Notorious R.O.B.

Interestingly enough, just after I wrote about the problem of too many real estate agents overall, I found a post by Dave Phillips over at Bloodhound Blog called “Raising the Bar or Bellying Up to It“. It’s insightful and hilarious. Recommended reading for sure.

I’m thinking, what’s all this Sam Adams reference? This is no time for mere beer. Move over, Sam, and meet my friend Jose Cuervo. As Tracy Byrd might sing:

Then after Three rounds with Jose Cuervo
I let her lead me out on the floor
And after Four rounds with Jose Cuervo
I was showing off moves never seen before

Well, round five or round six
I forgot what I came to forget
After Round seven, Or was it eight?
I bought a round for the whole dang place

Beer ain’t gonna do it when you’re looking to “beat an old memory”; and half-measures won’t cut it when you’re looking to change fundamental infrastructure of the entire industry. As Charles Woodall mentioned in the comments to my previous post, it takes 15 times the education to get a license to cut someone’s hair than it does to get a real estate license in Alabama. o.0

In any event, Dave brings up some great points and questions, ultimately concluding that this won’t be easy. The two common approaches — education and disclosure — won’t work, in his view, because governments are constantly raising the bar themselves, making the REALTOR designation sans meaningful differentiation from the vast hordes of unwashed real estate agents.

So, what is the solution? Do we think up a whole bunch of things that REALTORS® have to do or disclose that a common licensee does not? Maybe we could require REALTORS® to disclose that the neighbor will throw potatoes at you if you purchase this home? Or maybe we require REALTORS® to disclose all the future development plans within a mile of the property. (E&O Insurance companies will love that one.)

Maybe more disclosure is not a good idea. “Another Sam, please.”

Time for round one with Jose Cuervo.

If I were advising NAR, which I am not except in that “free advice is worth what you paid for it” sorta way, here’s what I might suggest: require that a REALTOR disclose everything that he would find material and pertinent if he himself were the buyer in the transaction.

In other words, the standard of behavior for the REALTOR should reflect the true meaning of the term “professional”: someone who is following a profession or a calling. This is a meaning that is continuously lost over time. There is a deep sense among the traditional professions of Divinity, Law, and Medicine that a professional works not for oneself, or even for one’s client, but for society as a whole. As a lawyer, I am an “officer of the court”. If I were practicing law, I would have responsibilities that extend beyond myself and beyond my clients to the entire judicial system, and to the polity and society as a whole. For example, no matter how much it would benefit my client, I am not to lie in a judicial proceeding or be party to a lie being told with my knowledge. The penalty for violating this is pretty severe — usually the loss of the license to practice law.

The reason why society (should) give me power and honor and prestige as a lawyer is directly related to the fact that in some real significant way, I am putting society’s interests ahead of my own. Granted, in today’s America, this sense of obligation to society as a whole has been lost in the legal profession for the most part, with idiots mouthing ‘zealous advocacy’ as the excuse for gaming the system and filing all manner of frivolous lawsuits and so on. But at the heart of the legal profession is the idea that we work for society, not for our particular client.

Same thing with a medical doctor. Even if she pays her bills with money from her own patients, she isn’t supposed to walk by an injured stranger, or turn away the sick. She owes a moral duty (if not a legal one) to society to heal the sick and help the injured. Because she puts society’s interests first, society in turn grants her status, power, and (sometimes) wealth.

If a REALTOR means anything at all, it has to mean a true professional real estate agent. That means understanding that they owe some sort of duty to society as a whole.

It does not benefit society for a REALTOR to refuse to disclose facts that he himself would find pertinent if he were the buyer of the property. That may benefit the seller, and therefore the REALTOR who is making money on commissions, but society as a whole is actually hurt by such behavior. It does not benefit society for a REALTOR to agree to represent a property at a price that he himself, in his professional expert opinion, believes to be seriously overpriced in the hopes that he can find some fool willing to overpay. When REALTORS complain that their seller clients simply are being stubborn and won’t listen to reason, I confess very little sympathy. As a professional, you are supposed to walk away and let the unscrupulous, uneducated, unprofessional merely-licensed agents deal with that trash.

