Reclaiming the REALTOR Movement, Part 2: Making Membership Meaningful

Divorce of the MLS & the Association is a necessary first step

In Part 1, I identified the root problems of the REALTOR Movement. Having identified problems, we can look at actual solutions.

Because the problems are intertwined, it is difficult to break them up properly and logically to tackle the solutions one by one. In tackling what is perhaps the most important problem — that of far too many REALTORS — it is necessary to at least touch on two or three related problems.

A precondition of reducing the number of people who can claim the REALTOR brand is divorcing the MLS from the REALTOR Association. That likely requires governance changes, but we will tackle that in a future dispatch. It will certainly require a new Code of Ethics, but that may be the most challenging topic, so I will defer that to a future dispatch.

Still, I believe the solution will require certain basic principles, and taking certain unavoidable actions.

Necessary Divorce

As I mentioned in Part 1, as long as the MLS is seen by the authorities as a necessary utility for engaging in real estate, it cannot be denied to any licensee. World of REALTOR is already terrified of anything antitrust, and that would certainly be a problem in antitrust.

The solution then is as obvious as it is logical: the REALTOR brand must be divorced from access to the MLS.

How?

Seeing as how the detailed answers to that simple question was most of my consulting work back in the day, I won’t go into all of it. Suffice to say that if you really want to know for your particular organization, you can get in touch with me. But the key idea behind divorce is divestiture of ownership by the REALTOR Association. That’s where it gets sticky.

There are a number of MLSs today who do not require REALTOR membership for access. There are four states where the law prohibits tying MLS access to REALTOR membership. But those examples showcase why simply allowing non-REALTORS to join the MLS is inadequate.

First, human beings are fallible. It would take angels of heroic restraint not to use the MLS as a way to enrich the REALTOR Association. So many ways exist: Wholesale-Retail model (where the MLS “sells” its services to a local Association, who then resells it to members at a markup), control over forms, control over rules and disciplinary hearings, backdoor cash transfers (e.g., the MLS always sponsors the Association’s events), and so on. Even if the Association were to de-link the MLS from the Association today, leadership would inevitably change, and those new leaders would find it very difficult to avoid the temptation.

Second, in our capitalist system, he who owns a thing controls it. As long as the Association owns the controlling stake in the MLS, it will have the right to govern it. That governance is what has to be eliminated. There are a few MLSs who do the “Association-owned, broker-governed” thing with the Board stuffed with so-called “representatives” from various brokers, usually divided by size. But the owner has the absolute right, when push comes to shove, to change the by-laws, change the Board, change whatever he wishes… because he owns it.

Third, the extent to which a REALTOR Association has any influence on the operation of the MLS is the extent to which it will face potential liability from any kind of an antitrust action by someone somewhere who got pissed off that she lost access to the MLS. The whole point of the Divorce is to let the MLS be an MLS, while freeing the Association to pursue other goals.

So, it must be divorce. Not trial separation, or sleeping in separate bedrooms. Divorce.

There are numerous ways to structure such a thing, but the basic is in my 2016 CMLS presentation. I would modify a few things given my experience of the past eight years, but the fundamentals remain the same. Here is the relevant part:

I am certain that other consultants in the industry who have come on board the Divorce train can figure out specific ways to implement the Divorce, and the basics will remain the same: divide assets, divide liabilities, and provide for child member support. Feel free to drop me a line if you’d like some hard-won lessons about the pitfalls.

Raising the Bar

As I mention in the short segment above, and have written about in Part 1, the whole point of going through a divorce with the MLS is for the Association to be able to significantly raise the bar. By removing any linkage between REALTOR membership and MLS access, the Association — a private business league (that’s literally what Section 501(c)(6) means) — can now have whatever requirements or standards it wants for membership.

As I said in 2016, which brand do you want the REALTOR brand to resemble?

This is an entire section, to be addressed in a future dispatch, and something I feel strongly that the community should be involved in directly to craft. Nonetheless, I can lay out some principles that should guide the effort.

