Reclaiming the REALTOR Movement, Part 1: Identifying the Problem

To solve a problem, you must first identify it

It is no secret to anyone who has read Notorious ROB for more than a couple of weeks that I am a critic of NAR as it currently operates. I have been a fierce critic of the current and recent leadership, of its idiotic policies (such as the Speech Code), and of its misplaced priorities.

It should be no secret to anyone who has read Notorious ROB for more than a year that I am such a critic because I love the REALTOR Movement, its origin story, the work of the Founders and the noble ideals that it espouses. I have said repeatedly that I stay in the real estate industry because of the ringing nobility of the words and of the ideals of the Preamble to the Code of Ethics.

Under all is the land. Upon its wise utilization and widely allocated ownership depend the survival and growth of free institutions and of our civilization. REALTORS® should recognize that the interests of the nation and its citizens require the highest and best use of the land and the widest distribution of land ownership. They require the creation of adequate housing, the building of functioning cities, the development of productive industries and farms, and the preservation of a healthful environment.

Such interests impose obligations beyond those of ordinary commerce. They impose grave social responsibility and a patriotic duty to which REALTORS® should dedicate themselves, and for which they should be diligent in preparing themselves. REALTORS®, therefore, are zealous to maintain and improve the standards of their calling and share with their fellow REALTORS® a common responsibility for its integrity and honor.

I have spent most of my career in real estate trying to advance the ideals of the Code, sometimes with success and oftentimes to no avail. Along the journey, I have met hundreds of people in leadership, in staff positions, and in the membership who believe in these words and what they mean. And they see what I see: that NAR has become something different from what the Founders intended.

Organizations, like nations, go through cycles. G. Michael Hopf wrote the now oft-quoted saying: “Hard times create strong men. Strong men create good times. Good times create weak men. And, weak men create hard times.”

NAR today is suffering from the last stage: weak men and women have created hard times. But in order to understand what we must fix, we must understand how we got here. How hard times created strong men and women who started the REALTOR Movement, which then created good times, which then corrupted the organization that was supposed to safeguard and advance the Movement itself. Understanding what we must fix lets us become the strong men and women who must create good times again.

The Hard Times and the Strong Men

In 2013, a REALTOR named Doreen Roberts put together a fantastic documentary about the history of the Code of Ethics. If you haven’t seen it, or haven’t seen it in a while, it is well worth watching:

Roberts points out that the reason why real estate boards formed in the first place was that honest practitioners needed to know who they could trust. “Curbstoners” would defraud buyers and sellers left and right: forged deeds, phony subdivisions, double dealing, selling the same parcel multiple times, forging signatures… the abuses were serious and significant.

The 1907 Meeting in Duluth happened because honest real estate men (sadly, back then it was all men) wanted to get together to discuss how to solve the problem of widespread fraud and rampant abuse. The National Association of Real Estate Exchanges, the precursor to NAR, was created the year after in 1908 in order to separate themselves from unethical lying cheats. From the video linked to above:

And of course, in 1913, the members of NAREE unanimously adopted the Code of Ethics. It begins with Duties to Clients, because that was what was most important to the Founders. In 1914, NAREE added Duties to Prospective Buyers, since back then, real estate brokers worked solely for the seller. Consider, if you will, the character of the men who would voluntarily undertake duties to people who are not their clients, in order to advance the public good.

In 1924, the Preamble was added. The Ethics Committee, chairman Arthur Barnhisel, based it on the Preamble to the U.S. Constitution. And like the Preamble to the Constitution, it wasn’t meant to be a rule to be followed, but as an explanation of the reasons for having the rules in the first place. The Code itself may change, just like the Constitution may, to accommodate societal and technological changes… but the reasons cannot and must not change.

Creating the Good Times

These men of honor went to work to stamp out the curbstoners and frauds and to prevent some of the most abusive practices in real estate. They lobbied state legislatures and policymakers to promulgate laws and regulations for the purchase and sale of real estate in order to protect consumers.

The 1919 Real Estate Act of California, the first licensing law, was heavily pushed by California REALTORS:

After many attempts, the Association was successful in its sponsorship of a real estate license law in 1917. This first law was declared unconstitutional, but a revised act was passed by the 1919 Legislature and became the first real estate license law in the United States. Since its enactment, the law has been widely imitated and has become the standard for other states.

