The Relationship Narrative and Its Flaws

There is a persistent narrative in the real estate industry. It is persistent because at its core, there is a lot of truth to it. Yet, it’s a narrative that has overextended that truth and is now threatening to become a blinder. Therefore, it somehow falls on me, the voice in the wilderness, to warn against it.

That narrative is that real estate is all about relationships.

We see it most frequently when some newbie to the real estate web posts on social media somewhere, “Do you think agents will go away in the next few years?” or some such thing. The responses uniformly, at least until they descend into some anti-Zillow madness, are something along the lines of, “Real estate is a relationship business, and nothing will ever change that.”

The narrative essentially is that consumers will always, always, ALWAYS need someone to help them through the complex and emotionally draining transaction that is often the largest financial transaction of their lives, and that the real estate agent who maintains a strong relationship with that consumer will always be needed.

I heard this just yesterday when we were recording a Zoom panel session for an upcoming CMLS event. One of the panelists talked about how the relationship between the consumer and the agent cannot be disrupted. It’s so important.

We hear this all the time in the public earnings calls of all five publicly traded entities, including Zillow. All of these major CEOs talk about how the relationship between the consumer and the agent is paramount, how it’s human nature, and cannot be disrupted.

Here’s the thing: they’re all correct.

I do think there is something in human nature that wants validation from another human being when making important life decisions, and few life decisions are as important as buying or selling one’s home. I am one of those people who believes that the consumer-agent relationship cannot be disrupted, no matter what happens with technology, because of that aspect of human nature.

Having said that… the problem is when that essential truth becomes a narrative about the industry as a whole. The truth is about one thing: the relationship between the consumer and the agent, because of the innate human need for approval and confirmation. That core truth does not mean that real estate as a whole is nothing but a relationship business, and disruption is impossible.

I think people in the industry need to think long and hard about whether their strategies are based on the narrative that ate the truth, or on a clear picture of their particular reality. Let me explain.

Real Estate Is a Relationship Business…

As many of you know, I’m married to a recovering broker. So I have heard her war stories for years now.

It’s remarkable how so many of the agents who are posting all over Facebook that real estate is a relationship business, and how their clients will never leave them because of their strong years-long relationship, will go to their brokers and say the following:

“I know you brought me into real estate, and we’ve had a great relationship for the past 8 years, but you know, that other broker is offering a 5% better split… and I have to do what’s right for my family.”

Sunny told me one story where the agent was crying as she left the office, and asked if Sunny was still coming over for dinner Thursday.

On a smaller scale, I have never once heard of an agent agreeing to a higher split because of her long relationship with her broker, who she loves, thinks is a great guy, and acknowledges has added enormous value to her career with all of his advice, his coaching, his mentorship. Not one has then said, “I know I qualify for the 85/15 split, but I’d like to stay at 70/30 because of our relationship.”

Two things come to mind here.

One, if an agent can leave her broker with whom she has had a 10 year relationship over 5% in splits, that agent’s client can leave her for another agent no matter what their “relationship” has been in the past.

Two, just because an agent has a strong relationship with her broker does not mean she wants to pay him more. Similarly, just because a client has a strong relationship with the agent does not mean that he wants to pay her more.

It is true that we humans have a need for validation from other humans. It does not follow that that other human must be a specific real estate agent. It could be a different real estate agent, a parent, a friend, or any other human we trust.

I don’t know about you all, but I realized this when I bought a truck recently. Even knowing that the salesman worked for the dealer, knowing that the Finance Manager worked for the dealer, and even knowing that they’re both out to extract as much money from me as possible… I found their approval of my purchase somehow… reassuring. Them telling me, “You made a fantastic choice!” somehow made my purchase seem reasonable and justified. That’s how deep this need for validation is (especially since Sunny was not giving me the same validation).

I didn’t need my own truck buyer agent, who owes a fiduciary duty to me, to tell me that to feel better. I just needed another human being to approve. It’s really weird, and I chalk it up to some tribal ancestor in the dim past… but that’s what it is.

So the fact that the client-agent relationship is rooted in a psychological truth does not mean it cannot be disrupted by another human being. It just means it can’t be replaced with robots and software and apps. It’s a very limited sort of non-disruptibility.

Your Business in Real Estate May Very Well Be Disrupted

The second flaw in the narrative taking over is that while the client-agent relationship is difficult to disrupt, that does not mean that your business in real estate is difficult to disrupt because of “relationships.”

The brokerage example above is one. You can believe all you want that you have this incredibly strong relationship with your agents whom you have known for years and nurtured from a newbie to a top producer. Every single broker reading this knows that doesn’t mean much when a competitor comes along offering a better deal.

Technology companies can talk about their strong relationships all they want, but they’re smart enough to know that their clients would jump ship if a better product or a lower cost product comes along.

