The Biggest Flaw in NAR’s Defense of Commissions

I’ve been busy, including my first actual physical business trip in quite a while. I am happy to report for those who might have FOMO that air travel is even less pleasant than it was pre-virus. Trust me, you ain’t missing nothin’.

In the strat plan session I ran, we talked about the commission lawsuits of Moehrl, Sitzer and Leeder. And on that very topic, Charlie Oppler, President of NAR, penned an op/ed piece for Inman News, titled, “How the agent commission structure benefits everyday Americans.” His basic argument is that the current cooperation & compensation structure gives consumers the ability to get critical advice when buying a house:

Real estate agents help people navigate complex, data-heavy and voluminous information, details and decisions. It could be easy to take what they do for granted, but it adds up to the benefit of homebuyers.

We’re talking coordinating with lenders, providing information on mortgage rates, managing attorney reviews, handling closings and advising on zoning, ordinances and regulations. It also includes arranging appraisals and inspections, serving as a professional negotiator, ensuring clients get the best price and terms, advising on the latest trends or shifts in the local housing market and traffic, providing information about local, county and state property taxes, and navigating all required state and federal documents.

This is all done in today’s extremely competitive market with a record-low inventory of homes for sale, while helping buyers craft offers that stand out in ways other than offering the most money. All that for a median gross income of $49,700 for Realtors.

He’s not wrong. When the average family is buying the most expensive thing they are likely to buy ever, and entering into a 30-year loan agreement, they should absolutely get as much professional help as they can. A great REALTOR is simply a wonderful ally, guide and advisor.

Trouble is, Oppler ignores the elephant in the room, which constitutes one of the biggest flaws in defense of the current structure of compensation. I understand why he does, because he is the President of NAR, and represents the interests of its 1.4 million members. He can’t possibly admit the truth about this enormous flaw. I get that.

I am under no such restrictions. So let me say what Oppler (like every NAR leader I have ever met) likely wants to say, but can’t say. Let’s talk about the elephant in the room: incompetent REALTORS getting paid the same as great REALTORS.

The Problem of Incompetence

I’ve been talking about this for years, but frankly, this isn’t some kind of a secret. I’m not letting some cat out of the bag here. This problem of incompetence has been a plague on the industry since long before I even got started in it. In fact, it is NAR itself that commissioned Swanepoel to publish the DANGER Report in 2015 with this as the A-1 threat:

Read that again: “The real estate industry is saddled with a large number of part-time, untrained, unethical, and/or incompetent agents.”

Let’s face it: 99% of those untrained, unethical and/or incompetent agents are card-carrying REALTORS… because they have to be in order to get access to the MLS and because their brokers (who keep letting incompetents hang their licenses with them) mandate membership in NAR.

We know this is something NAR is painfully aware of, because it launched REALTORS Commitment to Excellence not too long ago:

Commitment to Excellence (C2EX) from the National Association of REALTORS® empowers REALTORS® to evaluate, enhance and showcase their highest levels of professionalism. It’s not a course, class or designation—it’s an Endorsement that REALTORS® can promote when serving clients and other REALTORS®.

We are very proud to announce that there are now over 50,000 members participating in the program! This innovative engagement tool encourages participation in all levels of the REALTOR® organization, and at no additional cost.

50,000 members participating in C2EX, which itself is a voluntary, non-mandated online course of sorts. So that’s… 3.5% of NAR’s membership.

I could keep going, but again, every single one of you reading this right now knows with 100% certainty that there are a lot of REALTORS out there who absolutely suck at most of what Oppler mentions as the value of having an expert:

We’re talking coordinating with lenders, providing information on mortgage rates, managing attorney reviews, handling closings and advising on zoning, ordinances and regulations. It also includes arranging appraisals and inspections, serving as a professional negotiator, ensuring clients get the best price and terms, advising on the latest trends or shifts in the local housing market and traffic, providing information about local, county and state property taxes, and navigating all required state and federal documents.

Even worse, every single one of you knows with 100% certainty that many of those agents are not only incompetent, but unethical to boot.

None of this is subject to debate. I don’t care how much of a cheerleader you are for the industry, or for NAR, or for whatever; you cannot deny that we have a competence problem in the industry.

The Problem of Compensation

The flaw in the compensation structure that is impossible to overcome is the fact that these incompetent and even unethical real estate agents will get paid the same as the amazing expert that Oppler describes.

It’s one thing for the conscientious and competent REALTOR, who is coordinating with lenders, managing attorney reviews, handling closes and advising on zoning, ordinances and regulations, arranging appraisals and inspections, and negotiating effectively, providing information, etc. etc. to get paid $15,000 on a sale. Their efforts are worth that.