Buyers and sellers would now be protected not merely by the acts of private businessmen and private organizations, but by the force of the state.

At the same time, the Real Estate Exchanges — the precursor to the MLS of today — that were created so that honest real estate men can exchange information on properties for sale with other honest real estate men began to grow. The advantage of having a single source of information on inventory in an area drove membership growth, which had the salutary effect of bringing more people into the honest and pro-consumer way of doing business.

This is not to say that real estate was ever perfect, or that everyone involved with the REALTOR organization was honorable. As Doreen Roberts points out in her documentary, the first President of NAR, August H. Frederick of St. Louis, was convicted of swindling a poor widow.

It is to say that the early REALTOR Movement was concerned first and foremost about protecting consumers and protecting the public. The ideals of the Code and the Preamble are just that: ideals. They are goals to strive towards, not mere words on paper, or automatic status conferred just from joining the organization that has such ideals. Flawed human beings will fall short of them, constantly. Yet, it is better to have ideals and fall short than not to have ideals at all.

The Corruption, the Weak Men and Hard Times

The corruption of NAR and the REALTOR Movement took time, but it happened as may be inevitable when flawed human beings come together and organize. Just like the United States has been corrupted beyond what the Founders imagined, NAR was also corrupted beyond what the Founders imagined.

The reason was the same: success.

Our corruption as a nation can be traced in large part back to the end of World War II, when we emerged as a superpower… and for a few years, the sole nuclear power in the world. Bretton Woods system, created in 1944, meant well… but led to the U.S. having to back the currency of the entire world. Our industrial might was so dominant, with every other industrialized nation wiped out from war, that we became the factory of the world. And that success made us complacent. As the superpower who believed in freedom, we guaranteed the safety of the oceans and set ourselves against the communist Soviet Union. The military industrial complex was born during that time. Our success planted the seeds of our corruption.

Similarly, the success of NAR was the cause of its corruption.

Having lobbied for and ultimately convinced the state legislatures to enact laws and regulations to protect consumers in a real estate transaction, and having consumers understand the difference between working with a REALTOR or a curbstoner, and having the Association-owned MLS as a way to get information on available inventory, NAR saw its membership rise year after year.

Having won the war to protect consumers from the worst abuses and the worst frauds, NAR turned more and more inwards. It became more and more concerned about its members making money, and about the organization itself becoming larger, wealthier and more powerful.

I have come to that conclusion after reading through the works of William North, former General Counsel of NAR, which I wrote about extensively here. In the essay “Agency, Facilitation and the REALTOR” that he wrote in 1993, North says:

At the outset it seems appropriate to state that I consider the issue with which the Advisory Group is concerned to be of critical importance to the future of the real estate profession. The confusion, recriminations, ignorance, and self-interest which has characterized the discussions of the agency relationship of real estate brokers and salespersons during the past ten years has reached, what I believe to be, the crisis point. As a result of the agency debate, the real estate broker is rapidly becoming “all things to all persons” and therefore is threatened with losing is “professional identity.”

I have come to that conclusion after asking time and again, “What does the Code of Ethics require of a REALTOR that state law does not?” The most common answer, even from Association leaders, has been a shoulder shrug.

I have come to that conclusion after NAR failed to change compensation rules in the MLS, after abandoning sub-agency for buyer agency, as Brian Larson — formerly the preeminent MLS attorney in real estate and before that the CEO of an actual MLS and the architect of IDX — suggested in 2006. I wrote about that extensively here.

The culminating symbol of the corruption of NAR from a “Let the public be served” organization to a “Let the REALTOR be served” organization is when Bob Goldberg in one of his first speeches as the new CEO of NAR, said that NAR will be the National Association FOR REALTORS:

First and foremost, it’s imperative that we are not just the National Association OF REALTORS®, we are also the National Association FOR REALTORS®. Every action we take is geared to making sure our members come first.

As I wrote in 2017, that represented a complete departure from the origins of REALTOR Movement and strips organized real estate of nobility and high purpose. Indeed, NAR has done as Goldberg promised: every action it has taken since 2017 was geared to putting the paying member first — rather than the client, the public, or the nation.

