Let us continue with the hope-mongering, looking at the bright side of armageddon (for the real estate industry).
This entire series assumes that some combination of civil anti-trust lawsuits and the federal government results in the end of cooperating compensation. There’s already quite a bit of handwringing going on about that prospect, with authors and commentators preaching to the choir about how the status quo is the bestest of the best.
Too bad they’re just preaching to the broker-and-agent choir, instead of making arguments to the judges and DOJ investigators and FTC regulators….
In any event, let’s suppose that the unthinkable happens and cooperating compensation goes bye bye. In part 1, I theorized about the upside for real estate agents stemming from restoring price signals to real estate brokerage. In this part, let’s consider the upside for organized real estate.
My thesis is that doing away with cooperation and compensation will Make REALTOR Great Again.
Hear me out… and if you’re deeply invested in REALTOR-land today, try not to get emotional, and instead think through this logically.
The Original Vision of the REALTOR Movement
Back in 2017, I wrote a lengthy essay titled “Remember Who You Are.” It was in response to the first major speech by then-new CEO of NAR, Bob Goldberg. In that essay, I pointed out that the origins of the REALTOR movement were around public service.
I embedded an excellent video from REALTOR Doreen Roberts in that post, and I’ve embed it again below:
And since everything I wrote then remains the same today, let me just do a long copy-and-paste.
It is obvious that the founders of the National Association OF REALTORS were driven by the need to protect consumers and the public.
Fraud, misrepresentation, forgeries, lies, swindling — these were commonplace in the real estate business of the late 19th and early 20th centuries. “Curbstoners” were not rare exceptions, but far too common for honest businessmen to tolerate.
As Ms. Roberts says:
The board presidents were asked what goals the proposed organization should have. Their replies were first, for standards and ethics in business practice; second, for exchanging information and statistics on the real estate business; and for all involved to promote real estate ownership and development. Separating themselves from unethical sharks and curbstone brokers was a primary concern.
That is the origin of the REALTOR Movement. That is why the organization existed at all.
Later on, Ms. Roberts notes that upon the adoption of the very first Ethics of the Real Estate Profession by the National Association of Real Estate Exchanges (the forerunner to National Association OF REALTORS), “the shift from let the public be damned to let the public be served was complete.”
That is the origin of the REALTOR Movement. That is why organized real estate existed at all.
The Code of Ethics, the document that distinguishes a REALTOR from a mere licensee, embodies this concern for the consumer and the public. From the Preamble to the Code, which I quote a lot:
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. [Emphasis added]
I love these words. Who could not? They ring of concern for not just the buyer and seller, but for the public, for the interests of the nation and its citizens. They talk about grave social responsibility and a patriotic duty. The REALTOR Movement, at its heart, is a patriotic, public-minded, socially responsible movement. They are every bit as inspiring to those of us who work in the real estate industry as the Declaration of Independence is to the American people.
So that’s who NAR was at its founding. These ideas are the original vision of the REALTOR Movement.
What about today?
The Truth About REALTOR Associations
It is about time that we all said out loud what everybody says behind closed doors, in the hallways, and when the microphone isn’t on. And when I say “we” I mean literally everyone in the industry, from CEO’s of REALTOR Associations to Board members to junior staff, who would get up on stage after stage and talk about how awesome and amazing and important REALTORs and the Association and RPAC are. We are talking about the same men and women who commission multimillion dollar ad campaigns talking about the Code of Ethics and are like, “REALTORS are GRRRRR-EAT!” in public… who in private share clear frustrations with the truth about the Association today: the call is coming from inside the house.
I have been giving presentations pointing out the obvious for quite a few years now — at least since 2016 and probably earlier. Keep in mind, the NAR-commissioned DANGER Report was published in May of 2015. And Stefan Swanepoel, the author, listed lack of professionalism as Danger A-1.
What I had to point out, however, was the step that no NAR-commissioned study could or would take: that the vast majority of those untrained, unethical, and/or incompetent agents are card-carrying dues-paying members of the National Association of REALTORS.
The curbstoners are inside the REALTOR Association, and everyone knows it.
