The Status Quo in Real Estate

The current status quo is based on the numbers of Realtors®.  Real Estate Agents become Realtors® in order to have access to the lockbox system, the contracts and forms used, educational classes, legal resource, and more.

The National Association of Realtors®, the California Association of Realtors® and the local Association of Realtors® all base the majority of their income on the number of agents who join.

The large brokerage firms who work with the traditional real estate model, do the same.  Each agent pays a technology fee and a portion of the commission earned on each transactions.  Since the share of the brokerage’s commission decreases for an agent that produces more transactions, it is in the brokerage’s best interest to have a lot of agents doing a reasonable level of production.  The reasonable level of production would be based on the number of deals an agent needs to do to reduce the commission payable to the brokerage to zero.

For every agent who joins a brokerage, the brokerage can be sure that the new agent will pay for a certain amount of advertising and do a certain amount to promote the agent’s business.  The quality and quantity will vary by the agent and by the demands of the brokerage.  In any case, all advertisements are required, per the California Business and Professions Code SS. 10140.5, to include the brokerage’s name.  What has the brokerage got to lose by hiring another agent whether experienced of not?  If the agent advertises, passes out cards and networks, then the brokerage is getting promoted.  And since brokerage’s require use of their logo, and may require specifically designed cards, signs and marketing material, they are increasing their brand recognition even if the person receiving the advertisement does not work with that agent.

Some brokerage’s wanted to break out and allow buyers and sellers to pick what services they want to pay for.  But the legislature has been encourage to close this opportunity for buyers and sellers by lobbyists.  Who pays the lobbyists?  NAR and CAR and the local associations.

In fact, on my Realtors® renewal bill are two line items which are contributions for Federal and State political funds.  Some of this is for the agents’ benefit.  The lobbyists keep track of what’s going on in the legislature and try to block things that they see as detrimental to the real estate business.  This has included blocking the requirement that each agent must pay for an file a her own business license.  It has also included blocking banks from getting into the real estate business.

Although there are things that the lobbyists do that help the average agent, it seems to me that they are pushing to continue the status quo.  What’s wrong with having the banks come into the field?  Some agents also make loans, so why can’t banks sell real estate.  The concern is that the banks would change how their agents, who would probably be employees, are compensated.  If they want to treat them like employees, they will have to.  This would be additional competition to the large brokerage firms and might even require changing the independent contractor model.

My point, with the continued belief that real estate agents are living a get rich quick life, people will continue to join the profession.  What potential agents need to realize is that the system is set up to benefit the larger brokerage houses and is based on the number of agents that are in the system.

For the Realtor® Associations, the revolving door of agents keeps the money rolling in.  Associations are funded by new agents that join.  Since an agent pays for the entire year, or remainder of the year, the Associations’ income stream does not care if that agent ever sells a house.

For the brokerage firms, continuing the myth that you can make a fortune in real estate keeps new agents coming in.  New agents that promote the company and pay a higher percentage of the commission to the brokerage.

My office manager’s goal was to keep increasing the office until there were 60 agents.  As an agent, this wasn’t to my benefit.  But in the bizarre world of real estate, it was a benefit to my office manager.

© 2007 by Judy Kane