The particular blind spot I see the most, perhaps because I work with them the most, is in MLS and REALTOR Associations. Many of them believe that their business cannot be disrupted because they have strong and really great relationships with their members. It’s shocking how many small MLSs and Associations believe that they’re immune from disruption because they’re local, they provide great customer service to their members, and because their members can walk in anytime and talk to the CEO.

If an agent can leave a brokerage for a better deal, despite the relationship, then a brokerage can leave an MLS despite the relationship. It can all be disrupted.

You are fooling yourself if you think it can’t happen to you because real estate is a relationship business.

Understand the Truth Behind the Narrative

The main point here is that you have to understand the truth behind the narrative, rather than basing decisions and strategy on the narrative itself.

The client-agent relationship if difficult to disrupt because of human nature for external validation. That doesn’t mean that you are the only person who can provide the validation. Therefore, you need to do some work to make sure you can’t be replaced.

The classic example here is the agent who gets upset that a client who bought with her five years ago has listed the home with another agent. Then you ask, “Well, what have you done to maintain that relationship over the last five years?” and the answer is that she had sent them a quarterly email newsletter, done some postcard drops, and invited them to the annual client appreciation party… to which the client had never come. That’s not a relationship. Why be upset that you lost a “client” into whom you have put no effort?

Or they have done more, felt there was a real relationship, then get pissed that the client listed with a “discount broker” across town. Don’t get pissed. Not when you’re actively entertaining recruiting offers from another broker because his split is better and the cap is lower… while your broker is thinking about the wonderful relationship you two have. Compete, just like your broker has to.

If you’re an MLS or an Association, you’re not used to competing because you have local monopolies. Don’t mistake that for a relationship with your members. Most of them are not in a relationship with you; they’re just hostages to the monopolies you have built. That gives you a great deal of strategic flexibility, but that also means that you can be disrupted. “If you love me, you’ll keep paying me even though you have no choice” strikes me as a poor substitute for a genuine relationship.

None of this means that relationships are not important. Of course they’re important. But that’s true in every industry, not just real estate. There’s little that is so special and unique about real estate that warrants the sweeping narrative, “Real estate is a relationship business.”

So build relationships. Maintain them. Put in the effort. But never forget that consumers, agents, brokers, MLSs — every human being in other words — always want what’s best for their families. They all want the very best for free or lower cost, and you have to convince them to part with their money because what you’re providing is worth it. It doesn’t get more fundamental than that in trade, in business.

Like the human need for validation, that truth is also eternal.

-rsh

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Rob Hahn

Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

5 thoughts on “The Relationship Narrative and Its Flaws”

  1. ROB,

    Seems Redfin has proven, at least on the brokerage side, that “thin” relationships work just fine. A good product goes a long way towards capturing engagements that could lead to, or maintain, relationships.

    IMO, without those differentiating and special products/services to keep those relationships firm….a divorce and new marriage is probably in the cards.

    I think the brokerage process will continue its’ evolution towards consumer-driven reasons for leaving Aunt Suzy out of their next home purchase in favor of that better, faster and cheaper way.

    Hey, who knows, cousin Vinny just may work at that shop with all those slick, efficient and successful tools? A win for the family and the consumer. 🙂

    Thanks,
    Brian

    Reply
  2. The relationships between the consumer to a real estate agent is based on honesty and not on what is cheaper or and and faster. The consumer may list his home with other agent just because it is cheaper, but that can be very costly in the end. A smart consumer will always choose an honest agent over the agent who charges 0.5 % less in commission. I have seen many times those sellers or buyers who wanted to pay less in commission, ending up regretting on their decisions.You always get what you paid for and you can rest assure there are no miracles here.

    Reply
    • “You always get what you paid for and you can rest assure there are no miracles here.”

      Does that apply to brokerages and agents as well?

      How about franchises and brokerage companies?

      Tech vendors who sell CRM packages?

      Reply
  3. Well if you’re like some firms/brokers, they recruit with cash bonuses (the carrot) and then just put in a clause for a claw back on that money and in 2 years the split will reduce (I’m just guessing this is what brokers do). Pretty sure (guessing) this should keep agents locked in (sarcasm). Or: “Our split schedule says you should be at the 60% split but we’ll give you 75% for the next 3 years” and than the broker will put a clawback on the difference of the split given and the “schedule”. When non-competes stopped working (due to judges saying they were unenforceable- depending on state of course) the clawbacks always seemed to scare agents into staying put. What do I know? But feeling pretty confident those split schedules are worthless. If a broker ever says it’s a trade secret, I’d spit my water out…not worth the paper they are written on. Well not entirely, I guess the split schedules are good for clawbacks–and it’s worth a lot of money to be able to bully an agent into not being able to leave for the competition. Dog eat dog business. Agents really do need lawyers before they sign anything. Agents should at least look up the court cases of the recruiting firm…find out if the firm is litigious before they accept that carrot.

    Reply

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