In our ongoing attempt to transform the real estate industry from a cottage guild angry at the internet to a technology-integrated modern production system focused on the needs of the consumer, we’re going to engage in a little myth-busting today. At one point, mankind believed the sun revolved around the earth. We soon learned that it didn’t – and that discovery made it possible for us to eventually go to the moon and beyond. What might happen if we dispel the myth that real estate agents are independent contractors?

Let’s clarify the essentials: An independent contractor has two definitions. The legal meaning is that of a worker or organization who provides services to another organization without being an employee. For example, when a home builder constructs a new home, he calls in an “independent” electrician to run the wires. The builder does not “hire” the electrician, and provide him certain obligations under the law, such as insurance, health care, unemployment insurance or training. And mostly, he doesn’t withhold his taxes and contribute half of his Social Security benefits. For most companies, this arrangement is normal, and usually occurs between two “companies” such as a software company and a marketing firm; a dry cleaner and a delivery service; a car dealer and a towing company. In the case of our builder, he says: Show up at this location; Look at the plans. We’ll agree on a price. Do the work. I’ll pay you.

The other definition of the independent contractor is the market definition: An independent contractor – according to the market – is an entity who promotes themselves as capable of completing a certain kind of service, is engaged by another company or person to do so, and is compensated upon delivery. In the market definition, neither party provides the other with an office, a cell phone, necessary tools or an email account. In practice, independent contractors bring their own tools, supplies and most importantly, know-how. A contract software programmer already knows how to use the software that another company requires him to use to create a piece of software code. A hairdresser knows how to use the scissors she will employ in the styling of customers’ hair for her affiliated salon. A landscaper will bring his own mower and trimmer to the job, with his own gas and tools just in case the equipment breaks down.

In every case, the independent contract’s most important market “feature” is his ability to bring the required “know how” of the process to the job.

None of these legal or market conditions, however, apply to the vast majority of REALTORS.

Set aside the top 10% of the industry. In that case, we are more likely to find the nearest definition of independent contractor in the business. Teams and top producing agents in any company are the best examples of service professionals who are independently trained, employ their own equipment and require little input from the “job boss” on how to get it done. Just as the builder does not have to tell the electrician how to install the breaker-box, the real estate broker rarely needs to tell the top producing agent or team how to prospect customers or close a transaction.

As for the remaining 90% of the industry (and you can go 20/80% if our analysis is already making you cry) we don’t have anything near the legal or market meaning of independent contractors. Setting aside the legal definition, for we can truly care less if Uncle Sam wishes to play wink-wink-nod-nod for REALTORS escaping the Ponzi Scheme called Social Security, let’s focus on the other side – the market meaning of these 900,000 or so “pseudo” contractors.

According to the market (and the law) they are certainly “agents,” but that only means they sat through 40-hours or so of lecture and paid their $99 fee to be anointed by the State. But are they independent contractors – like our electricians and computer programmers – to the degree that brokers should desire to work with them? More critically, do they possess the tools, training and know-how that customers require to get the job done?

Absolutely not.

In the builder-electrician example, would we ever expect a builder to risk his investment by hiring a “licensed” electrician who came with no tools and no training other than the basic principles of electricity? Why, then, does this happen in real estate? Why do brokers ask consumers to pay for brokerage services delivered by an ill-equipped contractor? For decades, brokers have recruited the majority of their practitioners from the least experienced, least trained and least equipped ranks of the labor pool. Most REALTORS do not come to the broker with the right technology – less than a third have a Smartphone, can use their laptop in a listing presentation or create virtual tours for marketing purposes. Similarly, a tiny few have completed post-license courses on marketing, business planning, customer service, technology or negotiations. And worst of all, these “sales people” have never gone through a “sales course” before being unleashed on the consumer. Not a serious one, at least.

The mythical independent agent comes to the broker and needs them to provide everything: training, tools, experience and knowledge. Even owing for the fact that a tiny percentage will be motivated to spend the time and money to complete the REALTOR GRI course, or designations like the Certified Buyer Representative or Certified Home Marketing Specialist course, the vast majority do not. Never mind completing the Ultimate Technology Certification or Integrity Selling courses – those are certainly too expensive for a fresh-faced sales person to pay for.

Does anyone else think that, when hiring independent contractors, the broker should be reviewing contractors who already have the training, tools and know-how?

So the REALTOR independent contractor is clearly a legal fiction only. Fine. Let’s assume it’s just a hoodwink on the Feds and we’re all willing to go along with it.

What about the consumers?

Imagine a typical real estate office, with one broker and a bunch of independent contractors running around. The 80% Unprepared Group is sitting in the office, waiting for the broker to provide them with a free training class, a free email account, a free set of business cards, free ads in the newspaper and even free prospect leads. Who needs competitors, with these mooches sitting around? Sure, some of them go through the motions, but are they successful? Decide for yourselves. Why do we have 50% of the current agents, in the business under five years, with no formal training in prospecting? Why do 88% of all internet leads get thrown away after 48 hours simply because “the consumer didn’t call me back”? Why are there 264 For-Sale-By-Owners trying to sell on their own within 20 miles of the center of Boston?

