BARRISTER'S BRIEFING: Metrics for Real Estate Agents and Brokers

A Legal and Business Perspective

In the 2011 film Moneyball, Brad Pitt’s character, Oakland Athletics General Manager Billy Beane, opines at the end of a nearly triumphant season, “How can you not be romantic about baseball?” Similarly, real estate agents and brokers may ask themselves a similar question about buying and selling homes.

The thrill of finding a client, walking them through the process of offers, contract, and ultimately the closing, can be as rewarding for their client as it is for their representative. The premise of the above-mentioned film is that a small market Major League Baseball team with a (relatively speaking) small payroll overcame the odds in 2002 and entered the playoffs.

They did so not by boosting payroll or by cheating. Rather, they employed the use of certain metrics that allowed the front office management to find hidden value in players on the trade market. The metrics they used include such gems as “On-Base Percentage” (OBP) for hitters and “Walks and Hits over Innings Pitched” (WHIP) for pitchers. By employing these tools, team ownership was able to find bargains on the free agent market. They were also able to employ strategies based upon these metrics to help their team score more runs in games. The other value of using these metrics is that they enabled team management to learn more about a player’s strengths and weaknesses than the traditional evaluators such as home runs, hits, earned run average, and the like.

The time has come to have a conversation in the real estate industry, from both a legal and business perspective, about how to employ the use of non-traditional metrics that tell us more about agent and broker performance than the traditional evaluators of transaction sides and sales volume available from MLS data. Some entrepreneurs are starting to embrace the idea of using MLS data in a tailored way for the consumer. The idea being is that by tailoring MLS data, the consumer will find the best-suited agent for their home purchase or sale. OpenHouse Realty, Inc., a California corporation, is one such entity. The firm’s website, AgentAce.com, is built upon the concept that the consumer uses the site to find an “Agent Specialist” who personally assists the consumer in finding the best agent based upon the empirical data obtained from the consumer’s specific data inputs (buying/selling, geography, type of home and price). The empirical data is derived from local MLSs.

The idea of tailoring MLS data to benefit the consumer is a great start towards the idea of finding agents specifically targeted to a buyer or seller’s specific needs. However, there is certain relevant data that is not yet ascertainable through traditional MLS data metrics that can shed more light on an agent or broker’s performance.

For example, what if there was a metric that described a “batting average” on listed properties? The “batting average” would be the indicator of how many properties signed to a listing contract by an agent that were actually consummated with a closing. Conversely, on the buyer’s agent side, the batting average would be how many buyer clients the agent has been able to convert into purchasers who get to the closing table. A reasonable time interval by which to measure this metric would be a calendar year. Of course, from a legal and business perspective, we may not be at the point of objectively measuring such a value in agents since MLS data does not (at present) have a means of tracking these data points. There is a duty under both Article 12 of the Realtor Code of Ethics, as well as New York Department of State Advertising regulations, NYCRR §175.25, to be truthful in advertising. Accordingly, exploring these new metrics, at least temporarily, will be wholly dependent on the honor system.

Assuming that the data needed for these additional metrics is entirely accurate, it may inure to the consumer’s benefit to use an agent or broker with a higher “batting average” as opposed to a higher sales volume. Or, quite simply, it may not. It would all come down to consumer preference as to which would be a better-informed preference with more information.

What about referrals? Is not the idea of an agent who refers a client to another agent, who ultimately closes the transaction, analogous to baseball’s concept of the R.B.I. (Runs Batted In)? A metric worth measuring for referral-only agents, or agents who also do referrals, is RBI Percentage. In other words, how many buyers (or sellers) referred to others ultimately close within a given interval? No consumer wants to be referred to just another agent who cannot get them to the point of purchase. The type of metric described, which would be dependent initially on the honor system (and perhaps later would be dependent on an objective and verifiable tracking mechanism), would help make sure that consumers get to the right agent far quicker.

What about an agent’s ability to obtain accepted offers? This metric could be derived from either the listing side or selling side. How long does it take for a listing agent to obtain an acceptable offer for their seller client, on average? How long for a buyer’s agent to obtain an accepted offer for their buyer clients? In this writer’s view, this is comparable to the concept of “On-Base Percentage.” The accepted offer gets the deal “on-base,” but it is not equivalent to crossing home plate and scoring a run, which in the real estate world would be a consummated sale.

This article is meant to be a conversation starter. Consumers are demanding more information about the agents and brokers with whom they contract. Word of mouth and client testimonials will not always be enough to generate leads. The business side of real estate will need to coalesce and agree upon what these new non-traditional metrics of importance are. Attorneys for brokerages and MLSs will need to ensure timely data submission and compliance. The idea of baseball cards, and not just business cards, for agents and brokers is a long time in the making.

Editor’s Note: The foregoing article is for informational purposes only and does not confer an attorney/client relationship. For a legal opinion specific to your situation, please consult a private attorney.

Leon Cameron, Esq.
Leon Cameron, Esq., is Director of Legal Services & Professional Standards Administrator for the Hudson Gateway Association of Realtors.