Why this matters: Watch the first episode of our new mini-series which helps you anticipate the effect recessions have on broker and agent licensing. And remember: never let a good recession go to waste.
Human resources: as managed by brokers
Over a varying period of years, fee-based real estate transactions rise and fall, called a business cycle. As an economic event, the cycle comprises a recovery and a recession period with up and down levels of transactions.
Recessions are the best times to learn the most about real estate quickly. During recessions, owners of real estate find their ability to take ever-increasing profits on sales or otherwise manage their property suddenly reduced by heavy scrutiny from buyers and tenants — and the agents involved.
All activities are stressed in a business recession, tightened to their limits and played out in much slower, more considered choreography than during boom times. For agents new to the real estate market, a recessionary workplace environment forces experienced agents to provide detail and explanation for the new ones to witness and absorb. Better yet, all agents have the time to discuss difficulties they face in their transactions, and do so, in the mutual interest of seeking resolutions.
Thus, a thoughtful orchestration of real estate economic fundamentals exists in recessionary periods for everyone and everything, comprising:
- owners, buyers and tenants as consumers, local government personnel with information;
- transaction and property management agents on deals, and ancillary service providers such as mortgage loan originators (MLOs) and escrow officers for closings; and
- individual income, wealth, property ownership and other local demographics.
Recovery periods, by their nature, run diametrically counter to recessions. Personal tension fades fast for agents, as does exactness in transactions and adherence to principles. Learning is a casualty as the race is on for greater agent fees and owner profits on sales and rents. Consumers suffer the consequences of a lack of information and advice.
A universal lift in transaction volume per agent touches everyone. Tragically, every activity appears financially successful, like ships on a virtuous ride with the incoming tide. In a recovery paradigm, what’s to go wrong with all this seemingly effortless synergy driven by industry-wide taking or expecting profits?
For the immediate future following 2025, welcome an enhanced learning environment made available only by a real estate recession. A recession, as the instructive period of the market’s business cycle, positions talented, recent licensees to later max out the good times during the recovery phase in a business cycle.
Recessions groom and thus instill staying power for the highly-alert and curious licensees among us. The new agent quickly compiles usable experience, the foundation necessary to competently advise consumers of real estate services and accrue goodwill for longevity in their chosen community.
The prospective agent and supervising broker
To earn a living — broker fees — an individual as a real estate agent presents property available for sale or rent in the flatlands, valleys or hills. Before acting as an agent, they become a salesperson licensed by the California Department of Real Estate (DRE). Once they are issued an agent’s license, a real estate broker hires them to work in their office as their agent.
To become licensed, the aspiring agent needs to pass the state licensing exam administered by the DRE. Prior to applying for the state exam, the DRE requires the aspiring agent to complete three real estate courses. These studies are provided by public institutions or private schools whose courses are DRE-approved.
The prospective agent, on passing the state exam, becomes a salesperson — called an agent. This license is in contrast to a broker license held by an individual who has acquired further education and longevity in the business of real estate.
Once licensed and employed by a broker, the agent represents their broker by performing services for clients who retain their broker for services in real estate transactions. The broker constantly supervises the agents they employ — all mandated by state codes and regulations. In a keystone position, the licensed sales agent and broker-associate is the agent of the agent, acting on behalf of their employing broker to represent the client.
Higher need for broker supervision
All fees for services an agent performs in transactions are always first received by their employing broker. The agent involved in transactions assisting clients on behalf of their broker generates fees for activities such as:
- leasing and property management;
- mortgage loan origination (MLO) and dealing in trust deed notes; and
- sales and acquisition of fee interests in real estate, business opportunities and previously owned mobilehomes.
An employing broker who neglects to supervise an agent puts themselves and their agent at risk of DRE licensing sanctions. The level of sanctions depends on the level of neglect in supervision and oversight.
As a real estate recession develops to begin another business cycle, brokers step up to a higher level of supervision and oversight for their agents — including broker-associates — to prevent risky conduct by their staff. During recessions, astute brokers prudently winnow out the non-productive and negligence-prone agents, leaving fewer but more capable agents. The effort mitigates risks commonly bringing more liability in a recession as property values drop.
Misconduct by agents during a recovery period such as 2013 to 2021 occurs more frequently than during recessions. However, in a recovery period, the misconduct of agents is mostly neutralized.
For example, the broker and their agents get “cover” in a recovery phase due to the increasing value of the real estate interest acquired or encumbered in a transaction. In stark contrast, the inevitable loss of property value in a recession tends to increase client losses due to agent errors or transgressions. Instead of the cover of increased property value, in a recession, the broker is faced with the dollar value lost in property, which is not what occurs in a recovery period.
In a recession, the broker, the agent and their errors and omissions (E&O) insurance carrier will be covering collectible losses experienced by participants in transactions. But it is also a period when investors return to acquire property at historical trendline pricing to be able to benefit from the recovery to come.
Related article:
Editor’s note — The second episode of this series covers the entry of new agents into the real estate profession.
