Two weeks ago in Atlanta, at the RETech South conference, I did a session entitled “Time for Greatness”. Unfortunately, I did not think to videotape the thing — and honestly, I’d have to be some sort of an egomaniac to want to tape myself giving a speech. I had hoped that someone else might have captured it on video, but apparently not.
I’ve been asked for the presentation slides, which I uploaded here, but my slides really don’t make much sense without me speaking in front of them since I use slides as visual aids, not as an outline of the presentation.
So I’ve decided to do something I’ve never done before: post the actual written version of the speech. I know I didn’t follow the script 100% (and who does when speaking?) but I figured this would give those of you who are interested as to the actual substance of what was said. I do this because I’ve heard from a number of you that this speech was important especially at this time of the REALTOR Party Political Survival Initiative. And I do it because indeed, our industry is facing a crisis and if I can help in some small way, I’m gratified.
Time for Greatness Text
[NOTE: Please refer to the slides when you see [CHART HERE] or some such in the text. I wrote nothing for explaining the correlation between housing prices and number of REALTORS, but I think you can figure that out from the slides themselves.]
I had originally thought to come and talk to you all about something else. Maybe strategic thinking for MLS, or things you can do to improve operations, or some such. But I’ve scrapped all that.
Because this is not a time for business as usual.
It would be easier for me, and probably better for my consulting business, to ignore the reality of what’s happening and just talk to you about some social media strategy, or tweaks to your membership services. But now is not that time.
Let me put it plainly. We, as an industry, are facing Big Problems of the kind that we haven’t seen in decades. We’re not talking about some relatively minor thing like how to get data standards done at last. We’re talking about fundamental changes. We’re talking about existential crisis.
Problems demand leadership. Big problems demand big leadership. And extraordinary, existential crisis demands extraordinary leadership. And that is what I’d like to talk to you about today: leadership in a time of crisis.
But first, we have to understand the scope and nature of the problems. Strap in: this is going to get ugly for a few minutes.
On my personal blog, Notorious ROB, and on my company website, I’ve been sounding the alarm for the past several months. I’m usually met with a pat on the head and a “oh, you’re so cute with all your Chicken Little antics, Rob.” I hope they’re right. I hope I’m wrong. Because far too many brokers, agents, Association leaders, MLS executives, technology leaders, and thought leaders – in other words, far too many of YOU – appear to think that what we’re going through is just another market downturn. We’ll come out of it, they say, and things will go back to normal, they say.
I don’t think so.
Let’s take a look at the market itself, and what it means for organized real estate.
THE ECONOMY AND THE MARKET
[CHART 1 HERE]
The real estate bubble may have burst in 2006, but we have a ways to go before we get back to “normal”. What’s more, what is “normal” in the future isn’t going to look anything like what we’ve become used to as “normal”.
We’re looking at NAR 800K, assuming nothing else changes. For all of your Association people, that means another 20% loss in membership. Are you prepared for a further 20% drop in dues revenues?
What’s worse is that 20% loss, at this point, might be a BEST CASE SCENARIO. Because you know that change is in the air.
The housing crash has resulted in political change.
Is there anyone here who does not know that the United States is facing serious fiscal problems? We’re running trillion dollar deficits every year, and our national debt is some $15 trillion. And that’s not counting entitlements, like Social Security and Medicare.
Is there anyone here who does not know that the current financial crisis has its roots in HOUSING, and that as a result, the government, think tanks, and policy wonks have proposed a series of changes that will fundamentally transform housing as we know it?
While there are a myriad of changes, let me touch on just four.
One, the Obama Administration has pretty much come right out and said that they do not believe in homeownership as the centerpiece of American housing policy. Their term is “sustainable homeownership”; what it means in practice is that housing policy will center around “good rentals in good neighborhoods with good schools”.