The hard times we face today are the direct result of this corruption of purpose. Consider just the financial damage of the past couple of years. NAR itself paid out hundreds of millions of dollars in settlement costs, with potentially hundreds of millions more at risk from lawsuits and from possible enforcement action by the U.S. Dept. of Justice. Brokerages, most of whom had nothing whatsoever to do with the anticompetitive actions of NAR and its controlled MLSs, also paid out hundreds of millions of dollars… and they still face potential liability.

The entire compensation scheme has been upset, and the industry thrown into chaos. On top of it, NAR has a speech code that punishes REALTOR members for private speech on their own time that has nothing to do with the transaction. On top of that, the entire governance scheme for REALTOR Associations is hopelessly broken such that real reform seems impossible.

The Problems to be Fixed

Yet, real reform is possible; in fact, it is inevitable. It is a law of economics that something that cannot go on forever, won’t. The current situation cannot go on forever, so it won’t.

The only question is whether we as an industry can reclaim and restore NAR or simply let it go into the dustbin of history. I believe we can and should reclaim NAR and the proud history of the REALTOR Movement.

To do so, we must properly identify the problems, so that we can work towards solutions. Future posts in this series will attempt suggestions at solutions, but in this first part, I would like to highlight what I consider to be root problems of the modern world of NAR.

Too Many REALTORS

The first problem, which is at the root of so many others, is that there are simply too many REALTORS. The DANGER Report from 2015 had this as its A1 problem:

Ten years later, as we head into 2025, that problem has not changed one bit.

There are some 1.6 million REALTORS in the United States, against some 3.8 million homes sold this year. That’s fewer than two and a half homes sold per REALTOR. Which creates desperation in the ranks of less-productive REALTORS.

Too many REALTORS does not simply mean that there are too many untrained, unethical and/or incompetent agents joining the ranks. Having too many REALTORS creates unethical agents since a single transaction might be more than a third of one’s income. Ethics are great to have, unless you need to pay for groceries.

Association-Controlled MLS

One reason why there are too many REALTORS, of course, is that licensees must be one in order to get access to the MLS.

Even if a local Association were to want to raise the bar so that literally every licensee in the area can not claim the mantle of a REALTOR, it would face antitrust inquiry because it is making it more difficult for a real estate agent to make a living.

As long as the MLS is seen as a necessary utility for engaging in real estate brokerage, access to it must be granted to all and sundry, which means making them all REALTORS.

Where once the entire REALTOR Movement began in order to separate the honest, ethical and competent real estate men from the curbstoners, by linking MLS access to REALTOR membership, we now have the curbstoners inside the Association. Where once being a REALTOR meant something to practitioners, who knew that a fellow REALTOR could be trusted to do the right thing, it now means that you paid your dues as you are required to do. That’s it.

Some industry gurus talk about the death of cooperation following the death of compensation. How in the world do you have cooperation without trust? And how do you have trust when literally every single random person with a real estate license is a fellow REALTOR?

Furthermore, because the MLS is a necessary utility and a local monopoly, the Association has not had to earn its keep for many decades. People join the Association because they have to, which means the Association doesn’t have to do jack-diddly-squat to earn that membership. It isn’t clear that Association people know how to earn a membership after so many years of not having to do anything at all.

Broken Governance

Governance of both the Association and the MLS is completely broken.

1. Too many people. NAR has 986 Directors on its Board, which is almost double the size of Congress (435 Reps and 100 Senators). Texas REALTORS has a Board of Directors of approximately 200 people. Las Vegas REALTORS has a Board of 15 people. In contrast, Alphabet (Google’s parent company) has a Board of 10.

2. Unrepresentative. I am willing to bet a year’s income that if you asked ten members of any REALTOR Association, nine of them could not name all of the Directors who govern their Association. I am willing to bet a nice steak dinner that seven of the ten did not even vote for any of them.

3. Merry-Go-Round. The typical REALTOR Association — and controlled MLS — has a system in which the Officers change annually, and new Directors come on the Board every single year. There is precious little continuity.

4. Unqualified. Far too many of these volunteer leaders are in no way qualified to govern either a tech and data company (the MLS) or a trade organization with a mission of professionalism and advocacy. Their sole qualification is that they were either (a) elected by a tiny minority of the membership, or (b) appointed to the position.