Now, honest businessmen (and businesswomen) must not only tolerate the curbstoners, they have to share the same trademarked logo and brand name as those curbstoners. Sometimes, the curbstoners end up in leadership positions, set actual policy, and are put in charge of enforcing the Code of Ethics, while actually saying (this actually happened) “If I violated the code, I’ll pay the fine; it’s just cost of doing business.”
That sound you hear is Charles Chadbourne rotating in his grave. He had written in 1922:
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.
All of the various efforts over the years to increase professionalism, from speechmaking and cajoling to the stillborn C2EX program to whatever else eager new leaders want to propose, all fail. Over and over and over again.
Why do such efforts to raise professionalism fail?
Well, There’s A Lot of Money Involved…
There are dozens of theories, of course, but at heart lies the truth that only gets whispered off-stage, off-camera, off-social media: the Association makes a lot of money from membership dues.
NAR’s 2019 Form 990 states total revenue of $338 million, most of it from “Program services” which in turn means “Member dues.”
In 2019, NAR had $116 million in Net Income, a profit margin of 34% — quite a feat for a nonprofit organization. To be fair, that offsets the $13.6 million loss in 2018, and some $32 million came from sale of assets, but still… that leaves a lot of millions from member dues.
And by most reliable measures, there are now some 1.5 million REALTORs in the United States and about 2 million licensees (September 2021). So three out of four people with a real estate license are paying REALTOR dues.
That’s a lot of money, and we haven’t yet even touched how much the local and state Associations make from dues.
No wonder the curbstoners are inside the walls. No wonder we’re now dealing with the Association for REALTORS and leaders at every level obsessing over how their Associations can deliver more goodies, more benefits, more value to their dues-paying members. It’s the way that incentives are now set up.
I don’t blame NAR and its leadership for doing what they’re doing; I merely state the reality of the present situation.
The Effect on the Ground
That kind of domination is great for business… if NAR and its affiliates were businesses instead of nonprofit public service organizations founded for the “interests of the nation and its citizens.”
Where it truly starts to suck is when the REALTOR brand becomes utterly meaningless because of over-saturation and the fact that curbstoners have the brand too.
Survey after survey, not to mention the actual day to day, boots-on-the-ground experience of REALTORS everywhere, show that not only do consumers not care whether someone is or is not a REALTOR when it comes time to hire someone to help them, most consumers don’t know there’s a difference between a REALTOR and a “mere licensee.” For that matter, it isn’t clear that most REALTORS know the difference either.
Like Xerox or Kleenex, REALTOR just means a real estate agent. Powerful brand! Except that the brand doesn’t differentiate because 3 out of 4 licensees carry the same brand.
And in many markets across the United States, it isn’t 3 out of 4 licensees who carry the same brand — it’s 100% of the working licensees who actually help buyers and sellers who carry the same REALTOR brand. Why? Because their MLS requires them to be REALTORS in order to join it.
We can go on and on, but the truth is that what is good for the Association’s bottomline is bad for its actual members. The members would benefit from the REALTOR brand being carried by say 10% of the licensees, which might make it a meaningful brand like CPA or CCIM. The members would benefit if every REALTOR were living up to the words of the Code of Ethics and the vision of the original NAR, since every transaction would be civil, cordial, professional and conducted with the highest level of expertise and integrity that individual could summon up.
But that’s not what’s happening on the ground.
The Co-Dependent Marriage
What we all recognize — and again, I mean every single person who might condemn this post in public for a variety of reasons — is that the MLS and the REALTOR Association are stuck in a bad co-dependent marriage of convenience.
There is no way in the world that NAR would have more than 1.5 million dues-paying members were it not for the fact that they need the MLS in order to conduct business, and most MLSs require REALTOR membership to gain access. And because most MLSs do, most brokerages and national franchises require their agents to become REALTORS.
Conversely, the MLS gets local monopoly status because NAR grants local Associations exclusive territories. The only market in the US that has actual competing MLS services is Atlanta… and that’s because one of the two competitors is a private broker-owned MLS (FMLS).
The Upside of Doom: End to the Dysfunctional Relationship
“Divorce is always good news. I know that sounds weird, but it’s true because no good marriage has ever ended in divorce. That would be sad. If two people were married and they just had a great thing … and then they got divorced, that would be really sad. But that has happened zero times.”
