Columns share an author’s personal perspective.
Reader Question: What's wrong with the real estate industry? We have a large family by today's standards - five grown children with children. At a recent family reunion, we discussed real estate and ended up taking a poll. Transaction number 10 started the conversation. Together they have concluded nine transactions, with number 10 now pending. Only one daughter had a five-star experience. There were two 3-, three 2- and four 1-star transactions. There were numerous anecdotes reported about why each chose their star rating. My husband and I are wondering if you can explain why their experiences aren't better?
Monty's Answer: The real estate industry is one of many legacy industries that developed at least 100 years ago. Some go back for centuries. These industries developed their practices and methods before there were telephones, electricity and automobiles. Other sectors that have yet to adapt to modern times are insurance, medicine, mining and education. Innovation is a double-edged sword because there are winners and losers. Just think of the scribes put out of business in the year 1450 when Gutenberg invented the printing press.
The real estate industry
Real estate has something to lose. Society has changed and allows for modernization, but real estate has many internal barriers that impede growth. For example, the MLS system is very fragmented, with over 600 individual MLS's in operation throughout the United States. The original purpose of the MLS was cooperation among brokers and agents to simplify buying and selling homes. Unfortunately, with the myriad of rules and policies developed over many years, to say nothing of regulation by federal, state and local governments, simplicity has virtually disappeared. Adding to the malaise is that the industry desperately tries to keep control of the data that consumers need to make intelligent decisions.
The real estate brokerage model
Today's real estate agents will tell you how much things have changed and that it is hard to keep up as changes are coming so fast. To some extent, they are correct, except the fundamental business model of a brokerage is near identical to the 120-year-old model. Examples of this are the low entry-level requirements (in at least one state, a convicted felon can obtain a real estate license), misdirected training and marginal supervision. Agents also have a near-impossible job. All of these flaws may help you understand why your family only had one 5-star transaction out of 10.
No one is at fault
All industries, including real estate, continue to evolve - some faster than others. The National Association of Realtors works to enhance and improve the 1.3 million member agents. But it is challenging to do. The industry is very fragmented. There are approximately eighty-thousand real estate companies operating in the United States. For example, several years ago, the NAR published survey results in a report titled "The Danger Report." Over 7,000 agents responded, "The biggest challenge is the masses of marginal agents are destroying our reputation. The real estate industry is saddled with many part-time, untrained, unethical and incompetent agents. This knowledge gap threatens the credibility of the industry." This situation targets real estate for disruption.
Richard Montgomery is the author of "House Money - An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home." He advocates industry reform and offers readers unbiased real estate advice. Follow him on Twitter at @dearmonty, or at DearMonty.com