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A Nation of Realtors

Duke University Press

Chapter One

[Bilfinger the real estate man] was the most enterprising and forgetful gentleman I ever met. He was, too, a genius in his way. I fear, if the angel Gabriel had passed that way, Bilfinger would have called him into our office and skinned him out of his trumpet. -"Bilfinger," Harper's, August 1889

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The circumstances were right for a reconfiguration of American culture in the early twentieth century. Men who might once have gone into business for themselves were drawn into the work force as white-collar employees, destined to spend the rest of their adult lives climbing a corporate ladder, rung by rung. At the same time, middle-class women were "discovering" that their solemn duty to "the race" and "the nation" was to (scientifically) manage the home, though some, albeit unfortunate ones such as widows, were also drawn into the world of remunerative labor. American culture had historically connected work andcharacter formation, but this relationship became problematic, for men in particular, because of the rapid spread of the corporation. Numerous commentators called for new sources of social validation, particularly for men. Ordinary occupations like mid-level management, bookkeeping, teaching, social work, insurance sales, and real estate brokerage attempted to refashion themselves into "professions," vital to the functioning of American society. In real estate, like many other fields, the professionalizing impulse was embodied in an organizational impulse, beginning on the local level with the proliferation of real estate boards and exchanges in the 1880s and 1890s and culminating in 1908 with the formation of the National Association of Real Estate Exchanges, later renamed the National Association of Real Estate Boards.

Herod M. Bilfinger, Real Estate Broker

The term "real estate broker" entered the American lexicon in the mid-nineteenth century, but it was not then associated with a respectable occupation. In nineteenth-century popular culture, the figure of the real estate man-always a man-was unflattering. His detractors, particularly the lawyer intent on establishing himself as the ultimate defender of civic virtue, portrayed him as a devious swindler. In a story in Harper's in 1854, for example, the lawyer-narrator describes how a real estate broker, Stephen Halliday, bilked Durand, a wealthy yet naïve old gentleman, out of his fortune. Halliday, whom the kindly Durand trusted implicitly, skipped the country, leaving his victim in penury and indirectly causing the death of two of his children and the loss of his dignity-linked, of course, to his loss of creditworthiness. His ignominy was mitigated only posthumously with the recovery of his fortune by the upright attorney, who recounts the tale with evident great satisfaction at having saved the old man's beautiful granddaughter from a life of poverty and disgrace. This melodrama was clearly intended to bolster lawyers' claims to professional status and was not about real estate brokerage per se, but its narrative depended upon unvoiced assumptions associating real estate men with chicanery.

Satirists beginning with Tom P. Morgan in the pages of Harper's in the 1890s and continuing with Ring Lardner, Sinclair Lewis, and H. L. Mencken in 1910-30 generated an alternative and almost equally unflattering representation of the real estate man. These writers depicted the real estate broker as a more or less likable hustler with at least some scruples about his occupation. Morgan's character Herod M. Bilfinger exemplified what the "high-class" real estate brokers who aspired to raise the status of the field called a "fly-by-nighter." Bilfinger made his fortune by attracting investments in new settlements that existed only on paper, getting away with the scheme in the end, or by selling the same homestead to five different families, escaping just as the victims caught on. Bilfinger "had a way of appearing, tarrying a little, and then departing, taking with him the financial pelts, as it were, of a goodly portion of the community." As "perpetrated" by Bilfinger, the real estate business "resembled somewhat a jug with a remarkably large handle, the said handle turned toward Bilfinger." Toward the turn of the century, the figure of the "curbstoner," the man with his office "in his hat," joined this menagerie of negative representations.

Despite the vocation's ill repute, tens of thousands of men made their living as real estate brokers in the late nineteenth century and the early twentieth. While many bankers, lawyers, and others in growing towns and cities had dabbled in real estate since colonial times, in the final decades of the nineteenth century significant numbers of men-and a few women-chose to become full-time real estate brokers. The 1910 Census listed nearly 126,000 brokers, of whom 98 percent were men. Why did so many men choose this occupation? Was it, as Morgan put it in a Bilfinger episode, because they were "seeking something that would return a very large fortune for a very minute outlay of labor"? Or was there some other appeal? Real estate brokerage, as it emerged in the first decades of the twentieth century, carved out a new and promising career niche, that of the business professional.

