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The Necessity of Divorce

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So Greg Robertson and I did a thing – a podcast, to be a little more specific – and I’m pretty excited about it. Industry Relations with Rob Hahn and Greg Robertson just went live this month. Each episode is about 30 minutes, and stuffed full of our particular brand of wit and insight and stirring shit up. Give a listen, and if you like it, subscribe on iTunes.

In the inaugural episode, “The Troubled Marriage of Associations and MLS,” we tackle a topic I’ve been vocal about for years – the need for the Association and the MLS to get a divorce.

Although it isn’t easy for most MLS executives and Board members to wrap their head around what I’m talking about, but very few people actually disagree that the relationship is in trouble.

Since I discuss the issue in the Industry Relations podcast, I’m not going to get too deep into it here. But there are a couple points that I wanted to highlight and explain.

Divorce Means Letting Go of Pricing Power

The first point is that “divorce” here has a specific meaning: fixing the governance and allowing the MLS to operate as a strictly for-profit business for its shareholders.

MLS governance today is premised on the idea that the MLS is a “member benefit” of the local Association. Therefore, the primary goal of the MLS is to provide tools, technology, and rules to enable cooperation and compensation at the lowest possible cost. This core belief about the MLS has all sorts of negative consequences for the industry.

The Association and its heavy involvement in the governance and operation of the MLS keep prices artificially low. That in turn leads to razor-thin margins for the MLS, which in turn means the MLS is unable to invest in products and services that its customers — the brokers and agents who pay the actual bill — want and need in the 21st century. When the MLS is kept artificially poor, it has no choice but to squeeze its vendors, who, as a result, don’t have the margins to invest into technology, user interface, product, and services.

In addition, because the MLS can’t raise prices without it becoming a major political fight with the Board that is appointed by/elected by the Association, the MLS is often obsessed with “non-dues” revenue. That leads to the MLS doing all sorts of things that encroach on what its brokers want to offer as a competitive differentiator. That whole “level the playing field” business stems from the MLS’s lack of pricing power.

The solution then is for the Association, the brokers, and the agents to let go of the governance of the MLS as a business operation. They need to remain involved in the policies, rules, and even some product decisions as the actual people on the ground trying to use the MLS to do business every day, but they need to remove themselves from the financial, operational, technological, and marketing decisions of the MLS.

I bring this up because in past talks, people say things like, “Well, our MLS is a separate corporation, so it’s already divorced.” That’s a necessary first step, but it really isn’t enough. True divorce means changing the governance — and the ownership structure — of the MLS. We can determine the true liberation of the MLS by a single question: Can the MLS charge the price that the market will bear, without interference from its owners?

Today, it cannot. To survive, the MLS of the future must have that power, which means divorce from the political world of the Association of REALTORS.

Divorce Is Good for the Association

One of the things that Greg and I debated is “What is the big get for the Association without the MLS?” My answer was that advocacy is the “big get” for the Association, and that the Association can never be relevant as long as it is reliant on the MLS for its membership. Greg thought this was circular logic and got lost, and I don’t know that I did a great job of explaining myself.

To me, it’s pretty simple and straightforward.

The single biggest problem in the industry today is that there are too many crappy agents. This isn’t me saying this, but NAR through the DANGER Report which recognizes the problem.

At the same time, the single biggest pain-in-the-ass for the working REALTOR is… the agent on the other side of the transaction. Widespread incompetence, unethical behavior, and even outright corruption mean that the honest professional REALTOR has to deal with crazy shit on the other side all the time.

The crazy thing for the true REALTOR is this: every single one of those incompetent, unethical, marginal agents on the other side is a card-carrying, dues-paying, Code of Ethics-having, REALTOR.

And why are these incompetents actual REALTORS? Because they need the MLS, and becoming a REALTOR is the way to get access to the MLS.

The Association cannot be relevant to its real members — those who give a crap about the Code of Ethics and political advocacy — while giving away the REALTOR brand to every Tom, Dick, and Mary who can fog a mirror. As I said on the podcast, “At some point, the true REALTORS are going to get sick and tired of being lumped in with a bunch of unethical, corrupt and incompetent morons.”

