"Real Estate, by far, is the most screwed-up industry in America."
-Glenn Kelman, CEO of Redfin
Remember the "ham in the pan" story? Generations of women cut the tips off hams before placing them in ovens. Why? It was a tradition passed on by Grandma.
Why did Grandma do this? Because ovens were small and pans were made to fit ovens. As ovens grew in size, so did pans. But generations of moms continued to cut the tips off hams because that's what Grandma did.
The real estate industry does this, too. No business needs an update as badly. No industry is more desperate for a tradition-breaker to galvanize and inspire more than 1M Realtors to break free from the shackles of yesterday.
Below are just a few of the obvious flaws in the traditional real estate model, each crying out for a bold and inspiring individual like "The Champ" to step in, shout out, and wake everyone up.
(Image courtesy of BBC)
1.After selling real estate for 35 years, I've learned that the degree of difficulty in selling a home is more a function of whether the homeowner is realistic about price, not the price range of the home. Yet a $400,000 home seller typically pays the same 6% commission as a $200,000 home seller. Perhaps Realtors should charge more to stubborn and unrealistic clients who won't listen to their advice.
2.Is it fair that sellers control the result, but Realtors take the risk? Listing agents often invest their time and money, work like demons for months, hire a professional photographer, create marketing materials, advertise a home, show a home, obtain excellent offers, but don't earn a nickel because the sellers are crazy on price. It's happened to me hundreds of times.
3.New, inexperienced real estate agents try to charge the same "traditional" 5%-6% commission as established industry super-stars. I know of no other industry where experience and skill is so unrelated to compensation.
4.Does a lottery-like, commission on sale model even make sense? Maybe Realtors should charge based on capability and time, like lawyers, doctors and other professionals.
5.Homebuyers pay nothing for the services of a real estate agent. Home sellers shoulder all the burden, with half their commission compensating the buyer's agent (whose obligation is to negotiate against that home seller's interest.) That's like me paying your attorney to sue me.
6.It is unfair to home sellers that MLSs (Multiple Listing Services) disclose to buyers how long a home has been on the market. This typically results in a significantly lower sale price when a home doesn't sell right away. The fact that a home doesn't sell quickly doesn't necessarily mean it's overpriced or something is wrong (which is what buyers assume). Many times the right buyer just isn't in the market when a home is listed, resulting in the home sellers taking a hit on the eventual sale price.
7.When you think of the major real estate firms in your area, can you think of any discernable difference between them? A difference in commission? A difference in strategy for selling your home? A difference in the quality of service provided by their agents? I've been in real estate all my life and can't name one competitive differentiating factor between most major traditional real estate firms. Why? Because most firms focus more on recruiting agents than providing their existing agents with a unique home selling product. No other industry operates in such an ocean of sugar free vanilla.
The traditional real estate model is illogical and structurally unfair to both home sellers and Realtors. Sellers pay more because buyers get a free ride. Realtors take all the risk, yet sellers control the result. Homes sell for less than they should because the MLS discloses time on the market. Realtors may do everything right, but never earn a dime because sellers are unrealistic about price. Real estate firms worry too much about recruiting agents instead of differentiating and helping the agents they have.
There has always been great opportunity in injecting non-traditional strategies into traditional business models. It's time for forward-thinking real estate visionaries to get bold, take the old guard off guard, and become the game-changing mavericks the industry needs.
Farewell to "The Champ." He was my hero growing up. I was so excited to meet him a few years ago, never imagining I would have that opportunity. Then I could not have been more humbled when he kindly endorsed me in real estate.
Real estate desperately needs a Muhammad Ali.