It’s a whole other thing for a REALTOR who doesn’t know how to coordinate with lenders, barely returns phone calls on time, wouldn’t know zoning ordinances if it hit him in the head, doesn’t know the contract, and the extent of “providing information” is to put the client on an auto-drip email from the MLS, whose lack of professionalism not only doesn’t help the client, but actually jeopardizes the entire deal, to get paid the same $15,000 on the sale.

Yet, that is what happens every single day in U.S. and Canada right now.

In fact, I could go on social media right now, ask a simple question, and get dozens of stories of how a competent REALTOR had to do the work the other agent is supposed to do just to hold the deal together. Yet, at the closing table, both of them will walk away with similar payment.

In what world is that fair, or reasonable, or anything other than a gross injustice? Literally nobody benefits from that incompetent REALTOR almost wrecking the deal. The seller had increased anxiety, the buyer almost lost the house, the other agent had double the work (or more) to snatch a closing from the jaws of incompetence.

Under today’s structure, there is no mechanism by which the seller, the buyer, or the competent agent could say to the incompetent agent, “You almost screwed the pooch; you get nothing.” Or $500 for the one good thing the incompetent moron did. Or whatever. There is no mechanism by which the parties to the transaction can reward going above and beyond, and punish incompetence or unethical behavior.

Indefensible

Fact is, this peculiar feature of our current system is quite simply indefensible. Oppler talks about how big money attorneys are attacking everyday Americans who are helping their fellow everyday Americans achieve the American Dream. That’s fine. But in defending the status quo, given the problem of incompetence, Oppler is trying to make sure that the moron who did very little to help their fellow everyday Americans got paid the same as the great REALTOR who did.

Conflating incompetent agents with the great advisors who really do help consumers achieve their American Dream is bad when plaintiff attorneys want to paint all real estate agents as greedy unethical mofos. But it’s also bad when we pretend that every REALTOR is a shining example of expert service and fiduciary loyalty.

What is so troubling about this, of course, is that NAR is the one organization whose very mission is to ensure that only those real estate agents who are what Charlie Oppler described can carry the REALTOR brand and wear the REALTOR badge. As the Preamble to the Code of Ethics says:

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.

This is quite literally NAR’s raison d’etre, its mission statement, its beating heart and aspirational soul.

And yet…

DANGER Report. C2EX. Innumerable complaints about incompetence, lack of training, lack of ethics. Widespread recognition within the industry that there are some real morons who shouldn’t be representing a family buying a doghouse for $99, never mind representing them in the single largest, most complex purchase of their life.

It really is simple, if you think about it.

NAR can only defend the current structure we have IF every REALTOR is that shining example of a committed and dedicated professional who adheres to a lofty ideal of moral conduct in business relations, and devotes himself to a lifelong pursuit of getting better.

That means NAR has to do something more than a non-mandatory online course to defend the REALTOR brand.

That means NAR has to do something more than implement a speech code to defend the REALTOR brand; it has to insist that a REALTOR be above all competent at the craft of conveying real property. That insistence has to have some teeth to it; it cannot just be preaching to the choir at NAR events and leadership conferences.

That means Charlie Oppler must do more than attack the big money plaintiff attorneys; he has to attack the untrained, incompetent and unethical agents (and the brokerages who hang those licenses) within the 1.4 million members of his organization.

I’m not entirely sure what the best way to do that might be, but let me make one suggestion: implement a rule that allows the buyer, the seller, or the competent agent to change the commission paid to the incompetent or unethical agent in the transaction after it is done. That change alone might save the current structure of cooperation and compensation.

Because the current structure is horrible for the competent agents with clowns to the left, jokers to the right, stuck in the middle with the consumer, wondering what it is they should do.

-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.

9 thoughts on “The Biggest Flaw in NAR’s Defense of Commissions”

  1. Great post Rob. I agree with you 100% and don’t know how in the world this will ever happen. Just this week in our office I had a buyer call me directly – we represent seller – because her agent told her to mail a paper check from Texas to our office for the deposit. She wanted to transfer the money electronically and her agent told her it was not possible. I sent her a link thru DepositLink (which we use every day) and she sent us the money. Her agent flipped – said it wasn’t safe and only paper checks should be accepted. She also almost lost the buyer the house because of her slowness to respond and lack of urgency in this hot market but that’s another story. This dinosaur needs to retire. We see unethical and incompetent agents every day. Until BROKERS take it upon themselves to hire and keep only competent people, this will go on.

    Reply
  2. Always appreciate the perspective and the premise of disparity in performances not reflected in compensation is spot on, yet again NAR is held responsible to an impossible standard. The problem isn’t the trade association, but rather the level of unprofessionalism served up by brokerage companies. NAR never hired the first salesperson. The brokers did that. This is what happens when the industry evolves (or devolves) to business models based on monthly fees and credit card charges where the broker profits whether the agent makes a true living. Business models where a single broker oversees (typed with more than a little hint of sarcasm) literally thousands of agents and simply hopes to stay out of jail. Perhaps we should bash the association a little less (or look for other justifications as they exist) and begin directing the blame where it belongs. There is no lack of great brokers out there who care about the customer experience and won’t retain an agent who fails to perform to acceptable standards. They are, however, facing a battle daily both economically and ethically by others who simply have figured out that they can make a buck without giving a damn.