I have spent far too much time thinking about what it means to “raise the bar” in the 21st century context. There has been dramatic changes in technology and society since the early 1900s when the Code was created. Are the ideas and ideals perhaps outdated?

My answer is no.

Return to the Basics

If we return to the Preamble to the Code of Ethics, which is where the Founders put forth the reasons for having the Code in the first place, and we summarize its key principles, we get something like this:

• Best use of and wide ownership of real property is essential to freedom and to American civilization.

• REALTORS are motivated first and foremost by patriotic duty and civic responsibility.

• Those duties lead to obligations “beyond those of ordinary commerce” which the REALTOR embraces.

• In order to carry out those duties, the REALTOR is zealous to maintain and improve the standards of the profession.

• The standards of the profession — including cooperation with other professionals — exist to best fulfill obligations to clients, customers and the public.

Not one of these principles is outdated. Whether we use a handwritten flyer or the Internet or AI-powered robots to conduct business, the land remains under all. Patriotic duty and civic responsibility did not change because we have TikTok. The ideal of going above and beyond normal business ethics has not changed because AI is around the corner.

Whatever the details of the actual rules of the Code itself may be, the principles of patriotic duty, obligations beyond ordinary commerce, and continuously improving professionalism in order to meet those obligations have not changed.

There is also a strong subtext that these ideals are just that: ideals. They are meant to be aspirational rather than strictly practical. The rules themselves do have to be practical and enforceable, but the ideals underlying them do not. I get this idea from this paragraph of the Preamble:

The term REALTOR® has come to connote competency, fairness, and high integrity resulting from adherence to a lofty ideal of moral conduct in business relations. No inducement of profit and no instruction from clients ever can justify departure from this ideal.

Lofty ideals of moral conduct, from which neither profit nor instruction from clients justify departure. I am certain that the Founders knew that human beings are fallible, and might fall short from time to time. But I think they knew what they were doing when they set forth these lofty ideals.

Whatever new standards for membership may be in the 21st century, the underlying ideals have not changed. Which means whatever the reclaimed NAR will require for membership must go above and beyond both (a) the law, and (b) normal business ethics.

A Contemporary Example

It struck me the other day on how this would apply to a contemporary hot-button topic: Clear Cooperation Policy.

As some of you know, I am sympathetic to those who are against CCP. Looking at profit margins of brokerages, I get it. I really do. And in many cases, clients do ask agents to do things like private exclusives or Coming Soon or whatever; I did at one point as a seller. (I wrote about that repeatedly in these pages.)

At the same time, I am entirely sympathetic to those who want to preserve CCP because it leads to significant consumer and public benefit.

The ideals of the Code — rather than the specific rules — help resolve the conflict.

There is no law against private listings. Ordinary business ethics demand that large brokerages engage in it to maximize shareholder value. Client instruction sometimes require that agents do it.

But the lofty ideals of the REALTOR Movement prohibit it, except in perhaps the most delicate of situations. “No inducement of profit and no instruction from clients ever can justify departure from this ideal.”

That ideal, at its heart, is the recognition that there are duties of patriotism and civic responsibility which go beyond ordinary commerce. Ordinary commerce dictates that a brokerage do private exclusive listings as a matter of course; lofty ideals dictate that it refrain, despite losing profits and maybe even some clients, because the nation and our civilization are advanced when the public has as much information about housing as is possible.

It is important to recognize that there is no condemnation of ordinary commerce here. The Founders recognized that most businesses are fundamentally ethical. The fraudsters must be stamped out, but folks just trying to make a living are conducting regular business with regular business ethics. What the Founders wanted and required was for REALTORs to go beyond them. They would not condemn brokers and agents who want to do private exclusives so they can make more money; there is absolutely nothing wrong with wanting to make more money, to maximize profits. They just wouldn’t let them be REALTORs.

The Few, The Proud

Lofty ideals mean that those who aspire to them are by necessity a minority of the population. Ideals are expensive, especially in business, and yet… that is what is being called for.

The vast majority of people — even professionals — just want to make some money, provide for their families, and enjoy life. The small minority wants to go beyond and aspire to something higher, something bigger, something more noble. They may fail, and in fact, are likely to fail from time to time. But the goal remains.

