This article examines a Legislative Analyst’s Office (LAO) report on the California Department of Real Estate’s (DRE’s) increasing inability to protect consumers, a failure of its primary purpose for existing.
The LAO critique dated May 12, 2009 regarding the DRE’s activities focused on two components:
- the Licensing and Education Program; and
- the Enforcement and Recovery Program.
Licensing and Education
At the heart of the LAO’s criticism of the DRE is the disproportionate amount of freedom and responsibility afforded licensees in relation to the relatively small degree of required education. The report observes how, in as little as three months, a person can study for and pass the DRE’s licensing exam, permitting them to represent members of the public who engage in a wide range of complex and specialized real estate related activities.
To become a sales agent, the DRE requires only three generalized courses: Principles of Real Estate, Real Estate Practice and one elective. In theory, the three qualification courses give the individual a solid understanding of the real estate industry. It is then up to the employing broker to guide the licensee with direct oversight and supervision.
However, the minimum amount of time a student must spend to pass all three courses is 54 days and no previous experience in real estate of any sort is required. An applicant who possesses a four-year degree needs no real estate-related experience before being issued a broker’s license, allowing him to hire newly licensed agents. This is a risky proposition for members of the public considering a broker is the very person charged with supervising newly licensed and established sales agents alike; a definite case of the blind leading the blind.
Once licensed, agents and brokers practice for a span of four years before each is required to undertake and complete continuing education as part of license renewal. The main problem with the continuing education requirement is that most licensees wait until a couple of weeks (or months) prior to their expiration dates to complete all the mandated hours, taking the “continual” entirely out of continuing education. This puts consumers of real estate licensee services at risk since licensees, for 80-90% of the time between renewals, are un-“educated” and potentially unaware of the changes in real estate practice and law that came into existence in the interim.
This all assumes that the education finally received was an updated continuing education (CE) course which actually included the technical updates needed by the agent or broker—and that they did read the material.
In addition, many companies in the continuing education industry are designed to accommodate the “last-minute licensee” by cutting corners on required minimums like enrollment periods and page counts. Those providers advertise their programs as the “fastest” or the “easiest,” (and some long in the education business still advertise one-day completion of 45 hours) implying little effort on the licensee’s part to become or remain eligible to help Californians with what is usually the most important financial decision of their lives—the purchase of a home. Casual research reveals many so-called “schools” not only cut vital corners, but also use outdated materials with few if any citations of California law or judicial precedence and none recent.
To be sure, most licensees mean well when enrolling in quick-renewal programs. However, too many education providers leave licensees uninformed about new laws, regulations or court rulings affecting their clients’ real estate-related transactions.
It doesn’t help that the DRE similarly makes minimal attempts to actively educate its constituency. A barely-visible quarterly bulletin is available on the DRE’s website, but it is relatively ineffective in keeping licensees up-to-date on the ever-changing laws and regulations affecting the real estate industry. Of the 12 pages that make up the Fall 2009 DRE Bulletin, seven pages are devoted to naming licensees subject to disciplinary action for violating laws and regulations governing the practice of real estate. [http://www.dre.ca.gov/]
Editor’s note — Without this glut of sad details of human failings, the gossip element needed to draw licensees to read the DRE Bulletin would be missing.
Bulletins were slightly more effective when they were mailed out to licensees, but the cost of the mailings proved prohibitive for the DRE. Implementing an email list for licensees seems like a logical step toward providing brokers and agents with basic news and information. The timely email notice of adopted law changes and their effective dates makes a move toward electronic notifications the best method for informing DRE licensees and the public they serve.
Suggested improvements
In regards to the education and experience required for licensure, and the frequency and timing of continuing education, the DRE should take its cue from the Office of Real Estate Appraisers (OREA). [http://www.orea.ca.gov/html/lic_reqmts.shtml]
The OREA has an initial trainee license requirement in which a newly licensed appraiser must be supervised by an experienced appraiser in good standing. The superior can only have three trainees under him at any time.
