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Trust is in crisis around the world. In general, people’s trust levels in many key areas, including businesses, are scoring near all-time lows. According to Edelman’s global survey, a mere 56% of consumers trust the businesses in their environments. In the commercial real estate brokerage industry, drawing conclusions from its myriad of dysfunctions, one can be assured that it, too, would face some remarkably low trust scores. I believe it is distrust, more so than any other trend or technology solution, that increases the risk of disintermediation, completely redefining the role of the CRE broker.
Coupled with this lack of trust are the demographic and technological changes that are occurring in commercial real estate — baby boomers and much of their traditional client base are reaching retirement age at a reported rate of 10,000 per day. With their retirement go the relationships of trust built over years of service. Simultaneously, new and unknown buyers are entering the market in unprecedented numbers – data according to Real Capital Analytics shows that more than 50% of all buyers of assets $2.5 million or greater are categorized as “new.” This cohort is coming from outside the industry, outside the country, and it becomes a fool’s errand for any one broker or brokerage firm to attempt to identify every potential buyer without the full cooperation of the entire brokerage community — yet the preponderance of investment sales are “double-ended.” This is not an indictment of the brokerage community, but available transaction data offers little surprise as to why distrust is on the rise between CRE brokers and sell-side clients.
At the same time, CRE tech is receiving unprecedented funding and attention. The consistent thread, it seems, is to bring about more transparency to an otherwise opaque industry and that’s why we are hearing about blockchain technology: an increasing lack of trust, solved in part through a safe, open, transparent ledger of immutable, validated and secured real estate records. However, the roadblocks in CRE — the outdated business models, hoarding of data, double-ended dealing, closed-door-locked-drawer mentality — are going to make the progress slow, but at the same time, underscore its necessity.
In homogenous societies there is generally more trust, and this is how the closed network of CRE was so beneficial to a limited number of its members in the past. But for the industry to be sustainable, it needs to facilitate transactions between, and open up to, unknown investors and owners, as well as new to the business advisors. Blockchain aside, how do we as CRE leaders and professionals contribute to building trust in an evolving environment?
Stephen Knack, Lead Economist of World Bank’s Development Research Group, asserts that there are layers of trust enforcement mechanisms, from the personal to the institutional. Sustainable CRE businesses need to incorporate these layers into their business plans if they are going prevent disintermediation born of a lack of trust:
• First-party trust enforcement: Create and abide by your own ethical and moral codes. Core values that guide everything brokers and employees do with and for their clients will soon rule the day.
• Second-party trust enforcement: Delineate clear sanctions or remedies. In the case of real estate, this is effected through a loss of reputation and repeat business. One way to build trust within the industry is by cooperating and sharing fees with the entire brokerage community – and not only on radioactive, tough-to-sell deals. Proactively marketing properties to the brokerage community, offering one-half of the list-side fee in the process, places the client’s interests first and contributes to the creation of a totally efficient CRE marketplace.
• Third-party enforcement: As an industry we have real estate licensing boards and the court system. Unfortunately, the geographic fragmentation of these entities is not keeping up with the increasingly cross-market nature of the industry. This is why the first two enforcement mechanisms are even more crucial for building trust.
While the leading CRE companies need to be at the forefront of building trust to be sustainable, they still account for only a subset of real estate transactions and licensed professionals. Hence, there is quite a bit that individual industry professionals can do to bring trust back to the industry.
• Cultivate expertise. According to the Edelman report, technical experts sat atop the trust index.
• Practice transparency. Be open about your motives and goals.
• Behave ethically — even when no one is there to see it.
• Make transactions “yes and.” Deal-making should be a win-win, and less of a zero-sum game.
• Trust others, including your clients, colleagues and employees, to do the right thing. Extending trust earns trust.
• Engage in your communities. Build trust through relationships with others where you live, work and play.
• Align yourself with companies and brands that are trusted within the industry.
The CRE brokerage industry is stubbornly fighting the cooperative, collaborative and behavioral trends that are positively affecting virtually every industry on the planet. It is inevitable that this resistance will create an environment of increased industry distrust over time, making the traditional role of the CRE broker completely susceptible to disintermediation — gone the way of the travel agent. It is therefore critical for today’s brokers to act with marked intentionality to build in layers of trust-creating mechanisms to their personal brands and CRE practices, and to evolve to provide a more sophisticated level of CRE advisory services.