5. Conflicts of Interest. Unfortunately, it is well-known by everyone who has ever worked with a REALOR Association or a controlled MLS that the Directors very often violate their fiduciary duties to the organization by pushing for and advancing agendas that benefit their brokerage firms, their own practices, or themselves. If any Director of any REALTOR organization was ever sued by the organization for breach of fiduciary duty, I am unaware of such a thing.

Broken governance makes it well-nigh impossible to make other reforms, which means it must be addressed.

Money over Country

Finally, because NAR won the battle for consumer protection and outsourced it to the states, it has become increasingly focused on money for its members over the civic responsibility and patriotic duty that the Founders of the REALTOR Movement valued.

Re-read the Preamble where the Founders clearly recognized that being a REALTOR meant being a patriot. The Founders understood that such patriotism and civic responsibility meant going above and beyond “ordinary commerce.”

Charles Chadbourn, called “Father REALTOR” for inventing the term and selling it to NAR for $1, wrote a letter for the Chicago REALTOR in 1922 explaining the term and its significance. He wrote:

The word Realtor signifies more than merely board and National Association membership. The true Realtor is a man of high ideals. he has made the code of ethics of the National Association a part of his personal code of honor. He would rather lose a record breaking commission than violate his own conscience. he appreciates the heavy obligations which he owes his community, his clients, his profession and himself.

Yet, today, we have the documented spectacle of REALTORS modifying a buyer agency agreement to make more money, and a state Association (Georgia) putting into writing, “Of course, the buyer’s broker can ask the buyers to amend their agreement, and hopefully, the buyer will not object to that.” We have documented evidence of a REALTOR handing over a buyer agreement in the driveway to a buyer and getting them to sign, without explaining a damn thing. [Taken from Tanya Monestier’s objection filing, embedded into the post linked to.]

None of these activities may be illegal, but none of them are “beyond ordinary commerce.” None of it reflects the heavy obligations which the REALTOR owes his community, his clients, his profession and himself.

It is tragic that so very little of what NAR and the State and local Associations focus on in advocacy reflects the civic responsibility and the patriotic duty that the Founders of NAR believed in so deeply. NAR’s legislative priorities argue that there is an “underbuilding gap of 5.5 million units” but not once mention the 15+ million illegal migrants who have crossed the border. At a time when housing affordability is at all-time lows — particularly for younger families and working class Americans — NAR is lobbying the government to treat foreign investors the same as American buyers:

NAR supports the right of foreign investors to acquire U.S. real property as well as the free flow of international finance for real estate, subject to the same laws and regulations that govern U.S. investors.

This is what happens when the National Association of Realtors becomes the National Association FOR Realtors.

Reclaiming the REALTOR Movement

Those are the fundamental problems that need to be fixed. Every single one seems completely daunting. It seems so undoable, in fact, that one is tempted to just give up… or not bother trying.

And yet, I believe the time is ripe for a change. It is now obvious to all that there has been a change in the national zeitgeist. The old ways of doing business, whether in politics or media or education or business, are dead or dying. The old alignments no longer hold; the traditional “Left” vs “Right” divisions no longer mean anything when Jimmy Dore, a committed socialist, is on the same page as Tucker Carlson on many issues. Those we thought were powerful and in control, whether CNN or New York Times or NAR, have proven to be paper tigers who blow with the wind far more than channel the wind.

As the American people begin to reclaim the government, to restore the country to at least some of the original vision of the Constitution, we in the real estate industry can and should reclaim the REALTOR Movement and restore some of the original vision of the Code of Ethics.

The work must be done, or else all may be lost. The dangers confronting the industry are serious and unavoidable. But in that crisis lies opportunity. The work can be done; it is not mere fantasy or dreaming. The work will take time, but it took years for the Founders to setup the REALTOR Movement over a hundred years ago. It then took decades to make things better for buyers, sellers, the public and the nation.

It will take time. But we, like the Founders back in 1907, must take the first step. Then another step. And then another.

In future posts, I will outline how the work can be done to solve one or more of the problems identified above. I recognize that reasonable people can disagree, and I do not believe that I alone have all (or any) of the answers. This is merely the start of an effort to pull together those who care enough to work on the problems.

I look forward to the journey with you all.