Why the NAR Settlement is Disappointing
When will we address the #1 problem for working REALTORS?
The last few days have been a bit overwhelming. I’m sure I’m not the only person in real estate who feels that way.
But while we’re working through what the Settlement might mean or might not mean, and how we all will change (or not change) over the next months and years, I was asked a question by one of the reporters I spoke to. I guess it wasn’t really a question as much as it was an observation, with the tone going up at the end, if you know what I mean.
The observation was that I seemed to be disappointed by the Settlement. Well, that’s true. I am disappointed by the Settlement.
The natural question, of course, is why? When a national settlement to put this commission lawsuit nightmare behind us is something we all have been wanting, and something we all knew would have to happen since no one in real estate could afford the damages, why am I disappointed?
I thought the explanation is worth going into, especially because of a discussion on Twitter last couple of days.
The Biggest Problem in Real Estate
The tweet in question came from Brandon Avedikian (@bavedikian) who I do not know. He appears to be a commercial real estate guy and a real estate investor. His entire tweet is lengthy, but his basic point is that the problem with real estate wasn’t commission rates but the ease of getting a license. He then writes:
After selling their cousins house (and probably losing their cousin a bunch of money in the process), these agents now sit around waiting for a deal to fall in their lap from time to time to make a quick buck.
These agents are not professionals. Their primary concern is not representing the interests of clients. They are looking for easy money.
…
People are harmed every day across the country from being represented by inexperienced, unprofessional real estate agents that have no business negotiating transactions.
Experienced, professional real estate agents are worth more than the commissions they are paid.
Casual, unprofessional real estate agents cost their clients far more than the commission they are paid.
We should be talking about removing casual, unprofessional agents from the real estate industry, not reducing compensation for the real practitioners.
Over the long years, I have beaten this dead horse a time or twenty. Everyone knows it’s the problem. I have slide after slide in presentation after presentation that showcases the problem. Here are two from a presentation in 2017:
I used to go to presentations at brokerages, at REALTOR Associations, and at MLSs and ask a question: “What is the #1 problem you have today as a working REALTOR?”
The consistent answer I got: “The agent on the other side of the deal.”
The hub-bub over the commission lawsuits has meant that #RaisetheBar has not been the topic of conversation for a few years now, but there was a time when that was priority one, two and three in brokerage and agent ranks.
It still remains the #1 problem of the industry.
The Numbers Game
I have already pointed out in numerous posts that the huge numbers of agents harms the working professional REALTOR. I wrote “Tragedy of Numbers or Why (Some) REALTORS Should Embrace the Coming Storm” back in 2022. In that, I pointed out that all of the gains in home prices and GCI did not actually help the agent.
Adjusting for inflation, we see that homes in American got far more expensive over the years. In 2011 dollars, the median home went from $166K to $290K, an increase of 75% over the ten year period. Accordingly, Sales Volume per REALTOR went up by 63% over the ten years in real terms, which means that GCI per REALTOR also went up 62.7% over the ten year period. Those are solid gains by any measure.
Trouble is, REALTOR numbers also went up significantly over the ten year period, going from just over 1 million to almost 1.6 million, an increase of 55% over ten years. The transactions per REALTOR trend bumped up for first three years, then steadily headed down.
If REALTOR numbers were held steady at 2011 levels, then by 2021, the average REALTOR would have increased their income by 151%. If REALTOR numbers were allowed to fall slowly through attrition, then the average REALTOR would have increased income by 207.5% over 10 years. If NAR had gotten aggressive with professionalism and decreased numbers by 5% YOY, then by 2021, the average REALTOR would have seen a 320% increase in income.
That the average REALTOR today has a median gross income of just $56,400 is an indictment of the broken system they work in.
And as Brandon points out above, these incompetent, unethical, and unprofessional agents harm consumers every day. It isn’t the professional agents who provide great service to buyers who are causing consumers to turn against the industry; it’s the hobbyists who ruin it for everybody.
The trouble is that we have far, far, far too many non-professionals in the industry today.
Cui bono? Who benefits from having so many hobbyists, so many part-timers? It ain’t the professional working REALTOR. It ain’t consumers. It isn’t first-time homebuyers or military veterans or minorities or anybody else who gets trotted out all the time as examples of people that REALTORS serve. They are hurt far more by having incompetent non-professionals handle their home purchase than is the hedge fund billionaire or the doctor buying his third investment property.