And this isn’t simply idle talk. They’re moving towards implementing policies to make this happen. The Administration has already proposed that Fannie Mae and Freddie Mac be sunset. There’s some debate about timing and ultimate role, but wanting to limit the GSE’s is apparently the one thing that both Republicans and Democrats agree on up there in Washington DC. In my mind, there is little doubt that the GSE’s are going to retreat from residential real estate. The issue is just how much, and when.
Two, the FHA is retreating sharply from residential real estate. I’ve heard from a senior Association leader who was on a conference call with FHA executives. Almost HALF of all single family residential mortgages in 2010 were FHA loans; that is way, way beyond the mission of the FHA. So the FHA wants that figure to be closer to 15%. They want out of supporting the residential mortgage business singlehandedly. And sure enough, they’re raising fees to make it harder to get FHA loans. The retreat is on.
Three, Federal Regulators are pushing for much, much higher down payment requirements. FDIC Chairman Sheila Bair is on record as supporting a minimum of 20% down payments; sure enough, the recent proposal on “qualified residential mortgages” through the Dodd-Frank Act suggests 20% down payments to be qualified. Why?
Because the moral underpinnings of mortgage died in the housing crash. STRATEGIC DEFAULTS have gone from something only dirty rotten scoundrels do to something the average homeowner considers as a rational response to financial conditions. Research by the Fed and by academics shows this to be the case. And as you can imagine, the banks are terrified of strategic default. The regulators who watch the banks don’t want to have to bail them out again. The result? Higher down payments, more “skin in the game” for consumers.
And four, the support for housing via the tax code is eroding. This is one of the big fights going on today on Capitol Hill: the mortgage interest deduction. In the short-term, the MID might survive – but fact is that we’re running a TRILLION dollars in deficits every year, and the MID costs the Feds roughly $100 billion a year. And those who benefit are disproportionately the wealthy. This is not a formula for longterm political viability in the age of the Tea Party Republicans, and hate-the-rich Democrats.
This is not a matter of the market being bad for a few years. This is a total shift in federal policy. The real estate industry grew steadily in the post-New Deal era in large part because of the Federal support for homeownership. That is about to be in the past.
Any ONE of these things means that we are not talking NAR 800K; now we’re talking NAR 500K, or NAR 250K. Buyer demand will plummet, not because people don’t want to own their own homes, but because financing to buy them will be harder to get and more expensive. If housing values drop, homeowners will walk away from them, because the moral imperative against doing that has been weakened, and they’ve been treated to case after case of big banks and big companies doing that exact thing.
I said to you that 20% drop in membership is, at this point, a Best Case Scenario. These Four Horsemen of the Housing Apocalypse are why.
And there may be other government-related changes coming. We haven’t even touched on the Fed’s monetary policy, or disruptive events like the Not War in Libya, or the disaster in Japan.
Now, you may personally agree or disagree with some or all of these policies. That’s not the point.
The point is that until very, very recently, with NAR introducing the REALTOR Party Political Survival Initiative, WE NEVER TALK ABOUT THESE THINGS! Even now, even after RPPSI, look at the conversations that are dominating real estate: Facebook, social media, QR codes, using video, listing syndication, agent ratings, search engine optimization. We’re obsessed with just about everything and anything except for these fundamental issues.
You could have the world’s greatest lead generation system, leveraging the Internet, social media, iPad apps, and augmented reality. If the standard mortgage is a 30% down, 10-year ARM that resets every year, how many people will be in the market at all?
One would think that at a time when the industry as a whole is facing fundamental changes through government action, the largest and most powerful trade organization in the country, with a million members, would be united in its position.
I think it’s obvious that the discussion around the Political Survival Initiative shows that most of your members not only don’t know what it is that the Association does for them, but many of them DISAGREE with lobbying the government at all.
And honestly, if it weren’t for the fact that the RPPSI was coupled to a MANDATORY dues increase – as nominal as it is at $40 a year – do you really think your members would be as engaged as they are?
That’s stuff on the political side. At the same time, there are other Big Problems we have to confront.
