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First Person: Commentary by Scott Taylor, outgoing real estate commissioner

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Monday, January 01, 2007

ScottTaylor0107.jpg Getting real in real estate

The industry has evolved. It’s time for brokers to catch up.

By Scott Taylor

For the past 11 years, I’ve told myself that when I quit thinking like a broker, I should leave my post as Oregon Real Estate Commissioner. That hasn’t happened yet, but as I prepare to return to the private sector, I have the experience of a real estate broker, with the benefit of a broader perspective.

Real estate brokerage — residential and commercial — is a complicated business, which should require a high level of pre-license education, a commitment by brokerage firms to train and manage their associates, and a commitment by brokers to continuing education so they can effectively represent their clients. I believe brokers who show this commitment and dedication to their craft should be well compensated. The good ones are worth every dollar.

But I’ve come to the conclusion that becoming more efficient and meeting consumer demands may require changing the traditional brokerage business model.

In a recent online article for the Portland Metropolitan Association of Realtors, attorney Phil Querin wrote: “So, the Mission Impossible for realtors today is to learn, learn and learn more about their marketplace: their industry, the laws and regulations affecting it, how to maneuver  clients through this maze to a successful closing.” What Mr. Querin said so well is that the business is no longer about selling, but about providing a service.

Oregon’s broker continuing education law is unique among U.S. jurisdictions, with licensees certifying the courses rather than the regulator. This system isn’t working and it should be changed.

The industry has recently come under attack from the Federal Trade Commission and the U.S. Department of Justice for what they believe to be anticompetitive practices in the way the industry handles brokers with nontraditional business models (such as discount brokers).

Rather than proposing minimum service laws like some other states, Oregon should require brokers to disclose to consumers what services they do and don’t provide.

Legislation should be introduced in Oregon to repeal the prohibition on brokers who rebate commissions to a principal in the transaction. This prohibition is widely violated and difficult to enforce and it restricts competition, without protecting consumers.

The real issue, in my opinion, is the industry’s reluctance to change a business model that may be outdated and is inefficient. Traditional real estate firms hire associates as independent contractors, maintain a nominal amount of control over their activities and pay them commissions. Associates may hire assistants, licensed or unlicensed, to help them. In essence, they become companies within companies, each with its own business model.

Fees traditionally have been based on a percentage of the selling price, and usually are paid by the seller at closing. This is a holdover from a time when brokerages had a monopoly on information about properties and represented sellers. But the Internet, and the fact that most agencies now also represent buyers, changed all of that.

Brokers usually are not compensated for their work with buyers and sellers when a transaction doesn’t close. Many brokers representing buyers don’t enter into a contract with the buyer, although seller contracts are almost universal. Unfortunately, without a contract, neither party is obligated to the other and consumers end up paying for brokers’ unproductive time in the form of higher fees. 

Many brokers can’t arti-culate what they do. Recently, the Orlando Association of Realtors pre-pared a list of 184 things real estate professionals must do to close a transaction. The National Association of Realtors presented this list to Congress to demonstrate the value of real estate professionals.

I wonder how many real estate brokers know what these 184 things are and, if they do, how many actually do them. I’ve reviewed it and can say that if more brokers in Oregon did what was on this list, complaints by consumers would be down dramatically.

I believe the industry must hold itself to a higher standard and become more efficient to reduce costs for consumers and prevent brokers from wasting time with uncommitted clients.   

Basic marketing tenets dictate finding out what customers want and what price they are willing to pay, and designing a business model around that. I’m not convinced the traditional brokerage model does that any longer. 

Scott Taylor resigned as Oregon Real Estate Commissioner effective in January. He plans to return to the real estate industry.

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