The talk within the industry these days is all about technology. Well, by “these days” I suppose I mean the last ten years or more. Sometimes I honestly wonder who talks about technology more: REALTORS or venture capitalists. Go look on any of the social media channels frequented by real estate folks, and all the hubbub is about AMP, RPR, Upstream, Zillow, mobile apps, etc. etc.
Well, I just got home from an important engagement — one of the most important I’ve undertaken in my (comparatively brief) career as a consultant to the industry — and I wanted to jot some thoughts down that has nothing to do with technology but everything to do with the shape of the industry going forward.
The question is, what does membership mean?
Introduction to Cooperatives
To understand why that question is so important, we need to get a brief introduction to a particular corporate format called the Cooperative. I understand this looks like a detour, but bear with me.
The Wikipedia definition of a cooperative or coop is “business organizations owned and operated by a group of individuals for their mutual benefit.”
The key concept is mutual benefit. Individuals and companies join a cooperative in order to gain some sort of benefit — often it’s buying power (consumer cooperatives) but it can be other things like marketing. While many cooperatives have a social consciousness or community element to them (see, e.g., REI, a cooperative that spends millions on nature preservation), its core mission is to deliver benefits to the member-owners (e.g., REI offers discounts to its members).
Cooperatives adhere to the seven principles of cooperatives, adopted by the International Cooperative Alliance in 1937:
- Voluntary and open membership
- Democratic member control
- Economic participation by members
- Autonomy and independence
- Education, training and information
- Cooperation among cooperatives
- Concern for community
Sound familiar? If that sounds a whole lot like the REALTOR Association of the 21st century, it’s not surprising.
Professional and Trade Organizations
Thing is, the Association of REALTORS does not define itself as a cooperative; it’s a trade association that also sort of doubles as a professional organization.
A trade association, also known as an industry trade group, business association or sector association, is an organization founded and funded by businesses that operate in a specific industry. An industry trade association participates in public relations activities such as advertising, education, political donations, lobbying and publishing, but its main focus is collaboration between companies, or standardization. Associations may offer other services, such as producing conferences, networking or charitable events or offering classes or educational materials. Many associations are non-profit organizationsgoverned by bylaws and directed by officers who are also members.
One of the primary purposes of a trade association is political influence; REALTOR Associations from NAR down are no different.
A professional organization is very similar with one key difference:
A professional association (also called a professional body, professional organization, or professional society) is usually a nonprofit organization seeking to further a particular profession, the interests of individuals engaged in that profession and the public interest.
The roles of these professional associations have been variously defined: “A group of people in a learned occupation who are entrusted with maintaining control or oversight of the legitimate practice of the occupation;” also a body acting “to safeguard the public interest;” organizations which “represent the interest of the professional practitioners,” and so “act to maintain their own privileged and powerful position as a controlling body.” This, in turn, places the burden of enforcing a profession ban upon these associations as well.
The key difference is the words “public interest.” Because the roots of the profession are in the original three “learned professions” of law, medicine and ministry, all professional organizations have a huge dollop of the “safeguard the public interest” in its core mission. As Wikipedia points out, sometimes that results in a conflict of interest, but whatever — the point is that the members of a professional organization, being professionals who are pursuing not just a business activity but something in the public interest, are all about “maintaining control or oversight of the legitimate practice of the occupation.”
REALTORS self-identify as professionals first and foremost. The Preamble to the Code of Ethics, which I have cited numerous times on this blog, mentions “patriotic duty”, “grave social responsibility”, and “obligations beyond those of ordinary commerce”. It specifically states:
REALTORS®, therefore, are zealous to maintain and improve the standards of their calling and share with their fellow REALTORS® a common responsibility for its integrity and honor.
That’s a professional organization by any reasonable definition. But as noted above, NAR is also a trade association, one of the largest in the United States, with enormous political clout at the national, state and local levels. One might say that the one thing that the Association does and does very well is political advocacy on behalf of its members and (sometimes) of property owners.
What Is the REALTOR Association Today?
As I see it today, the critical issue of the industry today is whether the Association is at its heart a professional organization, a trade association, or a cooperative. I specifically address the Association because most people, especially brokers, would agree that the MLS is a cooperative of brokers. But we’ll touch on that later.
The Association may have started out as a professional organization with a strong trade association sideline, or as a trade association that took on the elevated persona of a public-interest oriented professional organization, but today, it acts a whole lot more like a cooperative.
Speak to just about any Association Executive or any elected leadership of any Association of REALTORS. Their main concerns are around member benefit. “Are we relevant to our members?” is a common question. “We exist to help our members become successful in their businesses” is a very common statement. All of the training and education that every Association operates is seen as a member benefit.
In fact, take a look at a randomly chosen Association webpage where it talks about membership. The title of the page is “Why Join?” and the main message is:
SABOR is the #1 advocate for all REALTOR® members. Benefits to being part of this group include marketing campaigns that endorse the REALTOR® as the #1 expert when it comes to buying and selling property.
SABOR goes on to talk about all kinds of additional services from listing syndication to Federal credit union to local restaurants. To be fair, SABOR also talks a whole lot about political advocacy and Code of Ethics, so it’s not just a sales job of “here are all these benefits for you!” deal.
