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The real estate profession is full of landmines and pitfalls that, if not recognized and acted upon, can cause catastrophic damage to any and all real estate-related entities. There is also incredible opportunity for those who understand the times and respond effectively.
One of the reasons savvy real estate agents spend a lot of time in training is they realize that the more input they receive, the higher the chances that — when circumstances arise — they will know how to effectively respond.
Unfortunately, there are also many who ignore the signs and warnings that appear as signposts along the way. This not only applies to individual agents but the industry as a whole.
Commissioned by NAR, May 2015 saw the release of the “DANGER Report,” a 164-page document from Stefan Swanepoel, T3 Sixty’s executive chairman. The report was written after extensive research including interviews with 70 knowledgeable entities and a survey that had close to 8,000 respondents. The report outlined 50 threats, risks and challenges the real estate industry was facing at the time and would face in the near future.
Read Part 1: What The Opportunity Report says about commission compression
Unfortunately, like a parent’s advice, much of the report was ignored with the result of traumatic changes being forced on the industry. As a result of the recent spate of lawsuits directed at the real estate profession and the ongoing shifts in opinion and practices, Stefan Swanepoel and T3 Sixty were asked to do further research and come up with a “sequel” to the DANGER Report that would provide recommendations going forward.
The resulting document, entitled The Real Estate Opportunity Report, details 20 key opportunities facing the industry. The report is sponsored by Homes.com so that it can be available to the industry at large. It is important to note that, while sponsored by Homes.com, they did not have a voice in the content of the report.
Here are the 11 “opportunities” as presented by the report for organized real estate, state regulatory agencies and key stakeholders:
1. Drive market transparency: The Clear Cooperation path forward
“The industry is split on the Clear Cooperation Policy (CCP). NAR needs to take a decision on what Clear Cooperation should be, and work to unite the industry behind this vision.”
It is safe to say that the industry is split over CCP and will use up a lot of valuable resources arguing for either side. While CCP was birthed with the consumer in mind and to prevent larger brokerages from hoarding and double-ending listings, it is clear that a path forward must be arrived at sooner than later. Ideally, that solution should favor consumers, not brokerages.
2. Separate MLS organizations from Realtor associations
“Make multiple listing services more competitive by eliminating the governance restrictions that result from being owned by Realtor associations.”
With one-half of MLS’s functions removed — that of sharing offers of compensation — they should be able to focus solely on ensuring that the maintenance and dispersion of market data are state-of-the-art and being transmitted to agents effectively, allowing them to best serve their clients.
Realtor Associations, on the other hand, should be local and focus on what they do best: consumer advocacy based on their constituency, agent training and accountability, ethics compliance and so on.
3. Cultivate the future of real estate with a new modern professional
“Realtor associations must take the lead in recruiting, educating, and developing a new generation of trusted advisors and real estate professionals.”
While major brokerages and training organizations provide excellent training, the overarching parameters need to come from Realtor Associations, starting at the national level, then the state level and finally regionally. Since each state has its own set of rules and regulations, compliance should be handled on a local level by regional associations with intimate local knowledge of county and city regulations.
With this in mind, and with the overarching goal of moving past the part-time salesperson mindset to that of full-time advisors, I believe we need to see a significant increase in the entry requirements and ongoing training and accountability.
4. Maximizing value through consolidated MLSs
“MLS organizations should merge, allowing brokers and agents to provide consumers with enhanced information and service, unrestricted by geographic limitations.”
As stated in B2 above, if we can separate MLSs and Realtor associations, then, in my opinion (and this is MY personal opinion only, not that of my brokerage, local MLS or Realtor Association), once all MLSs are decoupled from local Realtor Associations, they should be combined into one statewide MLS so that all agents in every corner of the state have full and transparent access to all MLS data. The irony here is that many consumers currently have more access to data than their agents do through their local MLS.
Having watched the various Realtor Associations in our region try to come to an agreement over which MLS platform to use (we have at least three different platforms in our region alone), the fields to be included, rules governing access and more, it seems to me that one platform used statewide with full access for all would be the way to go.
In my (again personal) opinion, it is the local associations that are preventing this from happening as each tries to maintain some vestige of territorial control over local data and the way it is dispensed. Additionally, many associations that have integrated the local MLS have a significant amount invested in the infrastructure, making it more difficult to go along with the idea of decoupling.
5. Rebuilding trust: A strategy to re-engage NAR members
“To reclaim its leadership role and restore trust within the industry, NAR must openly acknowledge the concerns of its members and demonstrate a genuine commitment to addressing them.”
Without question, NAR has taken it on the chin and is reeling from what many believe to be a knockout blow. Voices across the country are calling for reorganization or even total dismantling of NAR as it currently exists.