– Louis CK
So one major upside to doom is the possibility that we will see an end to the dysfunctional, co-dependent and loveless marriage between the nonprofit REALTOR Association and the (should-be) for-profit MLS.
I have long argued that divorce is better for both the MLS and the REALTOR Association, contrary to what most people in the Association-world believe. There are a number of reasons why, but let me touch on just three.
1. Contradictory Value Propositions
As noted above, the REALTOR Association brings the highest value to its members when (a) the REALTOR brand can be used as a differentiator in the marketplace, and (b) the REALTOR brand can signify true professionalism and high-minded idealism. For the Association to be valuable, it must be exclusive.
Conversely, the MLS brings the highest value to its users when it has the entire marketplace for properties covered. An MLS with 10% of the listings is of little use to anybody. For the MLS to be valuable, it must be inclusive — indeed, universal.
Divorce would mean that both the Association and the MLS can pursue their value propositions.
2. Mismatched Governance
A REALTOR Association is a nonprofit voluntary membership organization that has a Code of Ethics, some training (although most of it is useless today), and engages in lobbying efforts. Governance of such an organization should be as democratic as possible, and the stakeholders in an Association are the members themselves first and foremost, and then the public that the members serve.
Having dozens of Committees and numerous Board meetings and having all of the important decisions made by the Board or the membership is fine for a nonprofit membership organization. No one much cares if a church takes its sweet time making decisions on technology.
An MLS on the other hand is a necessary business utility that supplies data, technology, and a marketplace for properties. It should be operated as a business, whether a straightforward for-profit enterprise or a cooperative.
Even if the MLS is a cooperative, it is competing in an area that businesses can and do compete in: providing necessary products and services. Here, you can’t take your sweet time in committee after committee, deliberating for months on a course of action, and making business decisions in a democratic fashion after asking everybody for their input. With an MLS, a whole metric ton of people care if the MLS takes it sweet time making decisions on technology.
One of the worst problems plaguing the MLS today is that it has imported the governance model from the nonprofit REALTOR Association.
3. The Association and Antitrust Law
One of the problems with the marriage is that the DOJ considers the MLS to be a necessary utility for real estate agents to be in business. So instituting rules that deprive an agent of access to the MLS could run afoul of antitrust law.
This has been one of the problems with putting in provisions that raise the bar for REALTORS, when access to the MLS is tied to REALTOR status. (The other issue is that a local Association often can’t put in rules and standards without approval from NAR, but that’s a whole different story we deal with below.) Today, there is no real difference between what the Code requires and what the state laws in every jurisdiction requires in terms of professional conduct. That can change.
Post-divorce, the Association can truly strengthen its standards and require far more from its members than the law requires from mere licensees. The government is not going to take issue with Associations requiring even more education, or requiring apprenticeship, or whatever for membership… as long as non-members can get access to the MLS.
Since I believe that part of the Doom will be the government not merely eliminating cooperation and compensation, but potentially eliminating any tying between REALTOR membership and MLS access, this long-awaited end to the dysfunctional codependent relationship is a positive.
The Upside of Doom: Restoring the REALTOR Brand
If we can get a divorce of the MLS and the Association, then as mentioned above, the Association can get busy making the REALTOR brand meaningful again.
Freed up from the need to worry about antitrust, those who want to remain as REALTORS, those who want to voluntarily embrace the call of the Code of Ethics can do so… and strengthen the Code of Ethics even further.
Does the state only require 60 hours of instruction to get a real estate license? Well, the Association can require 600 hours of instruction to become a REALTOR.
That instruction can be in topics that actually matter to consumers: financing, property law, construction methodology, appraisal, environmental impact, etc. etc. Perhaps apprenticeship is required to become a REALTOR, even if it isn’t just to get a license. Perhaps a licensee has to prove her expertise with 20 or 30 error-free transactions, under the oversight and tutelage of REALTORS, in order to join as a member. Perhaps the REALTOR is required to have professional photography on all listings, or respond to all offers within 4 hours, or whatever the standards are that fellow REALTORS set for one another.