If the goal can be achieved by everybody, then it isn’t high enough. If greater education and awareness leads to more and more people being able to achieve that goal, then the goalpost must be moved so that it remains ever aspirational.

Not everybody who wants it can get it. That’s the idea, and it must be the idea.

My personal rule of thumb, taken from CCIM, is that requirements for membership should aim for no more than 10% of licensees.

I advocate for a public advocacy requirement, because the origins of the REALTOR Movement are so strongly rooted in patriotic duty and civic responsibility.

I advocate for a very high continuing education requirement, because the principles of the REALTOR Preamble make it clear that continual improvement of knowledge, skills and expertise are required to meet those heavy responsibilities to the nation and its people.

I advocate for a very strict interpretation of what agency requires of the REALTOR, following the lead of William North. It doesn’t matter what the law allows and what smart business dictates. Going above and beyond those is precisely what it means to be a REALTOR.

Reasonable people can differ on all of these items, and so we should discuss such things and adjust as necessary. However, if it becomes easier and easier for mere licensees to meet those requirements, then the standards have to be raised.

The Risk and the Benefits

Let us be clear that taking this step, of divorcing the MLS in order to really raise the bar, is fraught with risk for the Association.

I have long estimated, following a number of studies, that the Association would lose some 70% of its membership overnight if the MLS were de-linked from Association membership. It is the reason why NAR has fought so hard against lawsuits against the REALTOR requirement.

Were the requirements to become and maintain REALTOR status be raised to be a true ideal beyond ordinary commerce, then even more people would leave the Association.

It may be that the REALTOR Movement itself becomes irrelevant, because the Association loses so many members. Lobbying power will certainly decrease with fewer members and the resulting loss in dollars.

Let us be honest about all of the risks.

But what are the possible rewards? Risks, after all, have to be assessed against the rewards.

There are, I think, three broad benefits from moving towards idealism.

The Brand

First and foremost, the REALTOR brand cannot help but be improved if only a small percentage of licensees can carry it, and if the brand is backed up with real differentiation between the REALTOR and the mere licensee.

It will take education of consumers, and time to prove in the marketplace over and over again, but the science of branding means that higher quality married to fewer sources will eventually elevate that brand in the consumer’s eyes. There is a reason why luxury brands like Porsche and Gucci limit supply, and focus on quality.

The ultimate outcome may be that the REALTOR brand becomes meaningful in the eyes of the buyer and seller. It may be that many consumers will choose not to work with a REALTOR because “Well, I’m just buying a run-of-the-mill condo; I don’t need a REALTOR.” Just like most people don’t need to hire a CPA to prepare a simple 1040EZ, but do want a CPA for complex tax situations, perhaps the REALTOR will be reserved for complex and significant transactions.

However, given that the home is usually the most expensive purchase a family will make, and the biggest asset they own, I think most buyers and sellers will seek out the highest and best representation they can afford.

That is… if they can trust the brand, backed up with real differentiation. Today, there is no difference between a REALTOR and a licensee, no matter what NAR’s TV ads claim. Tomorrow, there can be.

Younger and Real Members

Second, I have long argued that the younger generations are starving for a cause. More recently, a presidential candidate made the same point over and over again:

Leaving partisan politics aside, I think Vivek is 100% correct when he says that young people are hungry for a cause. Their involvement in political and social movements across the spectrum — whether advocating for trans rights or advocating for Trump — is driven by that desire to be part of something bigger, something more, something aspirational.

NAR has had its Young Professionals Network for almost 20 years now, since it was launched in 2006. And yet, YPN has accomplished precious little, and looks to be a social club for partying, and a way to climb the NAR ladder.

Back in 2019, I called on YPN to step up and take charge of a critical issue: housing affordability, particularly for younger consumers. I wrote:

Homeownership is not under attack; if anything, homeownership is widely subsidized and supported, in large part because of REALTOR political action. Think about it. Mortgage interest deduction alone is a giant gift to homeowners. What is under attack is becoming a homeowner, at least for the younger generation.

