Publications

Phillip C. Querin, Partner
Partner - Portland, Oregon Office

philquerin@dwt.com
(503) 241-2300

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Realtors ® as Knowledge Brokers
[October 2006]

For Realtors® whose experience goes back to the 70s, 80s or even the early 90s, the real estate brokerage business has changed dramatically. To oversimplify for purposes of this article; “That was then, and this is now.”

Back then, if a person wanted to sell their home, they used real estate agents, since that was the most efficient way to get the word out to the largest number of potential buyers which homes were for sale. Upon listing a home by an agent, the data went into the local multiple listing service, which was the only such source for centralized information about available properties. And, only Realtors® had access to this data, which was published in the MLS book. If one wanted to buy a home, they went to a real estate agent who had the book. It was against all rules, professionally or otherwise, to loan the book out to clients. The MLS book was the Holy Grail and Realtors® truly were its gatekeepers.

Back then, the real estate brokerage business was like the Dating Game, except Realtors® matched sellers and buyers together based upon information gleaned from the MLS book. The standard form sale agreement was really just a one-page receipt for earnest money. There was no such thing as property disclosure and the rule of caveat emptor prevailed. There was no professional inspection industry twenty years ago, and acronyms like “EIFS,” “LP,” “RESPA,” and “FIRPTA,” did not exist as we know them today. Lead was intentionally added to paint to enhance its durability and appearance.¹ Mold was only found in fine French cheese, C.L.U.E. was a board game, and HUD was a classic movie about a drinking, fighting womanizer, starring Paul Newman.²

Now, State, Federal and local laws abound. Over the last 20-30 years the real estate brokerage industry has witnessed an explosion of laws regulating land use, lead-based paint, woodstoves, smoke alarms, seller property disclosure, Fair Housing,³ condominium sales, settlement procedures, agent disclosure obligations, well water, manufactured housing, dual agency, foreign investment in real property, and dispute resolution. The real estate sale agreement is now seven pages in length. Lawyers have discovered the presence of mold in homes to be a cottage industry for protracted litigation.⁴ Given this explosion of regulation and litigation, anyone with an institutional memory of the brokerage industry over the last few decades must shake their heads with incredulity when critics complain today that Realtors® do not earn their commissions.

And now, we have the Internet. Much of the listing information previously held sacrosanct in the local MLS, is available within a few mouse-clicks to any member of the public looking for it. During the last five to six years especially, we have seen the proliferation of websites containing much of the data Realtors® worked hard to obtain, assemble, and protect. This evolution, resulting in almost unlimited accessibility to what used to be closely guarded work-product information, has resulted in a revolution, forcing the real estate industry to re-examine the service it seeks to provide its customers.

Whether Realtors® realize it or not – and upon reflection, most do - their service as a housing “matchmaker” for sellers and buyers, has largely gone the way of the travel agent and the dinosaur. This is because a Realtors’® stock-in-trade, the raw MLS information, is out in the open, visible, accessible, and available to all. It’s hard to charge customers for a product they can now obtain for free over the Internet.

So what’s a Realtor® to do? The answer is simple, yet difficult, at the same time: In order to survive, Realtors® must become Knowledge Brokers. This is not as formidable a task as it seems. Much of it depends upon marketing, which is the art of convincing the consuming public that you have something they need – and that they can only get it from you.

Successful Realtors® have thrived for years because their clients valued the skill, knowledge, and expertise they brought to the table. Finding the buyer or seller is the easy part today,⁵ compared to the difficulty in maneuvering through the legal, regulatory, and litigation minefield, to a successful closing. But good knowledgeable service is like a giant chain-letter, in which people secure the services of their Realtor®, and then pass the word along to their friends, who also do the same. In a business facing a Malthusian Dilemma of new licensees entering the industry every day,⁶ no amount of billboard and bench advertising can replace the value obtained by good referral business from satisfied clients who believe that your Knowledge is something worth paying for.⁷

Realtor® survival means working smarter, and getting the message out to the consuming public that you have something to offer – besides raw listing data – that can’t be obtained anywhere else. It is not significantly different than succeeding as a lawyer. Years ago, you had to go to a lawyer just to find out what a statute said. Today, it is all available over the Internet - statutes, cases, forms, documents, etc. Everyone has access. But the legal business has survived, since simply having the raw information, and knowing what to do with it, are two entirely different things.

Information and Knowledge are separate products. For the real estate brokerage industry today, raw listing data is just the Information. But it is not the real commodity brokered by good Realtors®. Knowledge is knowing what to do with the Information, and this is the Realtors’® true commodity. Most consumers know nothing about land use, lead-based paint, seller property disclosure, Fair Housing laws, condominiums, escrow, or title insurance – even though all that information is readily available over the Internet, if one knows where to look and the right questions to ask. Sellers and buyers know nothing about time on the market, available housing inventory, community trends, stale listings, refreshed listings, or the difference between a “Zestimate” which looks back in time,⁸ and a forward-looking CMA provided by a knowledgeable Realtor®. Unfortunately, much of the press has reinforced the perception that with all the Internet has to provide, real estate agents are an anachronism, and totally unnecessary to the home selling and purchasing process.

So, the Mission Impossible task for Realtors® today is to learn, learn, and learn more, about their marketplace; their industry, the laws and regulations affecting it, how to maneuver their clients through this maze to a successful closing - and most importantly, Realtors® must get the word out to customers, potential customers, and anyone else who will listen, that real estate today is a complex and risky business, and that only they have the Knowledge capable of handling it. In the words of the real estate “gurus” and motivational speakers that Realtors® pay good money to hear say it, “ This is the value proposition.”

FOOTNOTES

1 The Residential Lead- Based Paint Hazard Reduction Act was passed in 1992.

2 It was released in 1963.

3 Although Title VIII of the Civil Rights Act, the Fair Housing Act, was passed in 1968, it was significantly amended in 1989, to add two additional protected classes for residential housing, i.e. familial status and handicap. In some jurisdictions, age, source of income, sexual orientation and gender identity have also been added to the local ordinances. In some areas of the country, including Oregon, some would argue that these new classes create a greater legal risk to Realtors®, than those protected in the original 1968 Act.

4 This is not just limited to plaintiffs’ attorneys. Defense attorneys also reap the benefits of protracted litigation and bear some responsibility for the explosion of this new specialty known as “construction defect litigation.” Equally culpable are the forensic “experts” who make this type of litigation possible in the first instance. In strictly biological terms, it is a highly symbiotic relationship.

5 This is not to say that the marketplace has not slowed, or that it does not take time to sell a home today. But, as fishermen know, with a good lure and knowing where to cast, the fish will come. Once the fish is hooked, the real work begins.

6 Thomas Malthus, 1766-1834, was an English demographer. He theorized that population growth would outrun the food supply by the middle of the 1800s, resulting in a decrease in units of food for each living person. Darwin based some of his theories of evolution and natural selection on Malthus. With the increasing number of Realtors® all vying for a finite number of homes to sell, the analogy should be clear.

7 One happy client paying a $10,000 commission and referring your name to three customers, who do the same, is worth much more than one $25,000 client who tells no one.

8 A “Zestimate” is the term Zillow uses to describe the estimated market value given to properties displayed on their search engines. It may be manually adjusted by the user based upon specific characteristics unique to the subject property, such as a recent kitchen remodel. A Zestimate is not an appraisal. If you have not checked this website out, you should. It helps underscore the importance of having a good Realtor® establish current values “on the ground,” versus a static estimate based upon algorithms and public record information.

© Copyright 2006. Phillip C. Querin, Davis Wright Tremaine. No part may be reproduced without the author’s express written consent.