The only way that the Association can do anything about that problem is to reduce the number of members. If you think about it, this is the only way the Association remains relevant to its real members — as opposed to the members-in-name-only who are actually just buying the MLS through the Association.

The point of divorcing the MLS proactively, before you are forced to do so by outside powers, is to arrange for a financial arrangement in which the Association can continue to get funding while reducing the number of members down to those who actually want to join, who care about the REALTOR brand and who take the Code of Ethics seriously.

Look, divorce is never pleasant. Unlike Louis CK, I don’t recommend it. Then again, as Louis CK once said, no great marriage ever ends in a divorce. But here’s the thing: the marriage between the Association and the MLS is NOT a great marriage… at all. It’s a dysfunctional, co-dependent relationship that hurts both parties.

Divorce does have its upsides, namely freedom. In this case, a divorce grants the Association the freedom to be selective, which paves the way to tackle the crappy agent problem, which ultimately improves the industry at large.

It’s time to move on.

-rsh

18 COMMENTS

  1. As the saying goes 84% of all statistics are made up on the spot, there is also the truism of the 80-20 rule; I propose the 70-20-10 model.

    We were discussing among some of our directors at the Association on getting more member engagement as a goal this year. It seemed through discussion, however that there is a segment of the membership that are high producers (10% we estimated) who do not get involved in Association functions or services. These we opined should be our target for the year, to find out what they might need from the Association as they have obviously outgrown our usual core of services (kind of like why Commercial Brokerages tend to be non-REALTOR). The lower 70% in the model are those agents that come to orientation, etc., and openly state that they have a REAL job and the Association is something that they are forced to join.

    We have a good rapport with our local community college and their department assigned to administer state funded workforce development programs. Essentially we can offer college level instruction on business skills for FREE to members of the association. The director of that department was amazed when we were planning programs together that we didn’t think that every Broker would strive to have highly trained and skilled agents.

    Sadly, with so many brokers displaying “NOW HIRING” banners on their offices it perpetuates a real estate industry based on the turnover rate. A new licensee will have 2 or 3 friends that they turn into transactions, and then the broker has no more need of them, and the licensee has no more interest in the hard work that they find real estate really involves. We have come to discover that there is a notable 4 year cycle to licensing. Agents get a 2 year license, renew it once and then discover that real estate is a very expensive hobby. Why would a broker invest in, or promote the need for training and professionalism to licensees they see as disposable office fixtures?

    BTW: If you reduce the numbers of Association members, where is the political clout that seems to be the core service of the Association?

    • “BTW: If you reduce the numbers of Association members, where is the political clout that seems to be the core service of the Association?”

      I’ll address this in greater depth in a future post, but the short answer is:

      1. NAR/State/Local Association’s power comes from money, not numbers, and there are ways to ensure massive RPAC funding post-divorce;

      2. The national Call For Action response rate averages 15%… so whatever numbers you want to claim, the actual number is 15% of that — and politicians can do math.

      3. There is a lot more power from a smaller, elite group of activist members than from a large, degraded (and degrading) group of passivist members-in-name-only.

  2. Lots of forward thinking in this article. Approximately 83% of real estate agents join the association to get access to the MLS. Based on this statistic I would venture to say that over 1/2 of real estate agents would have no interest in becoming a Realtor if the MLS divorced from the association. In all fairness state law already imposes a high degree of fiduciary responsiblity upon licensed real estate agents. I’m not too sure how much more excellence Realtors think they are providing above and beyond what is already lawfully required of a licensed agent.

    It comes down to money, almost always. Associations aren’t going to like real estate agents leaving because they are no longer bound to the MLS/association marriage. Associations will wither and likewise, NAR will also wither. Oh sure they’ll still be around, but they’ll be the real estate version of Xerox, Blockbuster, Blackberry, Polariod, and MySpace.

    And finally, let’s not forget that these crappy real estate agents mentioned in the article aren’t just prevalent in the general association membership. They also infiltrate themselves into boards and committees within the association. In these positions of power these same deviants often carry out tactics to marginalize, if not destroy, their competition.