Maybe picking SABOR was a good move, because it perfectly illustrates the issue. SABOR is a well-run organization. Its leadership, many of whom I’ve met, are the kind of REALTORS I admire: professionals genuinely concerned about property rights, who want to elevate the standards of the profession and advocate for REALTORS and homeowners alike. In a real way, we might point to SABOR as one of the “ideal” REALTOR Associations.
And yet, its Why Join is geared far more towards the benefits that an individual broker or agent can expect upon joining the Association. The “value proposition” of SABOR is not much different from the value proposition of any cooperative: mutual benefit.
That’s not a bad thing, but if the evolution of the Association over a hundred years of history means that it should be a cooperative rather than a professional organization… well, then I’d suggest taking that step actively with eyes wide open.
What Does it Mean to be a Member?
At the heart of that “what is the Association today” question is the next question, which I opened this post with: What does it mean to be a member?
In a cooperative, nothing is really expected of a member, because the core function of a cooperative is to deliver benefits to each member. I could join REI as a member ($20 lifetime) and I would have the right to vote for a Director, but beyond that, nothing is really expected of me as a member. I joined to take advantage of the benefits of membership, namely discounts on outdoor equipment. REI demands nothing of me, because it doesn’t exist to demand anything of me.
Other cooperatives may have more requirements, but all of them are geared towards the same goal: mutual benefit. So if a farming cooperative requires that I sell my oranges through the coop, it’s because I get a better price (as does every other member) when we collectively sell our oranges through the coop. If at any time, I decide that I can get a better price on my own, then I can leave the coop and should leave the coop. It’s all about what benefits me.
A professional organization, on the other hand, has a fundamentally different purpose. While it does strive to benefit the member professional, the professional organization is about the public interest since the profession is about the public interest. There are, as a result, a whole lot of demands on me as a member.
The Bar Association, of which I used to be a member, has all kinds of requirements and demands on the member, many of which carry the force of law. No question, the Bar Association also offers benefits to its members, but the core mission of the Bar Association is to ensure that lawyers are living up to the standards of the profession and that the public (the clients) are protected. Fail to meet those demands, are you’re kicked out and no longer a member. It’s not about my benefit as a member; it’s about the profession itself and the public interest.
Shorter version of all this:
- Cooperatives are about benefitting the member; there are no demands upon the member.
- Professional organizations are about benefitting the public; there are real demands upon the member.
REALTOR Associations have to wrestle with this core issue. Is being a REALTOR about the benefits of membership, or is it about the profession and the public interest?
The Connection to MLS
I mentioned that I would touch on the MLS issue. Let’s do that now.
If the Association is, at its heart, a cooperative and members join it to derive mutual benefit, then the MLS is exactly one of those mutual benefits of the cooperative. One might say it’s the most important mutual benefit of joining the cooperative: I market my properties to you, and you to me, and we agree to cooperate and compensate each other. We all benefit, mutually, by our membership in the cooperative.
If, on the other hand, the Association is a professional organization, then being a member is about living up to the demands and standards and requirements of the profession, not about mutual benefit. The MLS is separable and indeed must be separated from the Association in our legal environment since restricting access to the MLS has antitrust consequences. Even the non-Thompson jurisdictions should be extremely careful.
Brokers might rightfully think of the MLS as a cooperative of brokerages, but if it is the most important mutual benefit of the REALTOR cooperative (aka, Association), then there is every reason in the world for the Association to own, operate, and offer the MLS to its member as a key benefit of membership. Brokerages are free, of course, to setup their own cooperative (which they may be doing via Upstream) or work through the mutual benefit cooperative that already exists.
Frankly, the issue of membership and whether the Association is a cooperative or a professional organization goes beyond the MLS. It impacts practically everything. Lockboxes are a mutual benefit, as are standardized legal forms. Those are not “demands upon the membership” to live up to the standards of the profession or to safeguard the public interest. Training and education go from a “member benefit” to a “member requirement” as another example. And the subject of training and education changes from “helping you be more successful” to “helping you be more professional and safeguard the public interest.”
There is absolutely nothing wrong with being a cooperative. Some cooperatives, even for-profit cooperatives, have done more for the community than have some trade associations and professional organizations. (Again, see REI and its efforts in environmental stewardship.) Obviously, there is nothing wrong with being a professional organization, or a trade association.
What is problematic is trying to be all three at once. The meaning of membership is so fundamentally different from one to the other, but in particular from the cooperative to the professional organization, that the result is confusion, conflict, and incoherence. And this isn’t just theoretical. One of the biggest complaints from brokers and agents today is that there are legions of crappy REALTORS who shouldn’t be in the business. That’s an issue for professional organizations; it’s simply not an issue for a cooperative, which is about mutual benefit. It’s like REI members hating on me because I’m a crappy hiker; what’s it to you, since the point of REI is for all of us to get discounts on North Face jackets with our increased purchasing power?
So… here are three parting questions for the best informed readership in real estate:
- Is the Association today more of a cooperative than a professional organization?
- Should it be?
- Why or why not?