So if all future development plans within a 5 mile radius of the house would be relevant to a buyer, then the REALTOR should disclose the information. If his seller client will not agree to disclose, then REALTOR should walk away and recuse himself from representing such a seller.

There is no other way. You can’t hold yourself to the highest standard of ethics and behavior while continually representing clients who are not. A client willing to cheat a buyer (morally, ethically, if not legally) to make a few bucks is not a client that the REALTOR should be representing.

How about education? We could require REALTORS® to take more education than a standard licensee. In Virginia, at the request of the REALTOR® organization, the General Assembly just increased the required hours of continuing education for all licensees to 16 hours and brokers to 24 last year. Hmm. Sounds like some more of that rising tide thing again. Man, all these Sam Adams and talk of rising tides gives me a strange urge to toss a box of tea in the harbor.

“Hey, beer me.”

Round two with Jose Cuervo.

16 hours to 24 hours of Continuing Ed? That may or may not be all that impressive, but how about NAR start with this:

To become a REALTOR, you must be a four-year college graduate, have an MBA or equivalent, and have completed a two-year program in Real Estate at a NAR-accredited institution. You must have worked for a minimum of two years as a real estate professional in a REALTOR-designated broker’s office. In addition, you must pass a NAR Professional Board Exam every two years covering topics in Real Estate Law, Finance, Property Valuation, Economics, Data Analysis, and Ethics.

That might put a bit of a crimp on that 1.3 million REALTOR number, wouldn’t it?

Sure, as David points out, if some state licensing agency makes the standard for all licenses to be the same as the above, a rising tide would lift all boat… except that a stringent requirement like this one would exponentially reduce the number of people applying for a real estate license in the first place.

When reasonable folks talk about increasing education requirements, I’m sure they don’t mean jump to extremes like this. Well, I’ve gone a few rounds with Jose Cuervo, and feel no compunction to be reasonable. Rather, let me ask, Why not? Why not lift not just the bar, but the whole damn saloon? Why not make it such that only the finest, the most dedicated, the most professional, the most ethical, and the most passionate of those who want to help people fulfill their dreams of homeownership make it through?

Yeah, I know why not: money. I’m not so naive as to believe this will be easy or even desirable to many who are already in the industry. I agree on the degree of difficulty being somewhere north of a quadruple salchow while wearing combat boots. But I merely point out that things can be done, if the will to do them exists.

And I do agree, in the last analysis, with David on a couple of concrete ideas:

Actively police REALTORS® for violations of the Code, license law, bad business practices and bad service. Bust’em and kick out the bad ones.

This is not going to be easy. Is it worth the effort? Probably. Will it get done? Probably not. Is it time for me to tell Sam goodnight? Goodnight Sam.

Enforcement is an absolute must. Lawyers are in our sorry state as a profession because State Bars have become so lax in enforcing its own laws, and judges have become part and parcel of the lawyer interest group. Self-interest and greed almost always takes over any powerful organization. But with proper enforcement, perhaps that fate was not unavoidable. Upholding the notion of the practice of law (or the practice of real estate) as a societal good, as an honor and a calling, instead of just a way to make a buck or two is critical to rediscovering the soul of what it means to be a professional.

And yes, this is not going to be easy. It probably won’t get done. It is worth the effort. And it’s round three with Jose Cuervo, and being a lightweight alcoholically speaking, it’s time for me and Jose to part ways.

Good night, Jose.

-rsh

I’m not entirely sure why I feel this way, but reading Matthew Rathburn just tee off on a couple of people who emailed him unsolicited ‘advice’ was… just refreshing in so many ways. I can’t help the title of this post. I urge you to go read the whole thing. It’s insightful and just plain old fun.

He does raise some really, really key challenges, however facing the brokerage industry:

Why do consumers think that they can beat up on agents?

The answers are simple. Agents have been catered to for far too long. Pre-licensing educational levels are too low, continuing education is a joke all most everywhere in the country and many Brokers will accept anyone with a license, regardless of capabilities. This is a very litigious industry and agents are handing their clients lawsuits, because they don’t know what they are doing. They begrudge having to take any training, even if it’s designed to save their own butts and to provide better service to their clients. I also will add that the education providers MUST increase their quality, so that agents will actually be educated in the courses being offered.