    Reply
    • And always appreciate your thoughts and leadership, Budge.

      In this case, however, I’d ask you to consider something. Yes, NAR never hired the first salesperson. Yes, the brokers did that.

      However, no broker anywhere has as its mission statement, “Under all is the land.” No brokerage anywhere promises to take on “obligations beyond those of ordinary commerce.” No brokerage centers itself on “grave social responsibility and a patriotic duty” to which its agents dedicate themselves. Brokerages exist to make money; brokerages ARE ordinary commerce and probably should be.

      It is NAR that has all of those things as its mission, and accordingly, says that the REALTOR brand is distinguished from brokers and agents practicing ordinary commerce by adherence to those lofty ideals.

      Nobody forced NAR to take on those obligations, those lofty moral goals, those standards of professionalism; NAR and its members did that voluntarily.

      If the problem is that the industry has devolved to business models based on monthly fees and credit card charges, nothing stopped NAR from expelling such brokers and agents from its ranks. Nothing stops NAR from doing that today.

      You talked about great brokers who care about the customer experience who face a daily battle economically and ethically by others who don’t give a damn. That problem has always existed, and will likely always exist. But I have to ask why those brokers and agents who don’t give a damn are still REALTORS in good standing. Why are they not “mere licensees” as NAR likes to say all the time?

      This is not, IMHO, “bashing the association.” This is simply asking the association to live up to ITS OWN IDEALS. I didn’t write the Preamble; I didn’t pledge to adopt and uphold those ideals. You and all of your predecessors in NAR did.

      If you or other leaders believe those standards are now impossible for NAR to meet, then by all means, go ahead and change them. NAR is *your* organization; those are *your* standards that you have put on paper for the world to see.

      Reply
      • I’d love nothing more than to have NAR be the arbiter of our profession, with the Romanesque thumbs up or down of those in the arena. I just don’t know how you objectively quantify ethics and service in a manner which would not leave the association subject to an onslaught of attorneys. Perhaps one can simply require more education, or time licensed before applying for membership (I’m open to no mandatory membership for the sake of discussion), yet neither of those things are necessarily a cure for immorality, laziness, or selfishness. I do believe NAR would perhaps be best served by not attempting to be the voice of everyone with success determined by count. I would gladly pay extra for the premium audience if far more select. Thanks Rob

  3. I’d prefer that we help the incompetent agents find their way out of the Association. If we would change the rules on MLS membership for association-owned MLSs, have pricing for members and non-members, let some of the non-member pricing flow back to local, state and national Associations, then most of the bad agents would leave voluntarily. It would be a huge first step in positioning ourselves as a better option than the average agent.

    Reply
  4. NAR and the state associations have tremendous legislative power. If legislative changes – higher entrance requirements and higher continuing education requirements, including testing and meeting standards – would improve the profession, which it undoubtedly would, WHY do the most powerful organizations in the country not collectively put the full court press on state legislative and regulatory bodies to make those changes? We can fiddle around with association membership requirements – raising those bars – but with mandatory Realtor membership for MLS slipping away more every day, that won’t help as our associations will have less and less influence over licensees and Realtor association membership requirements won’t address the problem. Our responsibility is to address the issue at its foundation, and that is licensing.

    Reply
    • I hear ya, Lola. One of my concerns, however, is that if we go to the government and ask them to solve the problem for us, we can’t then complain if they also dictate compensation, can we?

      And if being a licensee means being competent and ethical, then what does it mean to be a REALTOR at that point?

      Reply
  5. In a perfect world…

    One point is overlooked by Rob. First, I am going to brag that locally my peers are top caliber. You know what happens as a result? Everyone steps up their game. Otherwise they can’t compete. In a small market, names get out there, good or bad, pretty quickly. The bad ones just don’t hold up.

    When we do a deal well, we build on our base of business. Several excellent referrals will flow from a single transaction. By the way, it may be that all sorts of ugly came out of a particular transaction. It may be an experienced agent had to guide the lesser skilled. What gets remembered is who was the professional, the problem solver, the closer.

    I’ll be the first to admit I might be sitting in a positive little blue bubble with that. We have an incredible local AE whose staff busts ass to keep members well informed and prepared. We are supported by a strong, creative, forward thinking state AE and her staff. Communication and active engagement are key.

    The real driver of incompetence, unfortunately, is what is being given a lovefest by the consumer. Without mentioning “the letter”, what drives consumers into an ignorance filled full tilt ride into making decisions without the assistance of a qualified, trained professional who has their best interests at heart? The yellow pages used to be bad enough but today’s easy access directly drives consumers away from their greatest protection.

    Reply

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