One thing we know is true of animals, is that when they are put in difficult situations, find themselves with no food, starving, small pups to protect and provide for – even the best, most well trained animal, will bite the hand that feeds it. They will resort back to and be driven by their survival instincts. Doing whatever necessary to protect and look out for #1 – herself, and those dependant upon her, her family and pups first.
In this regard, as humans we are very similar. Survival instinct, is undoubtedly one of our strongest motivators. A change of circumstance, for example, can cause a person of great integrity to become unethical in times when it can be “justified” and rationalised in that persons head.
During Hurricane Katrina in the USA the world saw police officers looting shops to provide for their families. Was it ethical or moral for those officers to “Steal”? No! But could they rationalise and justify it in their head? Sure! So they did it… they were motivated by their survival instinct to become unethical.
So what’s this got to do with an Elephant in the real estate industry?
Under our law, as real estate agents, we have a duty to act in our clients best interests. Yet the traditional real estate industry is based upon a 100% Commission Only business model. Meaning if agents don’t persuade people to list with them, then convince those same sellers to accept the offers on the table, they DO NOT get paid. Meaning zero income. Think survival instincts.
Mollie Wasserman, the visionary author of a book called “The end of 6% put it this way…
“No matter how it’s presented or dressed up, there is an inherent conflict of interest when an agent is expected to act as a fiduciary agent providing objective, unbiased council to clients, while at the same time being paid by commission.”
When you understand, as we discussed in this article, that the major ‘sale’ in real estate is not persuading buyers to buy, it’s convincing sellers (the paying client) to sell – then this conflict of interest becomes even clearer.
Sure, here in New Zealand the Real Estate Agents Act 2008 and the Real Estate Agents Authority (REAA) are making excellent inroads to try and raise the professionalism and ethics of our industry. The compulsory industry training in recent years has been focussed on helping agents understand their ethical duties to sellers and buyers.
However no amount of ‘Ethics’ training will take away the basic conflict of interest created by the traditional industry commission only business model. A model which in effect, puts salespeople in a position of having to constantly choose between ethics and eating.
Lets be crystal clear. I am in no way saying that real estate salespeople are bad people. I am not having a go at anyone personally. I am however pointing to an obvious flaw in our traditional business model. And, in a way, challenging you (agents and consumers) to stop and seriously consider this.
On one hand we (as real estate agents) have a duty to act, serve and advise in your best interests. This is what’s called a ‘Fiduciary Duty’. The clients interests must be put above our own. It’s the foundation of true professions. Doctors and solicitors for example. They operate on a ‘consultancy’ based model and must not put themselves in a position that creates a conflict of interest between them and their client. Consultancy = Client interest.
Yet the reality is, the foundation of the real estate industry is a ‘sales’ culture and ‘commission only’ business model. Which is in direct conflict with our duty to our clients. It puts agents in a position where it’s very difficult for them to truly act in your best interests. Survival trumps Ethics – only always. Commission Only Sales = Self interest.
If you are a consumer, do you really think, just because the Real Estate Agents Act states agents have a fiduciary responsibility to you, as their client – that your best interests will trump their survival instincts? Do you really think that giving you the right advice will take precedence over feeding the salespersons family?
Put yourself in an agents shoes… you are paid 100% commission only, have had a slow couple of months and are starting to worry about paying your bills… an offer comes in on one of your clients properties, that you should advise them to turn down … you now have a dilemma … give your client the right advice and not get paid … or push for acceptance to feed your children? What would you do?
If you are an agent, before you cry foul and get up in arms about me “bringing the industry into disrepute”… can you truly look in the mirror and swear that you and your colleges always put your clients interests above your need to earn a commission? Can you really say this conflict of interest is not real? That it doesn’t have an effect on the actions of salespeople in this industry on a daily basis?
At Restate, we believe you do not want to be ‘Sold’ on whats best for the salesperson.
Surely what you really want is advocacy?
To be advised, represented, coached and guided. To have your best interests put front and centre. To have your agent focussed on achieving your goals, not the agents personal sales targets.
We believe you want to be empowered with unbiased advice, so that you can make wise decisions for yourself. To have a true professional acting on your behalf. One that maximises your profit, by using proven strategies to increase you selling price and reduce your costs.
In order to provide what you really want, our industry model and culture must change.
So we’ve totally rebuilt our service on a consultancy based model. We are creating a real estate business more like a legal or accounting firm. We’re building a ‘practice’ with life long clients. We judge our success on protecting your interests, maximising how much profit you receive in your hand, and how happy you are with our service – not the amount of commissions we take. We charge fair and transparent fees that are related to the actual amount of work needed to help you achieve your goals.
The benefits are proving to be significant for our clients and us.
The exciting thing is, that by changing the model and culture, we are finding it not only removes the conflict of interest – leading to much higher level of trust and a more professional relationship with our clients, it’s also inherently more efficient. Which goes a long way to fixing the other big chestnut in the traditional real estate industry – fee’s that are hugely disproportionate to the actual work and expenses involved in helping clients sell just their own property. For more understanding around how the traditional commission-only model is so inefficient and costly for both consumers and agents… Are you paying for a hugely inefficient real estate industry?
You can also browse through some case studies of clients who have banked thousands in extra profit.
As always we welcome your feedback and discussion.