The DRE should create a similar designation such as an apprentice or trainee sales agent license, presently called a runner for those licensees who bring new talent onto their team. Newly licensed sales agents should be required to tagalong with a more experienced agent or broker in a specific real estate field of choice as a requirement before graduating into what the DRE could call a certified sales agent license. Only after acquiring further hours of education, experience, and perhaps an additional specialization endorsement as is available to attorneys, could a licensee then apply for a broker’s license.
In terms of continuing education, like the OREA, the DRE should move to require a certain number of CE hours to be completed each calendar year rather than every four years. The CE hours would then be filed electronically with the DRE by the DRE-approved course sponsor, with a renewal fee and application due every fourth year.
Also, the OREA limits the scope of activity an appraisal licensee is allowed to engage in, depending on the type of license (read: amount of education and experience in a specilization) he holds. A similar system should also be implemented by the DRE.
The recently-passed SB 36 created a mortgage loan brokerage endorsement requirement in response to the passage by California’s legislature of the Secure and Fair Enforcement for Mortgage Licensing Act (the SAFE Act). Under the SAFE Act, licensees engaged in mortgage loan brokering are required to:
- complete pre-license and continuing education specific to mortgage loan brokerage;
- be licensed specifically as mortgage loan originators in their state; and
- register with a national mortgage licensing system and registry. [See Legislative Watch SB 36]
The DRE could require endorsements for a variety of the more specialized and complex activities that a real estate licensee can currently engage in at will, such as property management and leasing agent transactions, apartment or nonresidential sales transactions, subdivisions and equity purchase (EP) transactions, etc. If the DRE won’t require an endorsement for these activities, at the very least it should implement a supervised experience requirement.
Without an extensive re-work of real estate licensing requirements, especially in light of the more complex aspects of real estate, the DRE is and will continue to fail to protect the general public from untrained and inexperienced individuals, licensed to take consumers for a ride. Education and experience must be mandated and its quality somehow controlled; free from the taint of status symbols and not left to the vagaries of the marketplace.
Enforcement and Recovery
The DRE concerns itself with three types of cases, ostensibly to protect the public from the unlawful conduct of its licensees:
- consumer complaints;
- investigations into applicants/licensees guilty of felonies that may or may not have anything to do with a real estate transaction, called rap cases, such as driving under the influence (DUI), domestic violence, petty theft, failure to pay spousal/family support, etc.; and
- licensee petitions to have a restricted or suspended license reinstated. [See LAO Report, page 7]
Rap cases represented 55% to 60% of the workload between 2004-05 and 2007-08. This rise corresponded with the upswing in the number of applicants due to the booming real estate market. The LAO expects to see the number of rap cases decline as the bust market and the October 2007 elimination of the one-course-licensing of agents have put a damper on the number of people applying to become agents. [See LAO Report, page 7, Figure 5]
Between 2003-04 and 2007-08, only 0.1% of licensees were disciplined by the DRE, and most of these actions were for rap-related incidents and not complaints regarding real estate transactions. [See LAO Report, page 9, Figure 7]
The number of consumer complaints against licensees is increasing. The LAO also noted that the number of complaints filed by the DRE itself is decreasing, a sign that the DRE’s proactive effort to investigate misconduct and enforce an incentive for licensees to comply with the law is diminishing. However, the numbers still suggest the cat is away and no sufficient disciplinary action is doled out to the mice at play. [See LAO Report, page 10, Figure 9]
Suggested improvements
The LAO report recommends the DRE limit its investigation efforts to violations committed as part of a real estate transaction. For instance, the DRE should focus on those who fail to disclose a dual agency to their clients, fail to advise on critical property information known to the licensee, accept advance fees or commit trust fund handling violations. Victims of DRE licensee negligence and fraud in real estate transactions are underserved by the DRE when the department oversteps its bounds and wastes resources investigating rap cases.
Those suspected of felonies should be investigated and prosecuted by local and state authorities whose duty it is to police and enforce criminal law. The DRE should then act to suspend or revoke a license based on the findings of a court of law, beyond which no further investigation is needed.
Furthermore, the DRE claims to uphold its licensees to a standard of honesty and integrity, but fails to implement any minimum, concrete qualifications for such terms. The DRE should more clearly state what type of felony convictions are grounds for losing one’s license or outlaw felons from practicing or obtaining a real estate license outright. Doing so would remove the requirement for discretion entirely, and greatly reduce the resources spent investigating rap cases. Freeing up staff to investigate consumer- and fellow licensee-generated complaints does more to protect the public from risk of loss brought about by incompetent or dishonest licensees.