Is there any doubt that there are too many real estate agents, and far too many who have no clue what they’re doing?
MLS executives I have spoken to in conference after conference plainly admit that some large plurality – 30%, 40%, or even higher – of their subscribers had no transactions in 2010. I know for a fact that 60% of the members of some California MLS’s have done no transactions in twelve months.
Let me say that again: for any given MLS, somewhere between 30 and 60% of subscribers have NOT DONE A SINGLE DEAL in a year. If you look at realtors who have done fewer than two transactions in a year, the percentage rises to make up the majority of any given MLS – and therefore, any given Association.
Speak to any producing realtor today, and she can tell you horror story after horror story about the nightmare transaction from hell caused by the incompetence, unethical behavior, and lack of knowledge of the realtor on the other side of the deal. You know and I know that there are some people in this business who have no business being in this business.
You all sitting here today know this. You KNOW this. But what has the industry done about the problem?
Is there really much doubt that the dominant business model of real estate today, in which every broker starts out with a vision of serving homebuyers and sellers, and ends up with the reality of being an agent-recruiter, is fundamentally broken?
Brokers today are no longer in the real estate business: they’re in the agent portfolio management business. Like any VC firm, the broker “invests” in hundreds of agents, knowing that 90% of them will turn out to be total duds, but hoping that the 10% that do pan out will make up for the losses. The name of the game is recruiting and retention, not customer service or fiduciary responsibility.
Those of you who are in leadership positions in your Associations, let us be honest with each other. Do your members really value what you are providing? Do they even know what you are providing? Inman News recently reported that one of the largest brokerages in South Carolina – I’m sure some of you are here today – withdrew from its Association because they did not see any value in membership.
The Association’s response is to explore whether it should operate an MLS.
Wow. Just wow. We’ve got Big Problems, ladies and gentlemen, and we’re not dealing with them. Yet.
In technology, it has now been some fifteen years since the Internet changed the world as we know it. It has been almost twenty years since Bill Chee’s “Lion Over the Hill” in 1993. Are we better off now?
Bill Chee has recently walked back some of those comments as “unwarranted fears”. I’m not sure I see what was unwarranted.
Bill mentioned in a 2008 Inman interview that he was speaking to the MLS community:
“I was afraid of the MLSs themselves. There were too many MLSs,” Chee said. “We had so many MLSs that they couldn’t innovate on their own, and I thought that was a problem.”
Has that changed? Really?
We still have over 800 MLS’s in this country, even as membership numbers continue to plummet. Have MLS’s innovated “on their own”? How? In what way?
I can think of exactly two MLS’s who own the code to the core MLS software, instead of relying on an outside vendor. But we’re going to relax and think that MLS’s are now leaders of innovation?
Take a look at all of the innovations that have changed our industry over the last ten years. Online search for properties? Third party companies from Move to Zillow innovated that, and now dominate online search. Transaction management? All third parties. Syndication? Third parties. Online document management? Mobile technology? Social media? CRM? All of them, name them, were innovations from third party companies both in and out of the industry. Not one is the MLS.
Today, we have a number of companies vying to be the masters of real estate data. One of them is even owned by NAR, so technically, by all of you, I suppose. But the MLS, despite having sat on this most valuable trove of data for thirty, forty years, has done nothing with it.
Meanwhile, a couple of professors have managed to keep track of housing prices since 1987 and now, their less-than-accurate, full-of-holes, Case-Shiller Index is the definitive measure of housing prices and is owned by Standard & Poors.
What about brokerages? Have they been leaders in technology innovation? They certainly like to claim they are. But even the PR flacks charged with marketing brokerages on the basis of ‘technology leadership’ will admit in an honest moment, that brokers have been late to every single major technology development in real estate in the last ten years.
Even now, even today, after realizing the absolute importance of technology to the modern consumer, is there one brokerage company, one real estate company, one MLS that has an actual, functioning R&D department dedicated to developing new innovation? No, there is not.