Clients are getting the information that agents have been controlling for a long time. You’re not the keep of the data, which is why many consumers came to you in the first place. For too many years agents access to controlled data was their only identity and customer service went by the way side. Agents need to improve their consumer advocacy and quality of service to show that this very complicated transaction is best handled by trained and capable hands – otherwise the agent should just turn in their license. For much of the country the days of going into floor duty time and stumbling on a commission are over.

The agents have failed to meet the challenge of angry consumers, like the one mentioned above, because they don’t know their own market place well enough; even though the information is readily available to them. Agents are taking overpriced and unsalable listings and not saying “no, you can’t reasonably sale for this price and in this market.” Instead, the listing is taken without disclosing the reality to the Seller and being “honest” because we are trying to save the seller’s feelings and/or because the agent simply doesn’t know the market.

All of these issues contribute to the lack of perceived “honesty” from the agent. It’s hurting the industry. Better education and a professional frankness with the consumer will go along way to repairing the perceptions held by some consumers. Industry Professionals should not be afraid or ashamed to tell a buyer or seller that their expectations are unreasonable and not care if that consumer finds another agent. That other agent won’t be able to help them either.

These are things I’ve been feeling personally for quite some time, and seeing as how I’m not a Realtor or a real estate agent or a broker, I think I can speak as the voice of the Consumer to some extent. But I am a lawyer, and have worked extensively in professional services (marketing agency work) and have some ideas on what constitutes professional services in the first place.

Real estate agents and lawyers share contempt by the public. Why do consumers think that they can beat up on lawyers?

This is not at all unusual, nor is it particularly cruel, as far as lawyer jokes go. Why do consumers feel that they can have such hatred for a profession?

One reason is that there are too many lawyers.

Justice Sandra Day O’Connor is said to have quipped: “There is no shortage of lawyers in Washington, DC. In fact, there may be more lawyers than people.”

And yet, when a man actually gets into a situation where he needs a lawyer, all of the hatred and contempt simply melt away, and he is divulging all sorts of personal information to the lawyer, paying enormous fees, and feeling grateful when the lawyer helps him out of a jam. This all while he maintains the low opinions of lawyers as a whole:

Now consider that at least, to become a lawyer, you have to first complete some sort of a college education with grades good enough to get admitted to law school. You also have to take the LSAT’s. Then you have to attend some sort of law school for approximately three years, the tuition to which is not exactly cheap (my alma mater is some $40K a year), and pass the Bar in the jurisdiction where you want to practice. Studying for the Bar Exam is a months-long process that I would not wish upon my worst enemy, and the exam itself is a multiple day grind of frustration and anxiety.

Even with those barriers to entry, there are apparently one million lawyers in the United States. Yours truly is one of them.

Lawyers are accused of all manner of unethical activities, from incompetence to sleazy marketing to defending the indefensible to rapacious greed. Sounds familiar, doesn’t it? At the same time, most of the lawyers I know personally (friends from school, etc.) are some of the straightest arrow squares out there, who wouldn’t drive over 55 MPH because that would be breaking the law. They are some of the most honorable, upstanding citizens of this Republic, oftentimes working extraordinarily long hours in an effort to see justice done.

In my ever-so-humble opinion, both industries suffer from the same problem: too many practitioners.

On matter how high your standards on paper, to have a million practitioners, you have to compromise them. Professional Ethics for an attorney is an amazing thing… on paper, and in theory. In real life, lawyers routinely violate canons of professional ethics left, right and center, and think nothing of it. Same with Realtors. Part of the problem is that competition is so fierce that lawyers (and Realtors) don’t want to turn paying clients away. Any opportunity for revenue is something that has to be grabbed, ethics be damned.

The solution to the problem is to reduce supply of real estate agents, whether through regulation or voluntary hiring standards. Not that it works all that well, but the legal profession does have mechanisms for ridding itself of bad attorneys: disbarment. What exists in real estate?