    Taking all this into account, I’m not so sure the divorce would be a bad thing for the industry. All it would take is a few heavy hitters in each region to decide they are going to peel off and make their own MLS. When that happens it will be the beginning of the free market reclaiming the real estate profession…for better or for worse…til death do us part.

      • Mr. Hahn, to me it would seem the 83% would be the ones pursuing the divorce. But you say it’s the associations pursuing the divorce? Why? That seems like business suicide to me.
        I mean, I can see the vision of elite Realtors holding hands running through sunflower fields together thinking they are a cut above the rest.
        But that brings up the question, does John Q. Public really give two shits if somebody has “Realtor® ” behind their name? Does John Q. Public really lend extra credibility to the Realtor brand?

        Or, am I just totally off track here?

      • You’re not totally off track, but mostly off-track. 🙂 I know I’ve kind of discussed this in the past, but may need to do a better job of laying things out.

        Look for posts here where I talk about the future of the MLS. I know I’ve talked about privatization before.

      • And in all honesty I may need to go back and read your site from the beginning. So much to do and so little time. I look forward to your future posts putting me on track. 🙂

        This was certainly a though-provoking post. Thanks for that.

  3. The math for this proposal is really simple.

    Organized real estate – MLS = MLS

    For all those “true Realtors” you referenced, organized real estate has a very weak value proposition now and given the degree of absolute denial about this fact, nothing is going change anytime soon. And if the MLS intends to compete with the brokers for the business of their agents as new-found customers, I have a new acronym for you. RIP MLS.

    • We ought to have a debate one of these days, Ken. 🙂

      I really can’t agree that to the True Realtors, organized real estate has a very weak value proposition. They recognize the value of the Association and of organizing in general. They invest thousands of dollars and hours into that value. See Leigh Brown’s latest video as an example:

      https://www.facebook.com/leighthomasbrown/videos/10155167505444155/?pnref=story

      The trouble is that the Association only delivers on one of its two Core Value Propositions today. I’m trying to help it deliver on both.

      • Rob, you don’t seriously like that video do you? I watched the video in my office with the most disgusted feeling in my stomach. She’s a hot mess; she’s out of control. The video is is embarassing to me as a Realtor.
        By the end of the video I had three non-licensed people (members of the public who we serve) in my office watching the video over my shoulder. All of them were laughing at her and calling bullshit. They walked out of my office telling stories to each other of how they once saw a Realtor act like that before.
        I don’t know what the person’s intentions are in this video. Maybe she’s passionate about her profession, but she didn’t resonate anything but foolishness over here. Just another person running their mouth. I wouldn’t dare share that video on any of my social networks.
        Action talks, bullshit walks. 69% of Realtors haven’t a single day of college in their education portfolio.
        True Realtors need to have true talents, and someone running their mouth like this is just plain embarrassing in my opinion. Maybe some people got motivated by this, but not me.

      • I also noticed something else about Leigh Brown’s post. It appears that only certain people are allowed to comment on her post . This gives me serious reservation that she is attempting to steer her content away from peer review. She doesn’t have to worry about making a follower out of me. She doesn’t even allow people to reel her in.

      • DeRidder — I do like that video, as I also like Leigh Brown. She is one of the good ones, one of the True Realtors.

        Not sure what your issue is with her or the video, nor do I know what kind of people you hang out with who are laughing at her and “calling bullshit” — on what, I’m not entirely sure.

        I’m sure Leigh can speak for herself; I’ll just say that she is one of my favorite people in the industry for a lot of reasons.

      • Rob. If the majority rules, you may be correct. But the majority of the Realtors are sub-standard performers. “Pilots just out of ground school stepping in to now fly a Boeing 777.” It is the minority that see little to no value in organized real estate and it is ironically that minority that does the majority of the business. Yes out-voted by the masses of “Realtor” members by design, but very opinionated about the absence of value nevertheless.