All of the technology on which you all depend every single day, all of the R&D, all of the innovation, have been outsourced to third party vendors. That’s the truth. The uncomfortable, how-dare-he-say-that, truth.
SUMMARY OF PROBLEMS
So here we are, and here’s the deal:
- As an industry, we are almost entirely at the mercy of government policies;
- The organizations setup to protect the industry have members who don’t care.
- Our industry operates on – indeed, is dependent on – a business model that encourages huge numbers of unqualified people to do a poor job advising families on the most important financial transaction of their lives.
- We have lost the confidence of the public, who see us not as advocates working for their benefit, but as leeches only interested in the commission check.
- We face a future in which technology will almost surely dictate value, but have outsourced all of it to vendors and consultants.
And despite facing these Big Problems, what are we talking about as an industry? DotMLS. Whether listings should or should not be syndicated. Using social media to generate leads. QR Codes.
Ladies and gentlemen — those things are all wonderful, valuable, and even important things to have and to talk about… in normal times. But today, spending time and energy on them is nothing more than rearranging the deck chairs on the Titanic. They will not save this industry, no more than some vendor’s new iPhone app will.
NOT TO DEPRESS, BUT TO INSPIRE
But I did not come here today to depress you. I came here to inspire you. As the Chinese proverb says, within Crisis there is Opportunity. It was, however, necessary to take a cold, hard, honest look at what it is that we face.
Fact is, most of these things, we have done to ourselves. And fact is, we are far from helpless. Fact is, between all of us sitting here in this room, we may actually be able to find answers, and find a way out.
This awful scenario represents an unparalleled opportunity to remake the industry for the next hundred years. Just like our nation’s fiscal crisis forces us to confront deep systemic problems and re-ask fundamental questions about the citizen’s relationship to the state, so does our industry’s crisis force us to confront deep systemic problems and re-ask fundamental questions about the nature of the profession, the value of each and every part of the industry, and what it is that each one of us does for a living.
In the second half, after lunch, I plan on presenting to you some possible paths towards solutions, some ways out of the crisis.
But before we get there, I have to tell you the real thing that I got up here to tell you.
Ladies and gentlemen… now is the time for greatness. NOW is the time for greatness. Now is the time for leadership. Now is the time.
Chris Christie, the governor of New Jersey, made a point during his recent speech in Washington DC that resonated with me. It’s not a political message, but an inspirational one about the nature of leadership, and about overcoming challenges. I can’t do better than he did, so I’d like to let him speak now.
[CHRISTIE MOVIE] (NOTE: The whole speech can be found here: http://www.youtube.com/watch?v=I1-8iXPypfQ)
“Our calling for greatness at this time, is to confront these issues, say them out loud, stop playing around, and not waste another minute.”
Gov. Christie goes on to talk about the Greatest Generation. Consider what they faced: global fascism, the Great Depression, international Communism. A World War in which the enemy was far better trained, far better equipped, and had a giant head start; right at the start, we lost an enormous part of our Pacific Fleet when Japan attacked Pearl Harbor. And yet, they overcame all of those immense challenges. They stepped up. They grew the United States into the superpower we are today. They had BIG PROBLEMS. But they solved them.
No wonder we call them the Greatest.
Who can say whether previous generations, or the ones afterwards, would have been as Great as they were, if given the chance? In a way, The Greatest Generation was fortunate to have had those Big Problems, because overcoming them made them immortal.
We too are fortunate then. Because we face big issues. We face seemingly insurmountable challenges. Problems without solutions. Big scary things that go bump in the night. But if we should rise up to the challenge, then we will be the Greatest Generation in real estate. We can revitalize this industry.
To do that, we need leaders. We need you, all of you, to step up.
LEADERS NEED TO STEP UP
This is what I’d like to ask all of you to think about over lunch, throughout the rest of this conference, when you go home to your colleagues and peers. Because I don’t have all of the answers, but I do know how we’ll get to the answers: through leadership.