If there were only 100,000 lawyers in the United States, such that the public isn’t treated to the spectacle of lawyers agreeing to take on ridiculous cases just to earn a fee, the perception of the legal profession would change significantly. If becoming a lawyer were significantly more difficult — fewer accredited law schools, or higher requirements on the Bar Exam, or whatever — I do think that the public would perceive them in a much more positive light. I happen to know that lawyers in Korea, for example, enjoy a sumptuous reputation — word is, their Bar Exam passage rate is 10%.

Neither the legal industry nor the real estate industry will change towards a regulated system of limiting the number of people who can claim to be an attorney or a realtor. There’s too much money being made by ambulance chasers on the one hand and the sleazy, know-nothing agents on the other.

But in that environment, an opportunity does exist for the elite firms to separate themselves.

There is a fairly clear separation in the legal industry between those who practice so-called “gutter law” and those who practice at the high-end: typically corporate law, white collar criminal defense, and the like. David Boies may be thought of as many things, but sleazy isn’t one of them. Cravath, Swaine & Moore is nothing at all like these guys.

This is what does not exist in real estate: firms whose reputation for quality is beyond reproach, and who routinely turn down clients as being below their own standards. Firms who have invested in their brand, and enforces their brand ideals throughout the organization, with no exceptions and no excuses. Hiring practices at the top law firms are nothing whatsoever like hiring practices even at top real estate companies — in large part because the compensation structure is so different.

I think at least this level of separation can be achieved in real estate. It won’t be easy, and it won’t be quick, but it can be done. Venerable firms with decades of tradition and reputation can and should start to really separate themselves from their peers not through fancy websites but through quality of their professionals. If the regulations won’t enforce higher educational standards and professional education, then the firm should, by routinely firing agents who do not meet their standards (or refusing to hire them in the first place).

Better education and frank honesty will go a long way towards repairing consumer perceptions of real estate agents. But they alone can’t get it done. Those have to be combined with a more stringent set of standards for enforcement and professional standards by the industry and its participants themselves. And those things in turn have to generate enough revenues to allow the firms that have taken the ‘high road’ to turn down clients, turn down unrealistic sellers, and admonish irresponsible buyers, without having to worry about staying in business.

-rsh

Once again, Bloodhound has a fantastic post up on a topic that is tangential to much of a theme I’ve been hammering since I started this blog. Greg Swann tells the story of an unfortunate eBay merchant who is being threatened with legal penalties for “auctioneering without a license”. Read the whole thing — it’s worth the time.

Greg’s point is that licensing laws are bad — they don’t protect the consumer, but the licensees:

But there are consumers who need protecting, right? Oh, you bet:

D&J Virtual Consignment had 11,000 feedback comments on eBay and 14 were negative, Pletz said, giving her a 99.9 percent satisfaction rating.

Ebay is not just perfect Capitalism, it is Capitalism Perfected — everything that has always been implicit in free-market commercial transactions made utterly transparent by means of database management. If you are looking for the complete and irrefutable refutation of Das Kapital, you’ll find it not on but in the form of Ebay.com.

So where’s the beef?

Amoros, the state spokeswoman, said investigations were a “complaint-driven” process but those complaints are confidential.

Uh huh.

It is only possible to for you to defend occupational licensing laws by ignoring the palpable harm they do to actual consumers — higher prices for lower quality goods and services. But even then, don’t get downwind of yourself. This stuff stinks.

As a non-practicing attorney, I know what Greg speaks of firsthand. The work of a first year attorney is something that most chimpanzees that are not brain-dead can do. We’re talking about stuff like deciding where a comma should or shouldn’t go and making photocopies. In most firms, the senior paralegal has forgotten more about the law than the new lawyer has ever known.

Yet, that snot-nosed lawyer commands $175K a year (in NYC) while the paralegal gets by on $50K because the former has that shiny thing the paralegal doesn’t: the license to practice law.

So I agree with Greg overall. However, and c’mon you knew there was a ‘BUT!’ in here somewhere, there is something he’s not taking seriously enough.

Greg is mostly correct (I think) in describing eBay as “Capitalism Perfected”, but he glosses over what makes that really possible: utter transparency made possible by means of database management.

I’m as big a fan of the free market as just about anyone, but even I think there is a role for government in the market. Its critical role is to cover the one enormous weakness of capitalism: access to information.