The Role of Steering in Propping Up Incompetents
What I have pointed out in the past, and continue to maintain, is that commission steering is a key pillar that props up the masses of incompetent agents.
Without the guaranteed unilateral offer of compensation, how else is the incompetent agent who fails to communicate with the client, who doesn’t know anything about the market, about housing, about laws and regulations, who barely knows the sales contract, never mind how to manage the transaction or the client’s emotions, who doesn’t know negotiation… how is that agent supposed to get paid? If the agent really only knows how to open doors and go, “Look at this lovely kitchen!” to become “procuring cause” and get a $15,000 paycheck, despite doing everything in his power to torpedo the deal through his incompetence….
And steering props up these incompetents. The listing agent doing her job has to advise the seller to offer compensation — whether the seller does so the old-fashioned way, or the newfangled way through “concessions” — the point is that the seller has a strong incentive to bribe the buyer agent, and the listing agent has a strong incentive to advise the seller to do so as long as steering remains a common thing.
Without commission steering, the buyer agent has to justify his pay to the buyer. The good professional agents would have no problems doing so. The incompetent hobbyist would. That would naturally shake things out of the market, and the best will rise to the top, while the worst would drop out of the industry… as they should. The newer, inexperienced, future professionals would find mentors or teams or other paths to gain the necessary experience and knowledge to one day make them top professionals who know what they’re doing.
So yes, I’m disappointed in this Settlement. If you are not, I’d like to know why not.
The Settlement: Winners and Losers
It seems clear with a few days of reflection — and with actual facts from the actual Agreement as opposed to spin from press releases and sock-puppets — that the only winner from the Settlement is NAR, its affiliates in Dar-al-REALTOR like Associations and REALTOR MLS… and the masses of hobbyist agents.
The COVID-like moment that these lawsuits created could have led to a win for the professional agent who might have seen a competitive advantage in competing for buyer business, and a decrease in the number of part-timers waiting for a deal to fall in their laps.
We didn’t get that.
We could have had some real pressure brought to bear on the 525 independent fiefdoms that are the local MLS — many of whom are too small to be of much value to anybody, especially the professional working REALTOR.
We didn’t get that. Instead, each and every one of those are now guaranteed to survive. Who does that benefit? Cui bono, indeed.
We could have had the long-needed divorce between the MLS, which handles data, and the REALTOR Association, which is supposed to handle lobbying and professionalism.
We didn’t get that. If anything, that linkage is now strengthened since the REALTOR MLS is freed up from any liability.
I’ve heard propaganda that this settlement somehow clears the 1.5 million members of NAR from any liability. Except that no lawsuit anywhere was suing individual agents, and every lawsuit against agent teams would have gotten dismissed due to how real estate license law works. So this Settlement immunized a bunch of people who were already not being sued? What a victory!
So yes, I’m disappointed. Aren’t you?
Acceptance of Reality and Moving On
Still. If making it to my fifth decade taught me anything at all, it is that grownups accept reality as it is, rather than as we’d like it to be.
As Marlo Stansfield might put it, you want it to be one way, but it’s the other way.
Until the facts on the ground change, we have to deal with the real. And the real is that things won’t change much because of this Settlement. The professional working REALTORS will have to keep on keeping on as they have for years and years, despite the deck being stacked against them. It’s what they have always done, so it is what they will continue to do.
Those of us who root for them, and want a solution to the number one problem of the industry — too many crappy incompetent hobbyists who have no business representing anybody on the purchase of a candy bar, never mind the most expensive thing they will likely ever buy — will have to keep on keeping on, despite the deck being stacked against us.
It’s what we have always done, so it is what we will continue to do.
I love this perspective and the one piece that I would add is that NAR needs as many hobbyist and nonprofessionals as possible to continue the dues flowing in. There is absolutely nothing that incentivizes them whatsoever to thin the herd and focus on professionalism. The biggest victory they have is that the requirement for agents to pay them dues to access the MLS is still very much alive and kicking. Left to their own without the mandatory tithing they would fail. Until that changes there is absolutely no possible way to thin the herd. Agents need to unite against that and put pressure on their brokerages and local boards for change.
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