Here are five things we need from you, our leaders:
First, acknowledge the problems. Denial is not a river in Egypt, that went through a revolution because of… well… denial on the part of its leaders. And hope is not a strategy. We have to acknowledge the problems, say them out loud, not be so damn afraid of offending someone or becoming unpopular. We have got to be honest with each other, without intending or taking offense.
Second, we not only have to think outside the box; we might need to destroy the box itself. Some ideas may be heretical. Some ideas may seem completely unrealistic. Some ways forward out of the crisis may appear to be downright dangerous. Yet we must consider them all. We MUST consider them all. Doing the same thing over and over again and expecting a different result is the definition of insanity. As leaders, it is up to you to stop the insanity and think dangerous thoughts, and consider seemingly crazy ideas from seemingly crazy people.
Third, as leaders you must find a way to set aside your personal biases. I know that many, if not most, of you are volunteers who have your own businesses. I know that some ideas may threaten your own bottomline, your own business model, your own situation. But ladies and gentlemen, that is why you are leaders. That is why your peers have put you in positions of power and authority. And we need you to step up and be statesmen, frankly acknowledge problems, and consider solutions for the whole that may in fact harm you personally.
As Ben Franklin once said in a somewhat different context, “We must hang together, or assuredly we shall all hang separately.” Either we transform the real estate industry together, or each and every one of us faces an uncertain and unknown future in which the idea of a “professional realtor” might be the punchline of a joke. If what the industry needs is for your particular brokerage’s business model to fade away, then by God, let it fade away and reinvent yourself. If what the industry needs is more consolidation among local Associations, and you’re out of a job, then start updating your resume. You will find a way forward; the industry will not.
Fourth, as leaders, you have to lead. That means communicating with your members, reaching out to those disengaged from the whole process, talking to them about your ideas, and convincing people that you are right. A leader by definition must have followers. If that takes meeting after meeting, going door to door of every REALTOR in your association, phone calls, emails, text messages, Twitter, Facebook, telegrams, or dancing bears, you have to do these things to let people know what your idea is, and convince them to support it. You have to LEAD.
Finally, and perhaps most importantly, as leaders, you must be willing to fail. You have to be willing to make mistakes. You have to take risks. That’s what leadership is. None of us here right now has The Master Plan. We all have different ideas of how to fix what’s broken. In fact, chances are, we have different opinions as to what exactly is broken. Some of us will be right, and some of us will be wrong. But we have to try things, and be willing to make mistakes, and be willing to fail. Paralysis by analysis, committee meeting after committee meeting, deferring the decision till later, kicking the can down the road – none of these things will provide an actual solution. You must be willing to fail if you are to act, and it is action we need now, not more meetings and studies.
If you cannot do these things, or will not do them for a variety of valid reasons, then there is one other thing you can do instead: STEP DOWN.
Please, for your own peace of mind and for the industry as a whole, step down. Resign. So that someone who can and will do what is needed can have the power to do those unpleasant yet necessary things.
I know that what I am asking of you is way beyond what you signed up for when you got involved with the Association or the MLS. I know that what I’m suggesting is completely out of your comfort zone.
I also know that I’m not a REALTOR, I’ve never sold real estate, I have never been in Association leadership positions, and that I’ve never put my career on the line at a MLS. I know that I’m just another consultant that swarms around this industry. But in this case, at this time, at this juncture in history, I am venturing way outside my comfort zone to appeal to all of you.
Because I have to. Because I must. Because I see that should we fail to solve these big problems, I’m not likely to have an industry in which I’d like to work in.
These are not normal times. This is not business as usual time. This is a time of extraordinary crisis. And that demands extraordinary leadership. This is a time for GREATNESS. We need you to step up and be GREAT.
Thankfully, my time is up; try to enjoy your lunch.
But let me end with this question, originally attributed to the sage Hillel the Elder:
“If not now, when? If not us, then who?”
Thank you very much.