The report suggests that NAR reclaim its leadership role in the industry in the following ways:
- Refocus membership: Streamline and engage a more qualified membership base to improve representation, participation, and effectiveness.
- Elevate industry standards: Address perceptions that brokers’ interests are neglected and enforce higher standards to enhance professionalism.
- Strengthen advocacy: Refocus on core advocacy efforts at the national level, reestablishing NAR’s influential voice and eliminating decades of mission drift.
- Streamline operations: Reduce the number of national committees and administrative staff, while recruiting experienced leaders to drive progress.
- Rebuild trust: Increase transparency and provide realistic insights into market conditions, moving away from overly simplistic messaging like “it’s always a good time to buy.”
- Foster new talent: Launch large-scale apprenticeship and scholarship programs
to cultivate the next generation of skilled real estate professionals. - Uphold accountability: Strengthen regulatory enforcement to ensure high professional standards, restoring consumer trust and credibility within the industry.
6. Evolving beyond the 3-way agreement
“The three-way agreement that helped NAR grow has also imposed a three-tier membership structure that may no longer serve members’ best interests. Sunsetting this agreement would allow associations at all three levels to tailor their value propositions to better meet member needs.”
Agents have long complained that they are required to join NAR and pay the associated fees when they do not see any apparent benefits at their local level. To a small degree, this complaint has also been levied towards state and local associations as well.
Rather than mandating membership in NAR, statewide associations and local associations, the report recommends that associations at all levels earn the right to attract members by demonstrating real value and benefits. The report recommends the following:
- Freedom of choice: Professionals can align their membership with associations that reflect their values, needs, and goals.
- Accountability and quality: Optional membership compels associations to continually demonstrate value, enhance services, develop better programs, raise standards, and foster greater innovation.
- Cost efficiency: With optional membership, professionals can manage expenses more effectively by joining only those associations that directly benefit their business.
- Encouraging competition: Voluntary membership encourages competition between associations, leading to improved offerings, more focused services, and a wider range of choices for professionals.
7. Realtor associations must streamline and unite
“Larger, economically sustainable associations with experienced management are significantly better positioned to serve real estate professionals with the high standards they expect and deserve.”
There is strength and efficiency in numbers. With increased pressure on the real estate industry to improve across all levels, consolidation would provide an effective path forward by increasing the membership base and providing the resources required to usher in updated training.
Additionally, it would provide consistency of rules and regulations across a wider constituency and level the playing field. A quick look at the automotive industry — and GM in particular — illustrates that as the market tightens due to external forces, it is in the industry’s best interest to consolidate and streamline (eliminate under-producing brands in GM’s case) and strengthen those remaining assets to remain viable in the new reality.
8. Reimagine what Realtor association leadership means
“The current committee structure together with elected and rotating leadership must be reorganized. NAR should reimagine a more streamlined and effective decision-making format for governance.”
The old adage, “A camel is a horse that was designed by a committee,” while funny one level, rings true for those who have spent countless hours in unending committees slowing grinding out minutia.
The report makes the point that the current leadership structure has produced an unwieldy organization trapped in a complicated, sluggish morass. In an era where many large corporations have learned to streamline their leadership structures to produce efficiency and speed to the market, NAR has seemingly gone in the other direction. The report recommends the following:
- Request a full board resignation: Though largely symbolic, this bold step would signal a commitment to redesigning NAR. Bylaw changes would be necessary to facilitate the simultaneous resignation of all Board members, which would need approval from Realtor associations at both local and state levels.
- Form a new, focused board of directors: Transition the current leadership team (less those 10 members) to a more streamlined and more efficient Board of Directors. In the first year, rotate out half the members, and replace the remaining half in the second year. Prioritize the selection of industry experts and external business leaders over geographical representation or state elections.
- Evaluate leadership: After one year, evaluate the performance of the newly appointed CEO. If the CEO is effective, grant her full decision-making authority. If not, pursue leadership that is capable of driving momentous change.
- Redefine departments and roles: Clarify the vision, responsibilities, and goals of each staff-run department, ensuring they are led by skilled experts empowered to enact tangible progress.
- Eliminate excess committees: Within two years, reduce the approximately 90 committees to zero transferring their responsibilities to staff-led department executives. This should be a small, agile group of empowered capable of achieving significantly more than the thousands of part-time committee members.
9. Prioritize advocacy as NAR’s central mission
“NAR should expand on its existing efforts, articulate its advocacy achievements, and take a leading role in championing the interests of real estate professionals.”
There is no question that NAR has been a champion of consumer and fair housing rights over the past century. As the largest trade organization in the U.S., with approximately 1.5 million members, NAR has a significant voice.
