Phillip's Blog

I ran across an interesting article today by an author who I greatly admire. Her comments made so much sense for our industry that I felt called to reproduce them here so you could enjoy.  Let me know what you think.

As I write this, the US government is embroiled in wrangling over how to overhaul our health care system. It seems to me that the system is not so much broken as it is hopelessly dated because as times changed, it never adapted. Our health care system was designed in years past, when you would hold a job for a lifetime. In that world, it made perfect sense to have your healthcare as a benefit of that job. But how many of us today stay in one job for our entire lives? And what about the growing legions of independent contractors and self employed entrepreneurs who have no access to a "company" plan? Healthcare tied to one's employment makes about as much sense in today's world as using a typewriter to write a letter. Likewise, in the real estate industry, we continue to practice in a way that is not so much broken but hopelessly outdated. The traditional sales model was conceived in years past when we, as real estate practitioners had a very different role. If you think about it, real estate as a sales profession, paid by commission, made total sense when the agent's only job was to "move the merchandise". But in the 1990's our national and state associations expanded our role – it was no longer enough to simply sell the product, we now were asked to act as fiduciaries: working in the best interest of our client and putting their needs above all others, including, and most especially our own. In fact, our responsibilities as a fiduciary became a part of the NAR's (National Association of Realtors) code of ethics that we are obliged to adhere to. Yet, when our role was expanded and fundamentally changed, when we were asked to provide objective counsel that was in the client's best interest, no attention was given to how this new role fit with a compensation system that is geared toward salespeople who are free to work in their own best interest. Consequently, real estate professionals today are put in an impossible bind that no amount of "ethics training" can address: we are being asked to provide objective counsel that is in the best interest of our client when how much we are paid, (or whether we are paid at all) is wholly dependent on the client's decisions which we are advising them on! Performing in these two conflicting roles is an incredible balancing act. I believe that most real estate agents are hard-working, honest, and ethical professionals who strive, sometimes at great financial sacrifice, to do right by their clients. I've seen many an agent counsel buyers and sellers to not buy or sell when the market doesn't favor a profitable transaction, even though they have talked themselves out of a job. The fact that the vast majority routinely put the needs and interests of their clients before their own is a testament to our industry and makes me very proud but the truth is that agents are doing so in spite of the commission system, not because of it. Here is the truth boys and girls: no matter how it's presented or dressed up, there is an inherent conflict of interest when a real estate professional is expected to act as a fiduciary providing objective, unbiased counsel to clients, while at the same time being limited to contingent-on-an-outcome compensation. In my book, "Ripping the Roof off Real Estate" I call this conflict of interest the elephant in the room. Deep down, our industry knows there's a problem because the consumer just doesn't "buy" us as fiduciaries when we're being paid like salespeople, but no one wants to acknowledge it and certainly no one wants to talk about it. Please understand: there is nothing wrong with being a successful salesperson. I personally have the highest regard for good salespeople. But that is not what we, as real estate professionals today, are being asked to be. And like health care being tied to our "employer", the sales model, payable only by commission, just doesn't fit today's reality."