Or maybe the licensee has to show real engagement in advocacy to show that she actually gives a crap about private property rights. Just writing a check to RPAC isn’t enough to show dedication to “Under all is the land” after all.
It actually doesn’t much matter what the Association requires, as long as the Association requires something. Whatever it is that Associations choose to do, fact is that anything that makes becoming a REALTOR a real achievement will help with the image and the value of the brand.
Imagine if having “REALTOR” after your name was seen the same way as having “CPA” or “CCIM” after your name. That is the sort of brand that true professionals can be proud to have, because it isn’t easy to achieve.
Freed up from the need to cater to the lowest common denominator, partially forced on the Association by having an MLS, we could see the REALTOR brand become meaningful again. And if the REALTOR brand is meaningful again, then perhaps all of the commercials and ads telling the public to use a REALTOR makes sense.
The Upside of Doom: MLS Consolidation, At Last
Once the linkage between the MLS and the Association is removed, then there is no more protected territory for the MLS. We should finally see real consolidation take place, and rapidly.
Without the local Association providing a protected territory, there is no way a tiny 300 person MLS survives. When the law prohibits tying REALTOR membership to MLS access, it isn’t obvious that the local Association would even have a say in what happens to the MLS. The market will do what the market will do, and I think that means a massive wave of real consolidation.
At maximum, we’re looking at 50 state-wide MLSs, since real estate license is at the state level. But given that we already have multi-state MLSs (BrightMLS being the primary example), and there is no technological barrier to serving real estate brokers from different states… I think we’re likely to see two to four major MLSs plus perhaps a dozen small niche MLSs when it’s all said and done.
Why those numbers? Because there are three major mobile communications providers in the United States: Verizon, AT&T, T-Mobile. Then there are a dozen or so regional providers that specialize in rural markets and other niches that the big three don’t really want to bother with.
There will be data sharing agreements between these MLSs similar to how the mobile phone operators have roaming agreements with each other to improve customer experience, but it’s important to note that the mobile companies all compete against one another even as engage in roaming agreements. They’re constantly engaging in M&A of smaller players as they expand operations into larger niches, and the smaller players are merging as well to expand their networks. I think we’ll see similar activity in the MLS space as even those who do data sharing will be doing so for customer experience, rather than as some kind of a hedge against M&A.
That will profoundly change how the industry operates, for the better and for the worse. But at the very least, we can finally say that the MLS is not “too many, too small, too poor.”
Let’s have some new and different problems in the MLS space, for a change.
Make REALTOR Great Again
There are other details that could be interesting, but this is getting long. Let me wrap up.
Supposing that cooperation and compensation goes away, the initial reaction from organized real estate will be panic, ashes, sackcloth. And some MLSs and Associations will immediately go under. But on the whole, I think the impact will be positive.
Freed up from the constraints of the Association, the MLS will be fewer, larger, and richer and more able to provide the products, technology, and services that brokers and agents and consumers want in 2021.
Freed up from the golden handcuffs that is the MLS, the REALTOR Association might have to adjust initially, but after the cuts and the layoffs are done, fact is that the remaining people can get back to the original vision of the REALTOR movement.
Those who remain, after the curbstoners have left or been kicked out, can return to recognizing that what they are are men and women of high ideals, who would rather lose a record-breaking commission than violate his or her own conscience. Those REALTORS can start to elevate the standards of membership and work towards fulfilling those grave social and civic responsibilities that they feel towards their clients, their communities, their cities and their countries.
That in turn leads to elevating the value of the brand, such that the public recognizes there is a difference between a REALTOR and a mere licensee, and acts accordingly.
I am extremely hopeful that we’ll see membership numbers drop initially as curbstoners leave… but then rise up slowly as more and more people — particularly the younger Millennials and Gen-Z who have a strong sense of social responsibility and want to be part of something bigger than just making a dollar — come back to find the meaning and the inspiration of the REALTOR movement.
Because what they do isn’t just making commissions on doing transactions. What they do is play a pivotal role in the creation of adequate housing, the building of functioning cities, the development of productive industries and farms, and the preservation of a healthful environment.
Make REALTOR Great Again.