All Phoenix Real Estate.Com

Phoenix Real Estate and Homes for Sale | Jonathan Dalton, Realty ONE Group – (602) 502-9693

602-502-9693

Best of Dalton’s Arizona Homes: Real Estate Reform

Best of Dalton’s Arizona Homes: Real Estate Reform

avatarthumbnail.jpgHas anything changed over the past two years? There are fewer active agents now than the two years ago but that hasn’t necessarily raised the overall competency level.

Training still remains an issue … last night’s happy hour conversation dealt in part with the number of contracts written where the free-form language was unclear at best, brutal at worst.

This article originally posted September 16, 2006:

Over the past several weeks I have read numerous articles about the need for reform in the real estate industry. I’ve considered the arguments and have been tempted to respond one at a time as I see the debates post, but I thought I owed the topic as much time as the original authors had invested. And here’s the result.

There is no question there are flaws in the real-estate industry (as there are in nearly all businesses); the challenges are a lack of consensus as to what the flaws may be (what irks me may not really be an issue to others), the lack of an identifiable and universally accepted solution, and the unintended consequences of said solutions.

On ActiveRain on Friday, Kristal Kraft discussed more rigorous standars for REALTORS (and, I presume, real estate professionals as a whole.) Licensing standards vary widely from state to state – in Arizona, a person is required to complete 90 hours of classroom teaching, pass the state exam and then complete 24 hours of continuing ed every two years. The classroom lessons have little do with the practical issues of real estate but does help the licensee know the difference between a navigable and non-navigable river should the question ever arise.

What is glaring in its absence from the classroom teaching is lessons on the basic tools – contracts (though you need to pass a contract class before getting licensed), inspection negotiations, negotiating in general, agency, buyer broker agreements, etc. Then again, several of those topics would be difficult to incorporate because they are REALTOR-specific. (And only members of the National Association of REALTORS actually are REALTORS; in Phoenix, since you need to be an affiliate board member to have MLS access, nearly everyone is a REALTOR.) Since there’s the option, however unproductive, of not being a REALTOR and use of the AAR contract isn’t a statewide legal manadate, the forms can’t be taught in real estate school.

So where is the training supposed to take place? In theory, at the brokerage firms that contract with these agents to represent the broker as an independent contractor. But does that training actually happen? Not always. And that leads to one of the problems I personally would love to see addressed: new agents working for 100% commission shops.

This is by no means an indictment of the 100% model as a whole (where an agent pays an office fee, pays for their errors and omissions insurance and otherwise keeps their full commission rather than paying a portion – a split – to their broker.) But there are many 100 percent shops designed primarily for experienced agents who nevertheless will hire licensees fresh out of real estate school. Why? Because in some cases it’s a numbers game. And what’s worse, it’s a game that favors the broker. While it would make sense to train these new agents so as to put them in position to succeed, the fee setup makes success irrelevant. Whether the agent ever produces matters not while there’s an office fee check coming in the mail.

These shops also seem to be the home to a large number of part-time real estate agents – people who devote the bulk of their time to other career pursuits and work real estate on the side, akin to someone who makes necklaces for weekend craft shows. As it was put to me recently by someone pursuing their license for their own investing (while reserving the option of assisting others) as long as you have clients, you’re set. Not that you may have the slightest idea what you’re doing – especially if you’ve been poorly trained and don’t have the time to devote to keeping current on issues and challenges confronting the real estate industry.

Case in point: this morning I received a call from a peer in my office. Her sellers went to their home to take care of a couple of items and were livid to find the buyers, the buyers’ agent and a home inspector there. Some of their anger was misdirected – the house is under contract and in the inspection period, so the buyer has every right to be there with an inspector. But the agent had never called my friend to let her know when the inspection was taking place. Is it required? No. Is it a good business practice? Absolutely.

In talking to my friend, it seems the agent representing the buyers is rather difficult to reach during the week because they are a teacher in the public school system. This person is representing a buyer in a legally binding transaction but only works in real estate during off hours because of their primary career choice as a teacher. And did I mention the agent brought her kids along to the inspection and they were on the home’s new carpet coloring away?

Greg Swann recently wrote an argument in favor of eliminating the requirement that agents have their licenses held through a broker and instead allow all agents to hang their own shingle, as it were. His argument is only the strongest would survive; I really wish that were true. My fear is it would lead to even more distrust of the real estate agency as the least capable agents run around willy-nilly without any guiding hand whatsoever. But as I said before, we often are guilty of overestimating the concern of the public at large. Many consumers will take a deal over service (which is why many buyers call listing agents rather than hiring buyers’ agents, leaving them unrepresented, which was the cause of the creation of buyer agency in the first place, which I’ll address elsewhere as it’ll take another two hours.)

Are all part-time agents a public menace? Certainly not. Would the public be better served by a smaller, better trained and more dedicated pool of real estate professionals. Absolutely. But again, we collectively can neither mandate nor teach professionalism and the dedication to learning as much as possible about real estate. All we can do is hope market mechanics drive out those who aren’t serious about helping the buyers and sellers at large.

I had mentioned unintended consequences earlier. One example of this is the Cumulative Days on Market field on the MLS. I’m not going to rehash my arguments against the display of days on market, but will say again that adding the cumulative days on market was a knee-jerk reaction to some agents’ practice of cancelling and re-entering listings to limit the days on market showing and aid them as they calculate statistics for their advertising campaigns.

Good idea, poor solution. Days on market now has had the effect of stigmatizing properties, though some sellers also earn the stigma through their insistence on pricing their homes above the current market.

Ultimately the question becomes one of whether we in the industry need to raise the standards for all (or for some, since many of us are working at a higher level already) or whether the public should cause standards to be raised by voting with their pocketbooks. Because if the public is willing to continue supporting real estate agents who either don’t have the knowledge, the time or the desire to truly learn how to do this business right and protect their clients’ best interest, then the debate is just so much hand-wringing among the rest of us who can’t understand why these other agents were selected in the first place.

No Comments

  • Bill Lublin says:

    My friend – you are right on the money – The problem is still that we are a business of new people trying to find their way, brokers trying to remain profitable, and experienced agents who function at varying levels of professionalism. As an operating broker, I can tell you that as much training as you offer, as many risk management seminars, and as many levels of backstops you build into your business, there is always something that will slip through the cracks. And when the broker doesn’t take the responsibility of supervision seriously, it is the consumer who suffers (and to a lesser degree the professionals involved in the error)

    All we can do is try to do the best we can, help the people that want to learn, and encourage the people who work hard. As Dorothy Parker said when asked to use the word horticulture in a sentence ” You can lead a horticulture but you can’t make her think!”