The Legislature should broaden the DRE Commissioner’s authority to revoke licenses, hold hearings and enforce additional types of sanctions. Granting the Commissioner a broader reach expedites the investigation and penalty process. Currently, the DRE is only at liberty to suspend or revoke a license after much investigation. Implementing a system of sanctions or fines against licensees found guilty of violating the DRE’s standards would serve as a deterrent for nefarious acts, an incentive to learn and abide by DRE regulations and a source of income to replenish the DRE’s Recovery Account. Even educators know who is cheating on exams from time to time, and could become part of team effort with the DRE to collaborate on information about improper use of course approvals by licensees who never enrolled.
Further steps to be taken by the Legislature in encouraging the DRE’s self-reform should focus on crafting policy to make the DRE more accountable for its actions. For example, the Legislature should require the Commissioner to submit an annual report, documenting what steps the DRE has taken to focus its caseload only on potential violations of Real Estate Law.
If a concerted effort is made by the Legislature, the DRE Commissioner and each of the department’s seasoned licensees, change can happen from within. With help, the DRE can effectively reform its licensing and educational requirements to ensure only qualified and upstanding professionals are licensed and practicing. Then, with a skilled and ethical base of agents and brokers, the DRE can work toward realizing its stated purpose: consumer protection.
[See the Legislative Analyst’s Office’s report “Department of Real Estate: Opportunities to Improve Consumer Protection (May 12, 2009)”]
This makes me think of the other comment I saw
Just read the report and all the comments. I agree with the conclusions in the report: actual experience gained in the field and with a managing broker who can share real experience. Required amount of education each year on a continuous basis-no crash courses at the end to renew.
Really appreciated the comments regarding honesty, not eduction as the goal. Education means nothing “if you practice to deceive”, but honesty and integrity are exactly what we need in our profession.
PS Found this article on google when I looked to see who the current DRE Commissioner is. Answer: None
Great article, Anthony. As a side note, I thought it was hilarious that the CAPTCHA word I had to type in was “despotic”.
Oh, and to whomever is in charge of the Facebook side of things, I think responses to the comments would be helpful to your “fans”.
I agree with the “more education” idea; however, selling a home is actually a simple process, made much more complex by all the legislation, lending, and title issues surrounding it. Inherently, it’s as simple as selling a piece of candy–except that with the candy, it’s fairly simple to determine what you are getting, and the buyer normally doesn’t have to borrow money to buy it; it’s also fairly easy to determine the value of candy. It is my belief that the basic problem is not education, but honesty. This is true of lenders, of brokers, of title companies, and of other entities involved in the real estate purchase process. Virtually every consumer dollar lost in real estate transactions is lost, not because uneducated persons have supervised the process, but because dishonest people have done so. Now I am in favor of knowledge, don’t get me wrong, and I attempt to remain abreast of all new developments in the industry that makes my income for me. However, when I hear the words, “educate more,” I think of the recent debacle in the financial services industry, where there were thousands of well-educated people who stole money from investors–or Bernard Madoff, who certainly had plenty of education (he was once the head of NASDAQ, after all), and whose accountants and other assistants were intelligent people. People want money they haven’t earned, or they want money that is not due them, or they want money earned under subterfuge, or they have some other issue with business integrity.
I cannot think of ONE instance in which “lack of education” was the real factor in consumer losses. In fact, the opposite is true, if memory serves me. This is an effort by the legislature to solve a problem that has essentially been created by social engineering, and it goes all the way back to the 50’s and 60’s, when relativism and lying were not only condoned but praised. President Kennedy called it a “credibility gap” back in the 60’s, and it was wrong then, and it is also wrong now. The man or woman who says, “I made mine, good luck with getting yours” exemplifies this thinking to a “T.” Think of the rating services who “passed on” all the bonds created out of loans that any savvy person HAD to know were junk, and would default. Think of the Federal Govt creating the “too-big-to-fail” mentality, and paying its “friends” with taxpayer dollars. Think of GM and Ford, in the 60’s, creating “Planned obsolescence” (a euphemism for “making it so that we know it will break”)…did any of these people lack education? NO. They lacked honesty and integrity. That’s what’s missing, and it will be at least two generations before we can create an environment where business is done with real integrity, if we start now.