  4. DeRidder-I don’t know you, and you don’t know me. You’re entitled to your opinion. However, I would like to clarify that my video is a public post. You can comment if you desire. I’ve never made any attempt to block trolls unless they cuss at me. ‘Reel me in’ suggests that you think my opinions are invalid. I’m entitled to my opinion. I’m entitled to speak with passion about MY industry. Perhaps your discomfort comes from the fact that you agree with me on some level, but perhaps you feel that i’m too loud and outspoken. We could agree to disagree in that case. I am curious to know what you think i’m bullshitting about. I’ve never been anything BUT transparent. I take some flak for it, but it’s worth it. One last thing-I’m not a hot mess. That’s a rather hateful thing to say about someone. Would you say it to my face, or just on Rob’s blog post?

    Carry on.

    • Leigh, your video does not allow comments on it (at least it didn’t this afternoon). And to answer your question, yes I would say it to your face which is exactly what I was attempting to do when leaving a comment. I looked again just now, and the commenting is still disabled. Don’t worry about it though because now I have no interest in bringing any opposing discussion to your thread. I see you’ve already called me a troll before I found a way to post any comment.

      The rhetoric in your video is turned up far and beyond the rhetoric in the article you were complaining about. You made mutliple references to your______ (starts with a V) even though the video you were complaining about didn’t mention that word even one time. I know because I did a search for the word in the article, and it wasn’t contained a single time, not in the content or the comments. I saved a copy of the article and comments in pdf format before it was taken down. And for the record I didn’t read the article. After seeing your video whatever may be contained in the article is now of no interest to me. All I saw was a Realtor on a public video post using extreme rhetoric and vulgar language. And to top it all off the person in that video was complaining about what she thought had been done to her. Self-centeredness in its purest form.

      And the part where people laughed at the bullshit was when you said you are like a duck swimming smooth on the surface, yet the feet are paddling very hard underneath, out of sight of the client of course. This statement is synonymous of the lack of transparency between between what the Realtor is doing versus what the client actually thinks the Realtor is doing. It’s all about transparency – the client needs to see the feet paddling. And that’s why the office erupted with laugher. In hindsight I’d say maybe it was not even laugher but more likely utter disgust.

      I could go on and on. The entire disposition in your rant is nothing short of disgusting. You are right in the fact that I do not know you. However, Rob posted the link in this discussion and naturally I followed it. I stand by everything I said, and while I’m sure there’s lots we agree on, my first impression of you is not a good one.

      I won’t be replying to any of your follow up comments.

      I apologize on behalf of all Realtors for the unprofessional behavior in that video posted by Leigh Brown.

      Time is valuable to me, and the only reason I post on Rob’s blog is because I happen to find the content compelling enough to be worthy of my time. I’m concerned about the industry, and Rob’s blog is one of the few places I can find the forward thinking I’m looking for. And Rob, if you think I’m a troll just say so, and I won’t post on your blog any more. I am curently under the impression that you find my posts of value.

    • Go get “em Girl…….I haven’t watched the video myself but I think DeRidder’s publicly voiced opinion was out of line in a professional industry ~Sherry “Carry ON” LMBO

  5. The Video,. This is the typical establishment real estate agent ” a victim” of a system dominated by incompetents,dishonest,disgusting Real Estate Agents, what a crock!!!,hey lady we are in a declining residential market and so is the commercial market,we are reaping the mistakes of the last 8 years, an attempt to force socialism on the American people,,so please go to the silly conventions offered by the central planners at nar and the lousy mls’s and find yourself a quiet room where you and your buddies from the local boards can comfort each other.

  6. Wowee! Seems like lots of folks have jumped on my bandwagon. Thanks for getting the conversation started Rob.

    I saw a survey a year or so ago done by NAR. Surveyed several thousands of recent home buyers. One question: What are the main issues facing the real estate industry. 81% said “Agent dishonesty and agent incompetence”.
    My business card now reads, “I’m a 19%er”. People ask what it means and I tell them.

    I do not attend monthly board luncheons because I do not wish to associate with 81% of them. They cannot even hold a fair and HONEST election, but that’s another story.

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