The real estate bubble is behind us and with default rates still rising, the rest of the meltdown is still ahead of us. Purchasing or selling a home in this market has possible grave consequences. Are real estate agents educated enough to assist today’s consumers?
In this blog post, I will address the idea of adding a bachelor’s degree as a minimum barrier to entry for real estate agents. But first it’s important to review professional status. I must know thousands of real estate agents. Many of them are well educated and conduct their business in an honest and ethical manner. Real estate agents are often cited as one of the least trusted professions. But wait, are real estate agents professionals? Let’s take a look at the structural relationship between a professional and his or her client.
Is your barista at Starbucks or the person who bags your groceries a professional? If you answer “yes,” hold on: there’s something inherently different between a barista or a retail salesmen and a doctor, lawyer, engineer or CPA. We can use the word “professional” in many different ways. Your barista can do his job in a professional manner. Anyone can do his or her job in a professional manner, according to his or her own subjective interpretation. This is using the word “professional” as an adjective. When we use the word Professional as a noun, there’s a classic definition that we would refer to.
A Professional:
1. Has specialized knowledge in his or her field. This person knows way more than the average random consumer about his or her area of expertise;
2. Is required to complete a minimum amount of formal, academic education;
3. Is tested for competency;
4. Is licensed;
5. Must maintain that license with mandatory continuing education;
6. Subscribes to a mandatory code of ethics in an industry that is self-regulating. This is different from state or federal government regulatory oversight. The industry itself regulates ethical conduct over and above state and federal law;
7. The self-regulating body enforces their code of ethics with sanctions for violations;
8. Owes fiduciary duties to clients. This means the professional has the highest prescribed duty of loyalty to the client, to put the client’s interests above his or her own interests.
Real estate agents, does your industry hold professional status? Take a look at your state agency laws. Does your state mandate fiduciary duties owed to clients? I have been told by many Realtors in various states that their local association of Realtors does not enforce the Code of Ethics. Nationwide, to elevate the professional status of Realtors, I recommend ditching dual agency completely and self-regulate by enforcing the Realtor Code of Ethics with more integrity. By that I mean across all states and not just in some states.
Is now the time to add a college degree as a minimum requirement?
I have met thousands of Realtors and real estate agents. Many of you already conduct your business as a Professional. However, just because you personally conduct your business in this way doesn’t mean consumers all throughout your market area place real estate agents or Realtors into the same category as a doctor, lawyer, engineer, or CPA. Real estate agents and Realtors: The more you move towards elevating the professional status of your entire group, the more value you will hold in the eyes of your clients, and the more you will be able to charge for your services.
If we look back through history, with any of the classic professions, we see a narrative trajectory of that group’s movement from non-professionals to emerging professionals to professionals. Real estate agents would fall somewhere between emerging pros and professionals based on the above criteria.
Notorious R.O.B. would set the bar much higher than it is now. 1000WattMarc’s dream real estate brokerage would be for all licensees to have, at the very minimum, a bachelor’s degree and a moral compass. I suggest that Marc’s dream brokerage would want to write a much more descriptive and prescriptive code of ethics, one that goes further than the NAR Code, which is a very, very good Code to start from.
When the first no-fault divorce laws started to pass from state to state in the 1970s, we saw a wave of women enter the workforce. Real estate and mortgage lending were a place where a female could start out with no experience and make a living wage, and even more so, could not only rise through the ranks but could start her own company if the glass ceiling wouldn’t break. Leaving the barrier to entry low for the real estate industry had its time and place.
The practice of real estate has become more complex since the 1960s and 1970s. Yet today person can move from selling sheets at Macys to real estate, to selling shoes at Nordstrom, to selling cell phones, and so forth. They did during the bubble run up, and now many have moved back into retail sales.
Some say a college degree is not required to be a good salesperson. But then let’s stop pretending that agents are in the same ranks as professionals with college degrees and let’s stop acting confused when consumers do not respect the practice of real estate and question an agent’s value and fees. Must the real estate agent of 2010 and beyond transform into more than just a salesperson? If the industry as a whole likes things the way they are, perhaps one firm could create market differentiation by making higher education mandatory.
To start with, a Bachelors degree in ANYTHING would be a minimum barrier to entry. As the years move on, curriculum would be developed for the profession of real estate. Required core courses would include all facets of real estate, agency, and contract law, mortgage lending finance, economics, statistics, communications, counseling skills, conflict resolution, negotiation skills, multicultural competence, applied professional ethics, listening skills, business, accounting, taxation, foreclosure statutes, short sales, the unauthorized practice of law, consumer protection and fraud statutes. Agents could take specialized electives in land use, construction and development, property management, commercial real estate, multi-family, and principles of investment.
There would be no required technology classes. Being able to use a computer would be a pre-requisite. There would be no elective classes on social media because the world has enough self-designated experts in this field to assign one to each real estate agent for the next decade.
There would be no required sales courses in this utopian bachelor’s degree curriculum of my dreams. Because selling would not be what graduates do once they’ve passed their licensing exam. Instead, they would need business development skills, marketing, entrepreneurial skills, and education on how to help their clients make informed decisions.
Yes, I am well aware that Bill Gates dropped out of college to start Microsoft. But he and others like him are Outliers. They are not the norm. They are on the far end of the bell curve. We need to take account of the middle. Any industry is judged on its lowest common denominator, not by the best of the best in an industry.
Turnover of real estate salespeople falls in line with retail salespeople. Having a constant stream of new to newer agents means a certain percentage of consumers will always be working with a new/newer agent. This might lead to higher earnings for company owners who earn a higher fee split on those transactions but as a whole, the industry itself suffers from lack of consumer confidence.
At first, mandatory higher ed might not seem like a good idea for our existing real estate business models because broker/owners wouldn’t be able to make all the money off of the cash cow new agents. However, more educated agents from the start may save those broker/owners money in the long run.
Yes there are bad eggs in every profession, even those that require a college degree. The sociopaths are at one end of the bell curve and don’t make up the majority of any one group. Well, except for the loan mod salesmen and coming soon to a market area near you: predatory short sale negotiators.
Requiring higher education is not just a business decision and profits. It is also a moral issue. Professionals take into account more than just what’s good for them personally, they ground their decisions in what’s also good for the entire industry as well as what’s good for their clients.
Already licensed agents would be grandfathered in, of course, which is the only way an idea like this could even begin to get traction.
In closing, if higher standards of education are put into place, then real estate instructors would absolutely have to meet higher standards. But that’s a different blog post for a different day.