Please don’t talk to me about “education.”
Re: “The DRE should create a similar designation such as an apprentice or trainee sales agent license, presently called a runner for those licensees who bring new talent onto their team. Newly licensed sales agents should be required to tagalong with a more experienced agent or broker in a specific real estate field of choice as a requirement before graduating into what the DRE could call a certified sales agent license. Only after acquiring further hours of education, experience, and perhaps an additional specialization endorsement as is available to attorneys, could a licensee then apply for a broker’s license.”
GREAT & EXCELLENT – yet ANOTHER way for me to spend time NOT making money in a commission-only industry because I’m chasing some other agent around who, by the way, may be a complete knucklehead and without ethics of his or her own.
This is so typical of California-think – – – a few criminals and miscreants in an industry so let’s punish everyone.
Don’t confuse credentials with experience or ethics !
And to poster Faber – I’m pretty sure not a single RE agent has ever injured someone with chemical burns or sharp cutting objects while selling a home which is why it’s more difficult to get a cosmetology license.
There is definitely not enough oversight going on right now. I sent a complete package to the DRE showing Realtor activities that breached their code of ethics. Their activities included not allowing buyers that did not use their office and selling foreclosed homes for far lower than fair market value, which in turn shortchanged the very banks (Sellers) they were working for. The DRE sent me a pleasant response indicating it was unfortunate but not within their realm of activity and I should contact the Realtor’s particular Board. I’ve seen more unaccountable activity in the last couple of years than ever before. Our communities were not prepared for the huge number of foreclosures but the criminals are always ready. In turn the DRE and our individual Boards should be their for us instead of simply passing the buck.
I have RE License in CA & AZ as Loan Offier. Noticed in CA anybody can be a Realtor even if this person has felonies and other bad records that can be reflected to the public. I came across with several CA Realtors that lack any integrity or any level of education, they only know how to malpractice. This Realtors demostrated no more real interest to the public, instead Realtors go for their own comision profit and best advantage to them not to the consumer. Realtors used their profit to pay alimony, car repo, etc. In AZ is a custom not only to passed the RE License, also is a requeriment to pass clean record in the last 7 years from other goverment agencies, such as: policie department., child support, DMV, drugs, credit report, etc. Would be nice for CA to include this aditional requirements for a new Realtor applicant o even request a Bond for a periord of years until they probe their honesty to the public, is a must for new realtors to have a level of education. Any new rule will help to decrease the unscrupulous people. We need real honest people in the Real Estate market, protect the public and avoid any risk. I HOPE FOR THE BEST RE COMISSIONER if you can improve the uncontrolable licensing.
In CA it is harder to obtain a beautician or barber license than a RE agent license-
Of course you have heard the one about the man who was stopped by the CHP for speeding and the cop asked the man for his real estate license. The man said to the cop, “surely you meant my driver’s license?” The cop said “no, not everyone has a DL but almost everyone has a RE license.”
Finally author Renaud has expressed what has been obvious in California. California should learn from other states like Nevada that until you treat the practice of real estate as a licensed profession and raise the educational bar of entry, the public will continue to be at risk. Making annual education and broker supervision the focus of the DRE will only enhance the profession. The number of new brokers with a college degree and absolutely no experience in real estate is astounding. As a broker in California and Nevada, I can attest first hand at how pleasant it is working with licensees in Nevada who are generally more educated and supervised in their real estate activities. In California licensees actually practicing real estate full-time continue to be in fear or on the defensive for the next act of malpractice exhibited by an unexperienced and unsupervised California licensee. That being said, you can only imagine how a member of the public feels. California needs to step it up!
Lets make Anthony Renaud the new commissioner of the DRE and we’ll all rest easier, and the public will at last be safe.
Good article but the suggestions put forth will never fly.
As with all the other government departments in Sacramento (and Washington DC) they are self serving to their own interests and survival.
Guess I’ll get a trust fund audit after this comment.
Alan
Broker since 1981