How do you define insanity? Some say it's doing the same thing over and over again, but expecting a different outcome. That sounds just like the real estate industry to me. In fact, two recent events I hosted might just prove that while all real estate may be local, the industry's insanity is widespread.

First, zip out to the Midwest, where a group of about 85 brokers joined me for a breakfast meeting on "technology tips" to meet the challenges of the future. As usual, we start with a simple quiz. Just who is the customer of the future? What do they look like - today, and more tomorrow - demographically, economically, and most importantly, in consumption patterns? You might expect that a group that serves so many people might have some idea of just who they are - broad patterns of group traits. At the least, you'd think they would purchase some of the research from their own trade organization. Hopefully, an industry that says it's all about the consumer's needs would be able to say just what those needs were...

Nope. Not a chance. After a few easy answers - like how old the average buyer was or what percent of consumers used an agent - the answers were pure guesses. What percentage of buyers were over the age of 55? 20% is the answer; shock and awe was the result. What percentage of buyers had no children under the age of 18 at home - well, that's 60%. Oh, no wonder my 4 bedroom homes aren't selling.....

Next, back to the home state, where a discussion with some local salespeople reveals a common belief that successful salespeople are simply "lucky" or at the "right place at the right time." No mention about the consumer - or what they want, or how successful salespeople figure that out. Because there's no thought about the consumer, really, at all. Basic consumer research is almost totally non-existent; because real estate is all about the agent (at least that's what all the franchise marketing ads say in this month's REALTOR magazine).

For an industry that does so much "market research" they are clearly not studying the right market. REALTORS still think they sell homes. They learn more about construction styles and types of heating, siding, flooring and countertops - but they know absolutely nothing about the people buying or selling these items. REALTORS know how many homes sold in the neighborhood last month; but they don't know why their photo-less listings online aren't attracting Generation Y buyers. We have charts, graphs and spreadsheets of list-to-sell ratios and days-on-market trends; but no breakdown of the marketplace to see which of those homes were purchased by Baby Boomers and which by Gen Xers. Because they sell homes, the REALTORS are focused on home features, marketing homes and listing presentations. Because they know virtually nothing about the current pool of buyers and sellers - as a market, and as segments within the market - they can't figure out why they have so many homes on the market but none of the consumers are buying them.

Yet insanity is rarely just a surface feature. Usually, it's deep. And with REALTORS, it goes way back: for generations, it turns out. Essentially, real estate brokerage is arranged like a medieval guild system: New agents are "apprenticed" to brokers who delegate their education to "veteran" brokers. That's how the insanity is transmitted from one generation to the next. Sally Sales was taught by Grandma Sales how to sell; Grandma learned it "back in the day" and it worked well then; so that's what Sally learned. And it's what she's teaching Little Johnny Sales. Remarkably, there have been successes in this process; because it's systematically a process for transmitting recessive practices through subsequent generations. Hence, it's a system for transmitting genetic defects - not in the people, but the genetic code of their business practices.

A few examples will make the point. Ask any current broker to list three things they always did that don't work any more, but they are still doing, and they have no problem rattling off ten. Open houses, postcard mailings and newspaper ads always top the list; but there's never any shortage of bad practices on the list when we ask this question. (For starters, any group that can so readily and quickly list failings it admittedly continues to practice is, certifiably, insane.) Open houses are still done, because "it's how Grandma always did it" but they don't work because, well, back in the day, Grandma's idea of doing an open house was to bake warm bread and let the smell create an inviting atmosphere (sound like today's open houses?). Grandma just had to appear warm, friendly, and the house would sell itself. And back when all houses were so much alike, the strategy worked. But do freshly baked cookies work with an internet-educated consumer who is wondering if the house is wired for CAT-5 cable and fiber optics? Sally Sales can't answer that question, because she was taught not to "sell" at an open house: You don't want to appear like a "salesperson", now, dear!

Postcard mailings are another perennial problem. When asked, every broker immediately knows the answer to the question: What's the average rate of return on direct mail. About 1%. No problem with the question - but what to do about it causes more discomfiture than shock therapy. Has anyone wondered if continuing to do an activity with a 99% failure rate was a sound marketing strategy? Has anyone done the math: To get 10 "responses" from a mailing, you'd have to send out 1000 pieces, which at $1 production per piece (plus postage and time) is a lot of money for 10 replies. Why does Little Johnny Sales do it, then? Because Sally Sales said we always did it before...

The favorite for "yup, that's insane" award, of course, is the newspaper ad. Every measurable statistic shows that putting houses in the paper is useless: Less than 3% of buyers found the home they actually purchased in the newspaper last year; but more than 60% of agents spend money on such placements every week. The costs are staggering - if 600,000 REALTORS place $100 worth of newspaper advertising weekly, that's about $60,000,000 in advertising spent weekly. At that rate, the industry would be better off simply purchasing the 3% of homes sold through newspapers themselves rather than working with the buyers. Why do we do it? "Because the seller tell us to." That's the standard answer. Not, "because we don't know better," because we do know better. Never have I met a REALTOR who argued that their newspaper classifieds actually worked; they simply argued that they weren't confident enough in themselves as a professional to tell the seller they weren't going to waste their time or money. In a case of double-jeopardy, the crazy sellers tell the insane agents how to do their job. Talk about the lunatics running the asylum.

This metaphor - of inherited insanity plaguing the real estate industry - would be funny, if it wasn't sadly a major source of why the industry is unable to pull itself out of a slump. Waiting around for the "market to change" is a really bad strategy. Companies that wait for their fortunes to turn find themselves out of business by the time the market comes around. Real estate might be tougher to sell these days, but it's not impossible. We've sold it in double-digit mortgage years, deeper recessionary periods and through dot-com crashes no smaller than today's credit crunch. In fact, a home two doors down from me just sold - in 2 weeks on the market, for full price. So somebody clearly still knows how to do it. The real insanity, however, is the number of REALTORS who can sit across the table from you, rattle off their crazy habits, nod knowingly that they are going around in circles, but stare blankly when asked what they are going to do about it. They simply have no idea - literally, no ideas come to mind - when they will stop baking cookies at open houses, placing labels on postcards, and placing classified ads in subscriber-less newspaper. At least, though, they sit there and say all of this - with a crazy smile on their face.