Stepping out of the spin zone – Part II – One possible solution to what ails us.

Real Estate Issues
Stepping out of the spin zone – Part I – What ails the real estate industry?
December 20, 2010
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December 21, 2010

Inspiration:PerspirationInitially, I was going to put this all into one single post on real estate services and how to improve them.  But the last post on what ails the real estate industry was too long – so I decided to split this post into two parts.  I know that Jennifer Allen is planning a 10,000 word manifesto – and these two posts won’t be anywhere near that level – but still – if you hang on until the end and read both posts – my hat’s off to you.

This is of course –  a magic wand solution…There is no reason to think that this model – or any other model put out there, would ever be initiated.

All the elephants in the room pointed in one  direction:

In my last post, I named three elephants  that were in the room as well as the one of the main prevailing brokerage models. At the risk of being redundant…

1. Brokerages find it profitable to stuff their offices with as many agents as they can lay their hands on.
2. Agents and brokers consider that they are in a “lead generating business” not a service business.
3. The lead aggregating business is growing at an alarming rate and leads are worth far too much money.  When a raw lead can command 35%-40% of an agent’s commission – there is a severe structural problem.
4. The consumer is angry at being chased by what seems like a school of sharks with them as the bait.  They seem to have no way to discriminate between a good or bad agent and the brokerages all seem to be the same.

There are simply too few buyers and sellers.  Or, put another way, there are  way, way, way too many agents. Worse still,  many  of them are poorly trained, way too pushy  and far too focussed on lead generation.

Can we say it too many times?   It’s time to raise that bar!

The single best way to deal with this situation is to reduce the number of agents now working in the field.  Granted the agents now working, for the most part, would be Grandfathered.  But its time to restrict access to licensing as well as create a situation where it is not as desirable for brokerages to take in anyone with a license and a pulse.

Raising the bar would be GOOD for our clients and our reputation:

It is not anti-captialistic. It’s not unfair.  You want to play – you’ve got to pay.  You need to do the time and learn the trade BEFORE you let loose on your own to potentially mess up a transaction on what is generally a person’s biggest asset.

Agents go on and on about how important it is for the consumer to have proper representation such a complex transaction.   The correctly point out that the public doesn’t understand all the moving parts of a real estate sale from listing to closing table.  But you can’t have it both ways.  You can’t intone that you are worth every penny because the transaction is complex when it only takes 75 hours to get a license and then the agent is set loose on the general public.

Other professions control access to their industries…

As many of you know, I was a scientist for 15 years.  Access to graduate school was regulated by your resume and GRE scores as well as intangibles like experience and letters of recommendation. After graduate school access to industry was severely limited by the “post-doc” requirement.  When the post-doc started to exceed the time it took to get a Ph.D. – people left the field.  Since my field was medically related, I observed access to medical school change with economy on a couple of occasions.  When the economy was humming – more of the best and brightest went to Wall Street. It got so bad that nearly 50% of all applicants were gaining admission to US medical schools.  That rang alarm bells and the powers that be decided to decrease the number of seats in order to maintain quality.  I’m sure similar methods are used in other professions.

If agents want to be considered respect professionals – its time they acted like it and more selective about who can actually obtain and keep a license.

What would the impact be…?

Rising requirements would clean out a lot of the super part-timers dabblers who are using real estate as a source of milk money. It would stop or at least give pause to a lot of the “get rich quick” types  who see an easy access to a license as easy access to quick bucks.

So fewer – new agents would enter the pipeline if we shifted access to a two year degree that could be completed in one year for those who had already graduated from an accredited college or university

Have a required apprentice period and a base salary for newbies:

Let’s make it harder for brokers to hire on anyone who is breathing.   One way to accomplish is to substantively change the way new agents are paid and trained.  Offer a base salary for new agents complete with medical benefits.  They would be employees with commissions.  Each new agent would be paired with an experienced agent who would be their mentor and work with them through their first dozen or so transactions.

By doing this – brokerages would be forced to make a commitment to the newer agent. Taking in new people would not be done lightly and would only happen when the market was such that new agents were needed.   This would also put the brakes  on dabblers and fortune hunters.

Both the commission model and the salary model would be viable options:

After the training period – it would be up to the agent whether or not they want to work for low commissions on salary or high commissions as independent contractors.

The model would incentivize the brokerages to keep their numbers “realistic” and the hoops that new agents need to jump through  would discourage the wrong type of people from entering the business.

By grandfathering agents with – say – more than 25 transactions the industry would have time to adjust.   The numbers wouldn’t drop like a rock.   But the end result would  better real estate services for the public.  In the end – what is good for the public will be good for agents and brokers too.

Further Reading:

Stepping out of the Spin Zone – Part I – What ails the real estate industry?

Face to Face vs. In Your Face

“Lead Generation is what selling real estate is all about, plain and simple.” (Seriously?) – Jennifer Allan

If Tomorrow Never Comes – John McArthur

© 2010 – Ruthmarie G. hicks – – All rights reserved.

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