This YPN has failed to do in any significant way. How do we know that? Because of this:

Twenty years of YPN, and the homebuyer is getting older and older since 2006.

What’s more, only 7% of REALTORS are 39 or younger as Craig Smyser, a REALTOR in Austin points out:

The median age of agents in this trade group is 60 years old.  The median. For the math challenged, that means half the agents are 60 years old or older.  When I got into the business in 1999, the median age was 52, so it’s an aging industry.  Only 7% of agents are 39 or younger.  That just blows my mind.

Mine too, Craig. Mine too.

But this trend could change, and quite rapidly, if the reclaimed NAR were to become explicitly aspirational. Young people are hungry for a cause? What more important cause is there than Under All is the Land? The unaffordability of housing is the root cause of so many of our social problems today, from inequality to birth rates to crime.

I submit to you that there is no more important and no more urgent issue to solve as a nation than housing, and I submit to you that an organization whose reasons for existing is “the creation of adequate housing, the building of functioning cities, the development of productive industries and farms, and the preservation of a healthful environment” will truly inspire younger generations.

Tap into idealism and hope, rather than into cynicism and chasing dollars. You will have real members.

Political Power from Activism

Third, I have long believed that real political power comes not from just numbers on a piece of paper, but from engaged activism. It’s one thing to lobby a state legislator saying you represent 10,000 REALTOR members; it’s a whole different thing for 100 REALTOR members to show up to his office. That’s ground game and it works.

The risk to voluntarily reducing membership number is less political power in the Old Way of doing things: political donation and frontin’ membership numbers. The reward to doing so — particularly if the new aspirational and inspirational NAR is able to draw younger members who are explicitly political, and devoted to the ideals of the Preamble — is greater political power in the New Way of doing things: social media, turnout, and grassroots.

If NAR membership goes from 1.6 million to 160,000… but all 160,000 are hardcore Under All is the Land people, willing to travel to Washington DC to rally in front of Congress… I submit to you that the smaller, hardcore, activist NAR would have greater political power.

If NAR membership goes from 1.6 million to 160,000… but 80,000 are under 39 years old, and they’re all over TikTok and Instagram and telling their peers about why local zoning regulations make it impossible for them to buy a house… then convincing a few hundred young people to turn out for a rally on the statehouse steps… I submit to you that the smaller, hardcore, activist NAR would have greater political power.

The days of NAR as a top five lobbying powerhouse in Washington DC might be over, but the days of NAR as a top five grassroots political movement are ahead of us.

Malice Towards None, With Charity for All, With Firmness in the Right

Let me wrap up here, as future dispatches will come back to this most important of topics.

I am quoting from Lincoln’s Second Inaugural Address to stress that the path forward to reclaiming NAR and the REALTOR Movement is to clearly recognize that what the Movement requires is lofty ideals that are not for everyone.

There should be and can be no condemnation or looking down on those professionals who do not embrace such lofty ideals. As long as they obey the laws, and obey regular business ethics, they should be accepted by everyone in the industry for doing the expected thing.

With a new Code of Ethics that goes far above and beyond what the law requires, what business sense requires, and what normal ethics require, the REALTOR of the future would have malice towards none who are in compliance with the law. The REALTOR of the future would have charity for all, welcoming and encouraging fellow professionals to embrace the lofty higher ideals.

In pursuit of those lofty ideals, the REALTOR of the future would believe with firmness in the righteousness of the cause. Housing is the root cause of so many of our problems as a nation and as a society. American civilization itself depends on the wise utilization and broad ownership of the land, that is under all. If such patriotism is uncomfortable… well, there is no condemnation to be had. No malice. You are free to believe what you believe. But you cannot be a REALTOR, who is a true patriot at her core.

To achieve any of this, divorce between the MLS and the Association is necessary. That divorce must be total separation and divestment of controlling ownership stakes by the Association. The Association should do this not out of fear, not out of greed, but out of enlightened self-interest, recognizing that letting go of the MLS cash cow is in fact how the Association will thrive by restoring the original vision of the REALTOR Movement.

Let us continue the conversation in the next chapter.

-rsh