Thursday, July 25, 2013

What Do Real Estate Broker Rankings Mean?

We've all seen the huzzahs: Broker X is a Top Producer. Coolguys Realty is Number One. Broker Y is Number One. Everybody's Number One, with no Number Fours. What, if anything, does it all mean, not just generally, but for you in particular?

The answer, really, is not much, because there's no way of measuring if it means anything. If a broker is a "top producer" or "number one," it means that his sales volume is high. It could mean this particular broker works very hard. But dollar volume isn't a reliable indicator of quality. 

A broker who sold a $1 million home has the same dollar volume as a broker who sold ten $100,000 homes, right? And even in this comparison, we don't know who worked harder, or, more important, better. After all, the ten inexpensive homes might have resulted from a blanket order by a foreclosure asset manager, and the million dollar house might have been in a trust whose beneficiary needed the money for health care while the heirs worked overtime to impede the sale.

Equating quality ("top broker," "top firm") with sales volume is a natural result of real estate brokerages' business models. They make their money  by taking a cut of their associate brokers' commissions. More sales results in more revenues. And individual brokers themselves compete with each other, measuring relative success in commission dollars. While that's fine for them, it isn't necessarily fine for you. 

Really, there are lots of ways that car dealerships and real estate brokerages can claim to be proclaim Number One and offer a reason--high number of sales, oldest local, customer satisfaction (measured or not), whatever. When I was licensed and had my own tiny brokerage, I could have claimed to be Number One because we were cooler than everyone else. That and two bucks gets you a cup of coffee at Starbucks.

Does experience count? Yes and no. Of course, you want someone who knows the ins and outs of sales forms, of market conditions, and of usual customs, such as knowing to ask for window coverings and other personal property when writing an offer. And if you're buying or selling a short sale property, you want someone who knows the difference between a servicer and investor.

But if a broker is a so-called (or even self-described) "top producer," meaning she closes lots of deals, meaning she's quite experienced, does that mean she's good for you, has time for you and will connect with your needs? Keep in mind that brokers get paid when the deal closes, which may mean the transaction is more important than you, especially near the end when everyone is under pressure.

I've posted before on how to choose a broker if you're a buyer, and how to do it if you're a seller. No need to go into it all again here. But the real question is, how do you measure quality? Who really is Number One, how do you know, and is number two or three or ten all that bad? More to the point--does it all matter anyway?

Better and more consistent education and training from state-to-state would help tremendously. At least the baseline bar would be raised. Compare real estate brokers' situation to attorneys. Is the lawyer with the most money best for you? Maybe, maybe not. But even if you choose one who's new or who enjoys a modest practice, you know you're getting someone who has been well-educated, had to pass a rigorous bar exam and interned with a judge, public defender or district attorney.

Real estate brokers do not receive the same level of training, even though each transaction is someone else's money in the tens to hundreds of thousands of dollars. When I received my Oregon license, the state didn't even require licensees to have a high school degree or GED (the requirement changed in 2011 to require high school diplomas). It's pretty much the same in every other state I've been involved in. My own view is that real estate brokers should at least have a bachelor's degree, with an emphasis in real estate and finance. Even some kind of fairly rigorous community college certification with similar emphases would be an improvement.

Admittedly, it's all worked fairly well up to this point. Most people know Number One claims don't mean all that much, save for a good advertising handle, and somehow folks muddle through, find a broker who works well enough and move onward. But I believe that situation will soon change.

Fewer and fewer young people are choosing real estate sales as a career path, for whatever reason. Moreover, the Millenial Generation may be the best-educated group to hit the workforce ever. And real estate industry surveys show that this generation doesn't like working with brokers. Demographics once again will dictate a change in how things are done.

Until then, who's Number One? Whoever shouts loudest and longest, I guess. Really, though  there's only one Number One. That would be you, the customer, and as long as you keep that thought front and center, you should do just fine.