The Foggy Question of Broker Competence

Why incompetence is rampant in our business

When I first got into the business I did not understand.

To my naive eye, the brokers who did well did not seem to know or care much about real estate.  While this is not one hundred percent true, I noticed that the more successful a broker, the less competent they tended to be.  How could this be possible?  It just did not make any sense to me.

So I spent years observing, trying to figure it out.  And what I discovered led me to the distinction between client acquisition and conveying real property.  Here are the first three paragraphs from The Competent Broker:

Real estate brokers have two primary jobs:  Client Acquisition and Conveying Real Property.  These two jobs involve entirely different skill sets.  In fact I would argue that the type of person who is good at either one of these jobs, that has the skill set to make them good at it, is almost always not the type of person who is good at the other.  Many very successful brokers are quite brilliant at client acquisition, but not terribly competent at conveying real property.

To be successful in the real estate business, it is vital to have, or to generate, a stream of potential clients.  In fact, this is so important that brokers will concentrate their time, effort, and money, on this aspect of the business to the detriment of all others.  What you find is that the people who are most adept at this, do best in the business financially.  And this does not go unnoticed by their colleagues.

As a consequence, transactional competence suffers industry-wide.  Why become a better negotiator when you can make more money prospecting?  In fact, why learn basic accounting, why keep up with contract and paperwork changes, the law, best practices, building techniques, technology, etc.  The whole range of knowledge and experience and expertise that is useful and helpful for serving clients.

I think any discussion of broker competence must address this distinction.  Because when it comes to conveying real property, brokers see little correlation between this competency and success.  You see, conveying property is the expense side of the business; it does not make the broker any money.

There is however a direct correlation between competence at client acquisition and success.  Client acquisition is the revenue side of the business.

So the 20 percent of the brokers doing 80 percent of the business are focused on client acquisition.  This is real reason why incompetence is rampant in our business.

NAR points to other reasons, but I am skeptical.  For example, would more pre-licensing instruction help?  Maybe, maybe not.  But unacceptably low entry requirements are not the real problem.  This is perhaps even an intentional misdirection by NAR in order to justify high commissions.  Raise pre-licensing instruction to one thousand hours, and the same brokers will still seek out Mike Ferry types to coach them on client acquisition.

Plus, there is just no way that NAR can admit that its 250,000 top producing members spend the bulk of their time chasing business and very little of their time actually conducting business.  Stop and think about that.

To really understand this problem, we have to look at the incentives.

Competence is a choice.  In the business of real estate brokerage, this is an absolute.  Brokers have a duty to their clients to be competent.  A duty of competence.  And that competence must be purposefully acquired.  So competence is a character trait and a function of integrity.  If you want to claim integrity, you must first work on your competence.  You must choose to be competent.  It is not that brokers choose to be incompetent.  But they do choose to focus their attention elsewhere.  Competence simply falls by the wayside, unnoticed and unattended.

Making this choice, brokers demonstrate a complete lack of regard and respect for their clients.  I can think of no other business where so many of the so-called professionals hold their customers and clients in such low regard.  Surely this, too, is a question of integrity.

And you know what?  Regardless of what they proclaim, they do not care.  They’re making the bucks and there is precious little penalty for incompetence.

Since most of the revenue flows into these hands, the remaining eighty percent of the brokers scramble around for the crumbs.  Some are competent at conveying real property, some are not.  Competent or not, most don’t make it.

This leads to Gresham’s Law for Real Estate:  The incompetent, low integrity brokers drive out the competent, high integrity brokers.  Those brokers who focus on client acquisition drive out the brokers who focus on conveying real property.  Incompetence rages.

Whenever I write about these issues, I am met with condescension and derision and indignation.  Realtors absolutely love talking about their ethics and their professionalism and yes, their competence.  It is vital for them to maintain the illusion of these qualities.  So sincere discussion is rare.

And I do understand:  They are competent at what is important to them, client acquisition; they follow a Code of Ethics which allows single-agent dual agency; and they memorize scripts to mimic professionalism.  Their whole business model is dishonest.

Since consumers don’t enter the market very often, they can be terrible judges as to the competence of their broker.  As an example, I recently wrote about a neighbor who thought her daughter had a fabulous broker because the broker sold the daughter’s house in four hours.

So what’s the answer?  The only answer I know is to shine a light on the issue.  But that is far from sufficient – Because brokers immediately fill the arena with the fog of deception and misdirection.

The Game of Thrones tag line is:  Winter is coming.

I think that works great for the real estate business as well.  But perhaps we should tweak it just a little:

Zillow is coming.

They can’t get here soon enough.

𓐵