The report states, “Once recognized as “The Voice of Real Estate,” NAR now faces an urgent need to reclaim this role as members grow increasingly vulnerable to legislative threats, legal challenges, and public misconceptions. Now, more than ever, a strong voice is needed. NAR must refocus, reinforce its leadership, and confront critical issues directly to safeguard its members. The organization’s future — and the trust of the entire industry — hinges on these efforts.”
I believe that to remain a force in the coming years, NAR should focus on reducing its bulk and refocusing on advocacy.
10. Enhance professionalism with strong licensing requirements
“It is time to stop thinking of agents as salespersons and start identifying them as advisors. To achieve this, there must be stricter licensing requirements that align with the responsibilities of professionals.”
To state that a significant percentage of real estate agents across the country are less than professional would be a dramatic understatement. The idea that a person can get a real estate license with little or no effort for the sake of earning some “part-time money” has to stop.
While many believe that increasing market forces will weed out ‘unskilled” agents, this has not come to fruition in previous markets as there are still plenty of ineffectual agents out there giving the industry a bad name.
I am constantly shocked by the transactional fiascos I have seen, the gimmicks employed by some agents, a blatant lack of knowledge concerning current market conditions and overall lack of professional standards. We have to figure out a way to raise the bar.
11. Make homeownership an affordable dream again
“Homeownership is a critical path to long-term financial stability and generational wealth. However, rising costs and a housing shortage have triggered an affordability crisis, putting this dream out of reach for many.”
While the report provides a significant list of actions designed to lower the cost of housing, it focuses primarily on new construction. Unfortunately, this is still a small segment of the overall market and, until something is done to change the current market dynamics, prices will continue to rise.
In California, as an example, many approaching their senior years live in homes purchased 30-40 years ago.
We recently sold a home that had been purchased decades ago for $80,000. It sold for $1,600,000. Since it was sold by a couple, they were each able to claim the $250,000 tax exemption. I’m not an accountant, so bear with the quick and dirty math for the sake of the argument: add the $500,000 to the $80,000 purchase price and you have a total of $580,000 of tax-free income from the sale. The balance of $1,020,000, however, minus any legitimate tax deductions, would be considered as capital gains and taxed accordingly.
While this couple chose to sell due to health reasons, and are actually now both deceased, many potential sellers in our region, looking at the astronomical tax hit, are choosing to age in place instead of moving down or out.
While there has been talk in Congress about raising the tax deduction based on locale, nothing has been done and, in some quarters, there is even talk of removing the exemption altogether.
Additionally, those homeowners with extremely low interest rates are not incentivized to sell and repurchase with a rate double to what they currently have.
The result is a region that has seen a significant drop in listing inventory which has forced prices higher. Since we live in a supply and demand economy, a continued lack of inventory will push prices even higher, further compounding the issue.
The higher the prices go, the more unlikely that aging seniors will sell. Since a significant percentage of homes are owned by Boomers, this effectively amounts to a cork in the bottle, impeding what was once a significant flow of homes to the market.
The only solution here is to incentivize sellers to sell by dramatically reducing the tax implications.
On the new development side of the equation, building permits and associated fees in areas like the San Francisco Bay Area are ridiculously high, providing a huge barrier for developers. Coupled with soaring building costs, low-cost housing mandates, rising insurance rates and increasing bureaucrat nonsense, coupled with the rampant lawsuits against developers as homeowner associations try to milk developers for ongoing maintenance costs and you have a perfect storm.
Instead of providing incentives to developers to build, states like California are actually erecting barriers against developers.
This is also happening in the rental market, where ever-increasing rent controls and tenant advocacy laws are systematically stripping away landlord rights. As a result, countless investors are looking to put their money elsewhere by liquidating income properties and putting them back into the resale market.
Multiunit homes are also being affected. As an example, Sacramento, California, which would normally have three to four fourplexes on the market at any given time, at last count had 23 fourplexes for sale at the same time as many investors were looking to get out of the residential income business.
Lastly, many homes that might have hit the market for purchase are being snapped up off-market by large corporations looking to increase their rental portfolios hundreds of homes at a time. Once gone, these properties will not be hitting the market anytime soon, further reducing resale inventories and, consequently, driving prices upwards.
In a nutshell, both local and federal governments — while decrying the housing crisis, are continuing to erect barriers instead of providing the incentives that could potentially bring more inventory to the market which would in turn lower prices.
In summary, this is a great report with many admirable recommendations. Unfortunately, my guess is that entrenched leaders across the many segments of the industry will make some of these recommendations very hard to achieve based on their desires to leave their own positions intact.
My hope is that this report will be seen for what it is — an incredible opportunity to take the events and drama of the past year and turn it into the groundswell required to see fundamental changes take place in our industry.
We by and large ignored the Danger Report when it came out and can hopefully see where that oversight has led us. Let’s hope we do not make the same mistake again.
Carl Medford is the CEO of The Medford Team.