Consumers get this. They understand more than ever that they run a risk when they just “accept the next agent in rotation” or work with the one who was on floor-duty when they happened to call.  Consumers don’t ask for discounts on commissions if they thought they were working with someone who was skilled enough to merit that fee. Top Producers rarely cut their commissions; they command the full fee because their tools, training and know-how supports that value proposition. Agents who are just “sneaking by” using the broker’s office computer and letting the lawyers do the heavy lifting are the ones who instantly collapse under commission pressure. So maybe even the agents know this, too?

There are plenty of skilled salespeople we could be hiring into real estate. Computer, pharmaceutical and car sales people in every town come in successful varieties, with certificates of completed courses and Smartphones visible on their belts. Why are brokers still hiring people with absolutely no experience or training or even just the basic equipment? It will come as no surprise when the consumer – especially Generation X who is entering the first “move-up” phase of their real estate cycle – demands to pay less when they’re not working with the top agent in the office.

Hiring skilled sales people – or at least holding off on hiring entry-level agents until they complete rigorous training classes and invest in some minimum tools-of-the-trade – would be the best way for brokers to provide high-compensation services to consumers. And it’s not just about recruiting the top-agent from the other brokerage down the street; the sales industry is dozens of times larger than the real estate industry. There are plenty of skilled (sales and technology) candidates that would support full-fee brokerage – not to mention cross-sell the ancillary services that are the real basis of profits in most brokerages. Consumers would jump for joy if they experienced more qualified agents more often – not rank the REALTOR below lawyers and used car dealers every year.

What holds us back? For one thing, brokers have “always done it this way.” For decades, the guild has brought the unskilled apprentice into the shop and let the veterans rub-off onto them. That worked fine, when the consumer’s choices were few and the process was shrouded in mystery. Then there was that boomlet for a few years – the one where sales could be made by any licensed Vanna we could stand in front of a listing. In the hot market, more manpower was all that was needed to take advantage of historically high sales leads. No actual “sales” was going on; most of the bidding was run by the buyers themselves, leaving agents to just push the paperwork through.

Something else holds brokers back, though. It’s not just being spoiled by the good times or pining for the past. It’s an imbalance of power. Brokers do it this way because they think they need the agents to be successful. True, they need some agents to be successful. But they have forgotten that some does not mean all. Most brokers won’t fire agents because they’re really not the ones in control of their own companies. The agents are. They won’t “mandate” agents go to training or implement new technology if the agents “threaten” to leave. They won’t look at chronic non-producers and ask them to move on. As one broker put it, “What if I ask them to leave and they go to another broker and then sell $10 milllion next year?” Yeah, right. That’s really going to happen. Brokers need to do a reality check and ask themselves who really needs whom?

No, brokers aren’t insane. They’re just not in control. This isn’t an anti-agent screed, either. The electrician doesn’t tell the builder what to do; The builder sets the standards of performance and hires sub-contractrors who want to go along for the ride – usually quite profitably. Today’s brokers have it in reverse: the agents are all fighting for the rudder, leaving the broker to row all by himself. The top agents eventually jump-ship; leaving the direction to be set by a group of people who have never studied the stars and noen of which brought an astrolabe (let alone a GPS).

If brokers want to right this ship (how did we get into this naval metaphor? oh well…) they have to do three things:

1. Return to the wheelhouse. Set the standards of agent performance according to the consumer; not the standard of consumer experience according to the agent. Lay down the vision – as long as it’s one that the consumer is willing to pay for.

2. If you want to hold onto the legal fiction of independent contractors, then at least redefine the market meaning for those you choose to engage. Hire – and fire – any agents who don’t bring anything to the table. The ability to fog a mirror isn’t sufficient any more. Agents must bring their own resources – and that means equipment and money – to the party. If they won’t come to free training or pay for professional training; if they won’t purchase a Blackberry or pay for an enhanced REALTOR.COM package; if their idea of prospecting is scientifically-proven-useless newspaper classified, then the Captain must throw them overboard. Or at least put them on the dingy and send them back to shore. Otherwise, the consumer will do it for you.

The boldest brokers will go one step further; They will transform the concept of independent contractor into one of “interdependent” contractors at their company. Brokers will learn from the most successful performers right in front of their eyes: The agent teams. Top agents know they must create a division of labor. Each person on the team has a special talent, and they are focused on that every day, all day. Brokers must do the same in their organizations. Don’t expect every agent to be excellent at every stage of the process. Split up the work and activate the talent within the organziation. The Myth of independent agents has prevented real estate companies from taking advantage of efficiencies of teamwork. That’s what happened when the cottage textile industry moved to the factory method: Teams worked in the mills, empowered by technology. Each person focused on their best skills and the system created unsurpassed output.

And customers were happy. Instead of wearing only one sweater their entire lives, the customer bought three, four, five. In different colors. At different – lower and higher – prices. Once the myth of cottage industries was broken and a truly empowered team organization unleashed – under the direction and planning of the boss, employing a group of independently skilled workers – was the greatest productive period of mankind unleashed.

It’s time to put away the past and look to the future.