Local Class Knowledge: The Urban Real Estate Board

As in many other spheres of American life, the organizational impulse began to pervade urban real estate brokerage in the 1880s. Urban brokers formed real estate boards for a variety of reasons, including the improvement of their image, as well as the "establishment and maintenance of uniform rates for handling real estate"-that is, the creation of more nearly perfect, less ruinously competitive, and more oligopolistic real estate markets-and "the promotion of a spirit of good fellowship" among brokers. Designed as a self-selecting means to bring together only the "high-class" brokers who could afford the generally expensive initiation and membership fees, real estate exchanges and boards spread rapidly across the continent. Between 1875 and 1910, boards were formed in most major and minor North American cities, from Buffalo to Jacksonville, Boston to San Francisco, Winnipeg to New Orleans. The states and provinces of the Midwest and West led the movement to organize real estate men; the overwhelming majority of the boards formed in this early period were in these regions. By the eve of American entry into the First World War, nearly 150 boards representing more than 7,500 members had joined the National Association of Real Estate Boards. While many boards and brokers remained outside the national association-in 1920, only about 9 percent of all brokers were members of boards affiliated with it-its membership certainly comprised the largest and most prominent boards, and by extension, the most prominent brokers, by about 1915. As various local editions of Who's Who attested, by 1917 the major figures in virtually every metropolitan real estate market were members of an affiliated board.

Local real estate boards wrought profound changes on local real estate markets; in many ways, it can be said that they created the modern real estate markets. Boards standardized the rules for participation in real estate transactions by creating standard lease forms and uniform commission schedules, collected and organized data about available properties, and helped buyers and sellers come together much more efficiently than they could have done on their own. Boards, particularly those affiliated with the national association, established the internal standards of the occupation as well as the local customs and state laws governing real estate practice. And the national association collected, standardized, and disseminated this local knowledge across the nation. By the 1920s, for example, the national association promulgated model real estate broker licensing and zoning laws drawn up by member boards, and municipal and state governments often adopted them verbatim.

Boards facilitated real estate transactions, standardized commission schedules and leases, and more generally attempted to "stabilize values," as real estate men often put it. They coordinated and centralized information about real estate to solve both their own and consumers' problems of uncertainty and information asymmetry. Real estate boards generally emerged in periods of rapid community growth, and frequently they stimulated further growth by coordinating the efforts of the most active brokers and developers in an area. Modeled after stock exchanges, early real estate boards initially provided a specified place and time where brokers representing owners and purchasers of real property could meet to negotiate. Boards soon developed into stable institutions, with constitutions, boards of directors, bylaws, paid staffs, regular meetings, and often their own lodge-style meeting houses or boardrooms. It became a point of pride for boards to own their own "homes," as it were, consistent with the emerging ideology of the occupation.

Boards developed rules and practices for the conduct of real estate transactions, and attempted to influence legislation pertaining to real estate, often successfully. When the Detroit Real Estate Board was formed in 1906, members immediately agreed to raise commission rates from 2 to 3 percent on improved property, and because the city's most prominent brokers were members, the board's standard soon became the city's standard. The Detroit board also instigated litigation to test the validity of a mortgage tax law. The Baltimore Real Estate Exchange introduced a bill repealing the mortgage tax, which became state law.

Prospective buyers, clients, and brokers themselves had legitimate concerns about the validity of information received from other brokers, and more generally about the trustworthiness of the purveyors of such information. Stories abounded, sometimes apocryphal but often authentic, about corrupt, fly-by-night swindlers who gypped innocent people, typically portrayed as widows or naïve young couples, out of their life savings. In rural areas, unscrupulous real estate "pirates" "infest[ed] the trains and depots," luring unsuspecting new settlers into their lair, refusing to let the prospective buyer "get in touch with anyone else until after he has been sold a piece of land." Popular culture reflected this concern in stories like Morgan's "Bilfinger," Ring Lardner's "Own Your Home," and Sinclair Lewis's Babbitt. Typical early-twentieth-century real estate frauds included selling land to which the vendor had no title; purchasing worthless land, mortgaging it to a confederate, and selling the mortgage to unsuspecting persons; and selling land owned only on contract-for-sale. Thus, boards emerged in large part for "high-class" real estate men to distinguish themselves from the less scrupulous, or at least from the perception that most brokers were not to be trusted. Boards attempted to establish and enforce rules of real estate practice and publicize their good efforts, to gain the confidence of consumers and boost the image of the occupation. To the latter end, local boards courted editors of real estate sections of local newspapers and engaged in major publicity efforts.

