This article proposes making the Department of Real Estate (DRE’s) licensing education requirements more rigorous in an effort to better prepare licensees to protect and serve real estate consumers.
The days of feared ignorance need be gone
During the height of the Millennium Boom, becoming a real estate agent was known as a quick way to make money. The high volume of home sales, skyrocketing home prices and rampant speculation by flippers as second home buyers kept business booming in brokerage offices across the nation. By dedicating a few weeks to studying and passing the state licensing exam, anyone over 18 could represent buyers, sellers, landlords and tenants in complex transactions involving large sums of money — and collect fat fees for doing so.
Now, the economic tides have receded and so has employment in the real estate industry. Buyers struggle to qualify for purchase-assist financing and one in six listings on the multiple listing service (MLS) is a shortsale. While seasoned brokers with a wealth of experience possess the skills (and cash reserves) to weather economic downturn, newly licensed individuals often have no idea what to do. Those who sped through their pre-licensing education have no well of knowledge (or cash) from which to draw.
The Department of Real Estate’s (DRE’s) past casual licensing requirements have undoubtedly contributed to the 60% increase in disciplinary action in the past three years. The lush market conditions of the Millennium Boom enticed herds of opportunists to get in on the licensing, some of which turn out to be bad actors corrupting the scheme. [For more information about DRE disciplinary action, see the December 2010 first tuesday article, The rabbit and the greyhound: DRE disciplinary action and broker supervision.]
Post-recession society has demanded increased consumer protection and Congress has reacted accordingly with the nation’s first ever consumer protection agency, the Consumer Financial Protection Bureau (CFPB). But in order to fortify a knowledgeable, ethical future generation of real estate licensees, the education and licensing standards by which the DRE qualifies individuals to represent principals in real estate transactions must also be further improved. [For more information about consumer protection regulations, see the October 2010 first tuesday Legislative Watch, TILA circa 2010; consumer protection enhancement.]
Same expectation; far less preparation
Much like attorneys, accountants and other state-certified professionals, real estate licensees are expected to be experts in their field. They are responsible for facilitating mega-dollar real estate transactions, and serve as the primary gatekeepers of the real estate industry for the totally amateur public.
Brokers and agents are employed by the public for their presumed extensive knowledge of contracts, purchase-assist financing, legal aspects of ownership and property investigations and analysis. However, unlike the rigorous coursework, certification and continuing education required of other professionals advising and processing comparable financial situations, the requirements for earning and maintaining a real estate license are disproportionately undemanding.
To become a licensed broker, the DRE requires an individual:
- be 18 years old or older;
- be a U.S. citizen;
- be honest and truthful (conviction of a crime may result in denial of a license);
- either have a minimum of two years experience as a full-time licensed salesperson within the last five years or have a four-year degree from an accredited college with a specialization in real estate;
- complete eight statutorily required real estate courses; and
- pass the DRE broker licensing exam with a 75% or better grade. [See the DRE’s Real Estate Broker License Requirements.]
Agents: a new education and training paradigm
first tuesday implores the DRE to re-model their broker and agent education requirements after those of the Office of Real Estate Appraisers (OREA) by implementing a salesperson trainee program and mandating a four-year degree from an accredited college to obtain a broker license.
The OREA requires newly licensed appraisers to hold a trainee license and be supervised by a certified appraiser for one year. Newly licensed real estate agents would greatly benefit from a similar apprenticeship arrangement but would need two years to get a sufficient grasp of real estate concepts, accompanying experienced certified brokers through all aspects of real estate transactions during the period. This structure ensures all agents who have passed the trainee period possess the knowledge and experience necessary to effectively represent their clients without inherent negligence for lack of basic real estate knowledge. [See the OREA’s Appraiser Licensing Requirements.]
Too often a broker’s employment of agents trains them exclusively in the greyhound chase of locating and dragging sellers and buyers into the office to be “dressed out” by others, from office coordination facilitators and mortgage finance staff to in house escrow officers and beyond. Oversight is limited to motivation, with the agent’s fee disbursed on closing only when the agent first generates a completed client or listing file for the office manager, no questions asked. This leaves the agent devoid of an understanding about the applications of the contracts involved, the rules of conduct in counseling the client, the timing and clarity needed in disclosure of property conditions…and the list goes on.
Once an agent trainee has worked under a certified broker for the recommended two years, he may apply for a certified sales agent license. Certified sales agents, though still required to be employed by a broker, will have been prepared to work with clients more independently than trainees, having undergone the necessary training. This is just the type of oversight a broker employing agents today is required to have over his agents, but few do.
Additionally, the number of trainees under the supervision of certified brokers must be limited. Similar to the OREA requirements, a cap of five licensees at a time ensures the work and understanding of each individual receives proper attention from a qualified superior actively positioned in all transactions involving the trainee. [For more information on California brokerage offices, see the February 2012 first tuesday Market Chart, The rise and fall of real estate brokers and agents.]
Brokers: the evolution of training meets its public
As a more staggered agent licensing scheme is introduced, broker education must also require a more sophisticated measure of competency. Just as attorneys must go to graduate school before earning their license designation, real estate brokers would optimally serve buyers, sellers, landlords and tenants by earning a real estate degree from an accredited university.
Some colleges and universities already offer real estate-specific programs, but most do not fully conform to the DRE’s education requirements. If such an education was a pre-requisite to DRE licensing, California universities would surely adjust their curriculum to meet the ensuing demand.
Editor’s note– California Assembly Bill 1718, if passed, would authorize the Real Estate Commissioner to treat a degree from a four-year college or university with a major or minor in real estate as the equivalent of two years’ general real estate experience. While it does not fully implement the more rigorous education recommendations made here, recognizing that a major or minor in real estate is required to ensure a property educated real estate licensee population is a step in the right direction.
The introduction of apprenticeship safeguards into the DRE’s education requirements for real estate brokers will abate much of the public’s misgivings about the negligent behavior of licensees. Real estate professionals who earn their licenses under these more rigorous education standards will have the proficiency to represent their clients well, and earn their place as indispensable public assets. [For more information on the public image of real estate professionals, see November 2011 first tuesday article, Damage control: restoring public trust in real estate professionals.]