to "improve" they get no pay, if you sell, they might.
- What if the consumer needs real estate related help that does NOT involve a real estate transaction at all (like challenge tax payments, or determining WHAT improvements to make to a home, or like a market evaluation for a divorce where the home is not being sold)?
I'd like to make a point here that I think is really important to keep in mind. Even assuming the agents involved are all honest, hard working, well-intentioned people, how does "whether or how much" their compensation might be distort their impressions of things? Bear in mind also that agents do not come to discussion with prospective buyers or sellers "on a whim". Prior to those meetings, they must know what the questions are. They must do a variety of studies to come up with the information they will be presenting. In other words, they've already invested time and expertise, sometimes many hours worth of work, prior to ever sitting down with a consumer. How might many hours of working for 'free' influence YOUR perceptions, YOUR recommendations, if you were in their shoes...even assuming you wanted to do the RIGHT thing?
With all the tranformation going on "around" our industry (with many non-representation models appearing on a fee-for-service basis, for example, and the great influx of new technologies and communication methods that impact not only WHAT is done but HOW it is done) there is still HUGE resistance to challenging the "traditional" real estate model practiced by the vast majority of real estate companies and agents around North America. This is particularly surprising given the departure from "seller sub-agency" that took the industry by storm in the 1990's! Today, for the most part, there's still a reluctance to admit that anything has changed - to insist that real estate be practiced in predominantly the same old way way, despite the growing outcry from the consumer that the same old way simply is not enough anymore!!!!
But remember that book I was talking about? It was the precurser to a new alternative in real estate...a way of looking at the real estate needs of the consumer differently, sensibly. It recognizes the fact that consumers want transparency in real estate. They've never quite understood the commission approach (not that it shouldn't be an option....just that it shouldn't be the only option!). They want choices in what services they can avail themselves of, choices in how and when they can pay for services. They want to understand exactly what it is they are paying for, and whether or not it makes sense for them to pay it at all. By the same token, agents want (and deserve) to be compensated for their time, their resources, their expertise. Good agents bring a great deal of value to the table, but for too long have had to rely on income from efforts that might never materialize, generally due to circumstances outside their control. Thats like going to work every day, putting forth your best efforts on behalf of your employer only to discover that, at the end of some weeks, there simply was no paycheck.
Today there is an option available that addresses all of the above. It's an option offered by increasing numbers of agents around North American. It's called ACRE (Accredited Consultant in Real Estate). You can take a look at the ACRE landscape at The Consulting Times. Be sure to click around the Consumer Edition as well as the Professional Edition. And by all means, take a look at the map. I'm there. I hope to see YOU there, too!!!