People (and companies) rarely have the incentive to provide complete and full transparency. I haven’t yet seen a case where complete transparency has redounded to the benefit of the person or company being transparent. Even between husbands and wives, complete transparency might not really be the best policy. I mean, do you really want your wife to know your actual, true, transparent opinion on whether those pants make her look fat?At the same time, for a free market to function, there has to be enough information available for buyers and sellers to make a rational choice. This is not the same thing as saying that buyers and sellers have to be actually informed — merely that the information must be reasonably available. Otherwise, the notion of caveat emptor just doesn’t apply.

If you’re looking for a heart surgeon, wouldn’t the information that Dr. Smith has had 3 of 3,000 patients sue him for malpractice while Dr. Jones has had 400 of 3,000 patients sue him be a relevant piece of data in helping you make your choice? Of course it is. If you had that information, learned it, you can still choose to go with Dr. Jones — but you’re probably going to bargain the price of services down, or negotiate for insurance arrangements, or do something where you benefit as the consumer.

eBay is Capitalism Perfected in a sense because of its reputation management system. While it can be gamed a bit, it’s very, very, very difficult to game it consistently over time with thousands and tens of thousands of interactions. So someone who has a 99.9% satisfaction rating with 11,000 feedback is plainly trustworthy. Applying licensing laws to someone like that does indeed stink, as Greg puts it.

But in the real world, we don’t have the benevolent eBay dictatorship able to track all of the transactions and gather feedback on a person-by-person basis, then presents all of that information in a single, easy-to-use place for the consumer. Trying to get the equivalent of a eBay rating in the real world would take weeks and months of painstaking research — even if the information were actually out there somewhere.
Furthermore, eBay’s transaction regime is pretty one-dimensional: did the seller deliver the item to the winner in a satisfactory way? How do you evaluate the performance of professional services? Is someone a good lawyer because he’s prompt with his responses, considerate of your needs, and a good father, even if he loses every case for you? Is the opposite a good lawyer — he wins every case, but treats you like a piece of crap?

In the real world, I do think there is some justification for a licensing scheme for some professions. Not a lot, but some — and certainly the schemes we have need some real improvement.

In a way, licensing is merely branding with teeth. The purpose of a brand is to engender trust in the consumer by having lived up to the promise of the brand time and again. Licensing extends that concept and gives it some teeth.

If I’m looking for a lawyer, I might not have the time to do what I really should do: sit down with the man, and quiz him on torts, contracts, constitutional law, corporations law, income tax, property tax, federal courts, and the numerous other fields of law to make sure he knows what he’s doing. I should look up all of his past cases to make sure that he hasn’t absconded with client funds, or defrauded clients, or done any one of the really horrid things a lawyer could do. But I just don’t have that kind of time.

So I rely a great deal on his license. If he had absconded with client funds, he would have been disbarred. If he didn’t know a thing about basic black-letter law, he wouldn’t have passed the Bar exam. His license to practice law is a brand that proclaims, “this man knows enough and is ethical enough for you to trust him with your life savings”. Or in some cases, your life itself.

If the licensing scheme is coherent, rational, and rigorous, and it is designed to further consumer benefit, it can be a very important stand-in for the eBay User Reputation system. A great example is the designation of Master Sommelier. Try getting one of those — there are only 1

Now, just because I can defend these licensing schemes does not mean that I can defend all licensing schemes, or for that matter, that I want to defend licensing laws. I could see some jobs where the possibility of harm is so great to the consumer or to society that we need the power of government to prevent anyone who does not have the proper training and ethics from working those jobs without a license. Commercial aircraft pilots come to mind. Even if licensing laws in that case result in protecting the licensee’s turf, the downside of not making sure that someone flying a 747 is properly trained is way, way too big.

For most professional services, however, the licensing laws are a big problem.  There is no coherent benefit to the consumer, and the license itself no longer carries the ‘brand’ that it used to.  In those cases, I think a professional registration program — with much higher, more stringent standards — is far superior.  Rather than prohibiting people from practicing law without a license, why not simply have those who have passed the Bar register with the State Bar Association, and make that data public.

The application to our real estate industry is, I trust, obvious.

-rsh