Perhaps the greatest business innovation wrought by local boards in the formative stages of organized real estate was the development and spread of the multiple-listing system. The architects of MLS intended to address both the issue of trust and the related problem of incomplete information in a highly fragmented market. Boards established elaborate, cross-indexed card systems for compiling all the properties listed by each member, and devised systems of commission sharing. Typically, a board established a multiple-listing bureau that members could join for a fee beyond their annual membership dues. Bureau members were obligated to post all listings with the board's multiple-listing card file, to which any bureau member was entitled to have access. Thus, a broker-member had at his disposal the listings of every other member, assuring owners of widespread exposure of their property and buyers of comprehensive information on market prices and available properties. Through MLS, organized real estate men aimed to achieve a perfect market, in which every piece of real estate would be for sale by every real estate broker-or at least by every member of the board, and thus on offer to many more potential buyers. As the Toledo board's slogan put it, "Property Listed with One Is Listed with All."

To forestall the potential for deleterious competition facilitated by the MLS, boards introduced the practice of exclusive agency. Under this arrangement, the original, "listing" broker bound his client through a sixty- or ninety-day exclusive contract to sell a listed property. "Owners sulked at first," according to the secretary of the Toledo board, "but when they saw it was the exclusive contract or nothing, and that signing an exclusive contract gave them the services of every office in the Board, they gradually came around to our method of doing business." Any broker who found a buyer for an exclusively listed property would be obligated to share any commission with the listing broker. The idea spread slowly in the second decade of the century, but by 1925 some form of MLS was in operation in more than two hundred cities. As the long-time executive secretary of the national association, Herbert U. Nelson, noted in 1925 in his book on administering real estate boards, the development of multiple listing and exclusive contracts permanently transformed the practice of real estate brokerage. The spread of MLS in turn expedited the process of organization, as access to the MLS was generally contingent upon membership in a local real estate board. MLS helped to transform the local board from an élite club into a true service organization, and a growing number of medium-sized and small operators began to join.

Real estate boards aimed to tame the anarchic conditions of the turn-of-the-century urban real estate market, and in so doing to create a more stable, oligopolistic market in real property managed by a relatively small group of "high-class" real estate men. And in some respects they succeeded, as real estate experienced periods of great growth in the period 1905-25, during the zenith of the real estate men's initial professionalization efforts. However, the boom and bust cycles characteristic of the American urban real estate market were partly a function of the failure of real estate brokers to fully professionalize the field. Organized real estate brokerage never managed to accrue enough disciplinary power to enforce adherence to consistent doctrine or practices, or to achieve true occupational closure and completely drive from its ranks the unscrupulous operator and the speculator driven purely by short-term profit.

Real estate brokers began to impose self-control through local collective action in part to reestablish the confidence in real estate as an investment lost by the ruinous competition and land speculation in the 1880s and the resultant deep and prolonged realty bust in the 1890s. The public's opinion of the real estate broker in the nineteenth century was low to begin with, and the crash of the 1890s exacerbated this poor image. The real estate men who established local boards from 1880 to 1920 aimed to instill in the public mind a sense of their competence, of the value and integrity of their information-after all, this was their primary commodity-and of their desire and ability to transcend base profit motives and provide a "public service." Through organization, real estate brokers hoped to reform themselves and rehabilitate their industry. In the process, they inadvertently created a new sort of hybrid identity, that of a "business professional."

(Continues...)

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Excerpted from A Nation of Realtors by Jeffrey M. Hornstein Copyright © 2005 by Duke University Press. Excerpted by permission.
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