Matthew Ferrara, Philosopher

How to Measure REALTOR Performance

Here’s a daily dose of for you to consider:

In some knowledge work – and especially in some work requiring a high degree of knowledge – we already measure quality. Surgeons, for instance, are routinely measured, by their success rates in difficult and dangerous procedures, for example, by the survival rates of their open-heart surgical patients. But by and large we have, so far, mainly judgments rather than measures regarding the quality of a great deal of knowledge. The main trouble is, however, not the difficulty of measuring quality. It is the difficulty in defining what the task is and what it should be.

– Peter Drucker, Challenges for the 21st Century

Now, let’s apply Drucker’s sagacity to the industry as it is today – and how it might evolve in the future. How should we be measuring the knowledge work of today’s REALTOR?

For starters, we can quickly list how not to be measuring it. Here are a few bad measurements that need to be discontinued:

  • Number of listings. It is wholly irrelevant to measure the number of “available listings” by a particular agent or firm, unless we measure success by the number of listings taken. Clearly, we do not – because the goal of listing a property is to sell it. So “top listing agents” are really irrelevant measurements of competitive quality between practitioners. And homeowners should dismiss these comparisons as meaningless. If any one agent or firm wished to be the “top listing agent” they could simply a) agree to any listing price the seller wanted, b) agree to market the home any way the seller wanted and b) drop their listing price to loss-producing levels. None of these activities would be, of course, methods for longevity in the marketplace; but they would certainly result in an agent or firm being the “top” of the market as measured by number of listings.
  • Number of offices or agents. The size of a company is not necessarily an accurate measurement of its quality of work or application of knowledge. Some companies can generate tremendous positive results – for their clients and their profits – without any office location at all, or with the barest minimum of staff and employees. Yet being the “biggest” real estate company on the block (or state or country) is still some kind of success factor that is heavily used in . Of course, rarely reflects anything close to a true measurement of quality – since it can selectively target one statistic and “equate” it in the mind of consumers with success, usually without any reference to desired outcomes. Consumers can equate “bigness” with “better-ness” because in some industry, bigger is better. A bigger computer company delivers lower costs than a smaller one. But a bigger phone company usually delivers miserable service: the demonstrated knowledge quality of its customer service representatives hardly inspires anyone to call them “successful.”
  • Technology statistics are also meaningless measurements of knowledge, in too many cases. For example, most agents and firms are constantly on the quest for more “web traffic” known as hits. Even the number of “buyer leads generated” by a website cannot be said to be a significant measurement of the knowledge workers in the firm. And the ephemeral “get to the top of the Google search results” is certainly nothing harder than spending more money than the competition; rarely do websites reach the top of results because their content demonstrates substantially better knowledge quality (content, information, design, consumer friendliness, interactivity) than other brokerage firms’ sites. More mundane measurements are more clearly worthless: for example, some 90% of agents who have recently attended our seminars “own” laptops, but a mere 10% of them usually take them to listing appointments or open houses. Essentially, they don’t bring their knowledge management tools to work.

So how should we measure the quality of REALTOR performance? To measure their work, Drucker suggests we must define the desired outcomes. This would be the best way to measure the application, quality and degree of knowledge for both individual agents, firms and real estate corporations. Consider the question, then, of what the desired outcomes of successful real estate knowledge work might be:

  • Everything would be measured in sales. We would stop rewarding mere “listing” activity by agents who brought home listing agreements that included non-marketable prices (ie., overpriced listings) or unwilling sellers. Clearly, the overpriced listing is a failure to apply greater knowledge than the customer to pricing a commodity. We would also discontinue all rankings and awards based upon “top listing” agent or firms. What is the customer looking for? Certainly not just placing their homes on the market – but selling them. We would therefore only focus on top selling activity. The agent or firm who sold the most number of units would be the first start. But it would not be the end of the measurement. Just as the doctor who had the most number of patients survive the surgery only represents the “first” measurement of quality, we must look deeper. How many patients survived one week, one month, one year, ten years down the line? In real estate, we need to measure how many sales resulted in positive profits: low days on market, high margins, low inputs (marketing, effort, etc) and higher quality experiences for all parties to the transaction? Customers want sales – both buyers and sellers – but they also want cost efficiencies, time savings and convenience. Those are the true measurements of knowledge properly applied.
  • The size of the firm in agents, employees or locations would be only directly proportional to the necessity of such size to scale the application of knowledge in the marketplace. Some firms, who might specialize in location-intensive activities such as personal meetings, open houses, showings, etc., might need more people and locations to properly apply their knowledge formulas. Others might need fewer. There is no “right answer” to this measurement, other than determining the  absolute profit levels for each location and worker.  Certainly, the classic formulation of “more bodies equals more sales” would be discarded for an equation of “more profitable transactions, delivered in any customer-desirable manner.” The entirely online transaction, the virtual office, the subcontracted paper-pusher, showings or open-house, marketing staff, etc., might all be better formulations for successfully applying knowledge to any (or many) marketplaces. More offices and workers isn’t a measurement of anything other than overhead and payroll. Even the “excuse” that agents aren’t payroll-expensive because they are subcontractors would be exposed as the falsehood it is: More agents clearly mean more office size, marketing activities, letterhead, business cards, email accounts, and so on. More would cease to mean “better.”
  • The competitive value of technology would be repositioned. Rather than measuring quality by the “mere presence” of technology, it would be re-evaluated in terms of its value in the “transaction cycle” which leads to a sale. Essentially, technology would cease to be valued “in itself” and start to be benchmarked as an element of the supply chain. So laptop ownership becomes meaningless; use of the laptop to sell more homes, streamline paperwork or improve customer service would be measured and compared. Most REALTORS, of course, would be immediately marked as failures: Most studies still show the average REALTOR taking hours, if not days, to respond to online consumer inquiries. But it would be an important start to measure technology’s intended results, not its activities. Web hits are meaningless unless they lead to consumer interactions – leads – which themselves are also meaningless unless they can be translated into sales. The application of knowledge is at both ends of the supply chain: knowledge of web marketing to generate traffic and inquiries, and knowledge of sales to convert it into a sale. The “technology in between” is itself of little value; it’s a commodity that can be purchased, replicated and upgraded by any competitor. Only the knowledge of positioning, using and implementing it – at either end – is a measurement of effective knowledge work. Anyone can pick up the scalpel or the laser but only a knowledge expert knows how to use it to cut tissue or steel.

The of real estate is going to confront these management challenges soon – if it isn’t already – since the “old school” criteria to be a “successful” brokerage firm or agent are quickly losing luster. Both consumers and future practitioners are wondering why these measurements ever made sense – and they may have in a more medieval practice where real estate was mostly an apprenticeship career where the number of “outputs” were the only criteria for success. In the pre-industrial days, the number of sweaters produced by a cottage worker was all that mattered: if you could sew more, you could be more “competitive.” Once textile mills were built, new measurements mattered: the number of choices of color, fabric, size and comfort soon trumped the mere quantity of production.

The same transformation, inevitably, is coming to real estate.