Drive (the book) and real estate (the business?)

Started reading Drive by Dan Pink a few days ago--going slowly with the busy holiday season--about 130 pages in so far. I mentioned in an earlier post that real estate has always been a little hard to understand--despite the fact I've been doing it for 25+ years. More recently, I've had trouble understanding the wikinomics phenomenon whereby people extend significant amounts of effort and talent to accomplish tasks for no compensation ---other than the satisfaction of purpose and enhanced mastery.

And along came Drive to explain both gaps in understanding.

You'd think I wouldn't have a hard time with either. I've never been a very skillful technician of the age old real estate algorithms that, when repeated over and over, produce celebrity agents and huge annual statistics. I've managed several agents who were skilled in that respect. I like to think I added a dimension to their success, but I'm a creative sort and after spending 20 years as a scientist focused on finding new species in unexplored habitats, doing the same thing over and over had little appeal --- even if it did come with extrinsic motivation and reward.

On the wiki side of things, I've done many thousands of hours of volunteer work for real estate and environmental organizations-certainly enough to fund a nice pension plan-- if I'd been paid minimum wage, much less what I was arguably worth. Why? The experiences were interesting (mostly--leave out the petty backstabbing) and added facets to what has become a very unusual life. When I get time to write books, the background information will be almost limitless. I also discovered that I'm pretty good at some things I would have never imagined. Oh, and I met some intriguing people along the way.

The book Drive addresses MOTIVATION--subtitle being "The Surprising Truth About What Motivates Us". That surprising truth is that extrinsic motivation--long the bastion of business enterprise, may not work all that well over the long haul. Carrot and stick are simple to understand and relatively easy to implement, but the ultimate effects may not be beneficial to a majority of the stakeholders. We're certainly in the middle of a very sluggish economic recovery (I'm being optimistic there). Extrinsic motivation, as in pay, bonuses, aggressive pursuit of greater and greater short term rewards, played a starring role.

Extrinsic rewards are the primary, if not the sole, basis for motivation in real estate. I've never heard an agent say they choose real estate because they felt a burning need to discover an innovative, just plain better, approach to providing outstanding service to the public. Service that was in the best interests of the public--not necessarily limited to what the public wanted. It's a performance based profession--only the performance is measured by a very special yardstick--close escrow and you get paid. What you did along the way, or afterwards hardly matters to that yardstick. Cross the magic escrow threshold X number of times and you get paid X number of times. Nice symmetry! You measure your year by commission volume. What about the public? What about the quality of service? What about the type of experience the principals had during the process. Oh! You mean the way the public measures success should have some considerable nexus with the way the brokers measure success? That sounds complicated!

The real estate environment is further complicated because individuals only use the services of a broker every few years--if that often. The Public never gets far along the learning curve measuring skill levels among brokers. They seldom experience the efforts of more than a handful of brokers in their lifetime. Most of those brokers are trudging along the old--please get me across the threshold to the commission check so I can work on other deals--business plan, so what's to choose from? When I was managing offices, one of the kernels of wisdom I repeated from time to time was this: Buyers and Sellers measure the quality of the service they receive ONE TRANSACTION AT A TIME. Do they care if a broker had 20 sides or 5 in the previous 12 months? Obviously many principals would assume that the more productive broker had better skills because of his or her higher production. No one has ever had the courage to test that hypothesis--and probably never will. It's way easier to tally commissions.

Do members of the Public ever say--"I want you to sell my house to the RIGHT BUYER (see earlier posts for definition) and I want you to use techniques to find the RIGHT BUYER that no one has ever used before--better techniques. I want you to create and innovate and discover . What would that cost? Hard to say, because it's a least common denominator world out there in real estate land. There no extrinsic reward for innovation and mastery and those with intrinsic motivational preferences usually gravitate to more fertile fields. Commissions are based on sales price, not new ideas. Work those algorithms hard and become rich and celebrified.

The trade organizations like it that way and the major brokers do too and they demonstrate that by standardizing nearly everything they can. Standard forms, office procedure manuals, franchise agreements, training classes--all aimed at delivering a certain one size fits all level of performance. Much of that is focused on risk management, not on delivering better and better service in areas that benefit the Buyers and Sellers by improving their real estate decisions.

Much like the book The Three Laws of Performance I read a few weeks ago, Drive holds up examples of enlightenment arising from a very few concerned corporate leaders willing to cooperate and compromise to improve things for a broad swath of the stakeholders (as in consumers, workers, executives, stockholders, etc). Nice, but if you polled all the stakeholders in all the companies (and they were candid), you'd find some really don't want to change, even if those changes would better the situation for the majority of the stakeholders. Majority doesn't always rule in the real world.

The evolution of nearly anything depends on variation. If there's little variation, there's little evolution and little progress toward an improvement in circumstances. That works well for those with power and position--they stay in place in a comfy habitat.

More from Drive as it applies to the wonderful world of real estate in future posts.