Posted by: Jack Harper | April 15, 2010

Real Estate Industry Series – Part I – Raising the Barrier

Editor’s Note: This series of discussions come to you in the spirit of true transparency and is inspired by a very real need to reinvent and restructure the residential real estate industry so that we may provide real and acceptable value to consumers in the form of services and information that will assist them in their real estate dealings. This is not going to be a sugar-coated “pat each other on the back” party where we set about to tell ourselves how professional we are by virtue of our licenses and the acronyms we add to our signature indicating our willingness to pay for meaningless designations. This discussion will hopefully spark a national conversation on the need to reengineer our business model in significant ways. In the event there are local and/or regional discussions already in place, our hope is to join all together for meaningful purposes.

Why here, and why not at the association level? It is clear that associations, MLS providers and their members have the interests of members and their consumers at heart, they also have a deeply vested interest in the status quo. True open and frank discussion will best be served outside the box.

PART I: Raising the Barrier to Entry

I have compiled a spreadsheet that details the requirements for real estate licensure in the fifty states.  In the initial stages of development, an awareness of the reality became very disturbing; The process to get and keep a real estate license in most states is very simple, relatively inexpensive and involves taking only a few classes, often less than 60 hours of education, then passing a state exam. The exams are not quantifiable, as I do not have a copy of each. Several states that I have seen have tests that are comprised of around one hundred questions and there are any number of study guides that will help one pass on the first or second attempt. Contrast this with the need for more than 1200 hours training in order to get a cosmetologist license in California, and you can see that we have a long way to go if we are to be viewed as truly “professional” service providers. There are some exceptions, but these are the general observations I have made.

There is currently no perceived need for novices to serve in apprentice mode.  What they learn about the daily practical aspects of this industry, current belief holds,  can be provided by a combination of manager oversight, continuing education and an unending array of classes on how to get more leads from a myriad of sources – good and otherwise. This model is broken. Since the Industrial Age business segments have long held that new workers need to go through some form of apprentice learning before they can be left on their own to get the job done. Even in medical and legal segments we see extreme cases of monitored learning, otherwise the clients would potentially suffer great harm at the hands of a newbie.

There are some great learning tools available to the industry. Several of the NAR designations and the certificate programs can be extremely informative and go far to help a professional become just that; professional. The list includes Certified Residential Specialist (CRS), Online Professional (e-PRO), Graduate REALTOR® Institute (GRI),  Accredited Buyer Representative (ABR) and several others. These are great learning grounds for professionals, however they pose two shortcomings:

  1. They are optional
  2.  They come after the license has been issued and the agent is already in the work force.

 In addition, they do not go far enough toward creating meaningful education and experience that will signal to the average consumer that their agent is actually a skilled and informed professional, capable of helping them through the complexities of a transaction representing more financial risk than most other financial activities in their lives.

In short, to call oneself a “real estate professional” is meaningless. On the other hand, to be viewed as a professional carries all of the importance and significance required in the mind of the consumer and professional alike to allow them to form a true principal/agent relationship.

Now, let’s take a look at some interesting facts:

 In 1985, I appeared before the governing body of my local association of Realtors® in a sincere, albeit naïve desire to inspire them to get behind a movement to convince our state regulators to raise the entry bar for the real estate license to some believable levels through increased education and experiential levels. You can imagine the shocked look on each face as they realized that I was advocating making it harder to become a member of their industry. And I was asking them to do the same! After they politely walked me to the lobby, I could imagine how much f a laugh they might have had at not only my expense but the expense of our professional image. What I failed to understand up front was that the need to increase member dues was seen as their primary function. Dues dollars were the majority of association income. I was asking them to make it significantly more difficult for people to joins their association. How could I have been so naïve? Today, some 25 years later, I see that not much has changed in this regard. Dues dollars are still a primary financial factor governing decisions. This must change.

License laws make it so easy to become a licensed agent and sometimes a licensed broker that the public has a growing sense that we are not really as “professional” as we claim to be. Several states even allow convicted felons to get real estate licenses after a waiting period (some are five years from release).

We need to stop being the Association of Anyone Can Belong, and start becoming an association of skilled and knowledgeable professionals. Is it any wonder then that most consumers invest much time and energy in searching for available property, researching loans, discovering channels of valuation – all designed to place them in a position of managing their own transactions with little or no help from a real estate professional.  

Imagine consumers defending themselves in a major court battle, or performing surgical procedures on each other, simply because they can get instructions on the Internet? Preposterous! Yet, we call ourselves professionals, just like doctors and lawyers do, don’t we? I submit that the real underlying cause of this disparity can only point to one thing: in general terms, we are not true professionals in the skill and knowledge sense of the word. How can we be when it is approximately 25 times harder to be licensed to cut someone’s hair than to sell them a house! The barrier to calling oneself a real estate professional is laughable at best and unfortunate at least.

“What is the big deal?,” you might ask. “We operate on a “cream rises to the top” basis. We hire them all and keep only the good ones.”  Your argument is as old and as widely accepted as the industry itself. Is there any reason to change this? I suggest that there is, and it is a huge reason; We need to change this because we want to become relevant to the consumers once again.  The big deal is the impact this mindset has on our public image. It goes something like “anyone can be a real estate agent, as long as they are breathing.”

So, what am I advocating? I am taking the very unpopular position that we, as an industry, must take steps that will reverse the trend of “anyone can do it.” We need to raise the barrier to entry high enough that we are able to weed out those who probably are not looking for a true career. We need to provide some indication that a real estate license carries some weight and is a meaningful indicator that the holder is much more capable of transacting such large-scale business that today’s license indicates. Here, then, is a formula:

  • Create a new category for licensees; Apprentice Licensee
  • Lobby at the state level for stricter pre-licensing educational and testing requirements
    • Real Estate Associates Degree or current Broker Courses at a minimum
    • Make the test actually match the practice of real estate
    • Create growth path for licensees to attain as their skills and learning grow.
    • Institute internal (per brokerage) standards for hiring that exceed current “fog the mirror” standards
      • Required apprenticeship for new licensees
      • Success-based promotion to full licensed status

More than this, and more than any other change possible, we need to change our business thinking. The “cream rises to the top” thinking will no longer help. If we continue this path, then we continue the notion that we are not an industry made of truly professional practitioners.  Yes, it will be extremely difficult to change the industry and it will not happen overnight. It must start with the individual business owner. Are you prepared to place serious restrictions on your hiring practices? Are you prepared to hold the line relative to agent training and management oversight? These are some serious questions for an industry that faces some serious changes.

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