creative commons photo by thinkpanema
A lot has been made over the past year or so about divorcing commissions, increasing licensing requirements, higher education standards, and more, but all of that aside for now, I’d like to call this the way I see it as it happened and why the profession is where it is.
In order to understand the now, you have to travel back to the late 90s but more over the early 2000s to grasp the enormity of the problem. Here’s the play by play:
- Agents worked under large brokers using 1.0 marketing methods.
- The information superhighway opened up 10 lanes allowing domains and websites.
- Agents wanted a slice of the action and pressured brokers to allow online marketing.
- Websites sprang up, but this also forced the agent to brand themselves in the process.
- Agents became known in many cases by their domain name creating pseudo start-ups.
- IDX feeds were created in order to allow these brands to market their listings.
- The next step in evolution said this brand needs it’s own brokers license.
- The young online brand is now keeping it’s commission the same with less split overhead.
- Born in this era was the small brokerage without large market share or overhead.
- Recruiting meant discounting split/training/continuing education/less broker interaction.
- Born was the agent just out of school on a 95/5 split with little to no experience or standard of practice.
- The profession disintermediated many big brokers and now medium brokers.
- Two years later, this two year agent with few transactions repeats the cycle with little to no experience.
It’s hard to argue these facts as I lived them- I watched this happen all around me, and I also watched #7 through 12 as it spun wildly out of control. Agents with as little as 2 years experience were brokering transactions and running online brands with just as little experience, now recruiting agents in like situations. It was in this period you saw a rush of flat fee broker splits pop up inviting inexperienced agents into the fold at the same pay grade as a 10-20 year vet. It wasn’t the independent broker’s fault, as in the beginning I would guess the majority of the first online mini-brokerages were, in fact, vets of the business, but they were soon to be surpassed by the rush to enter the real estate profession.
Over time, you saw these smaller budget brands offer no training and allowing any heartbeat with a license to practice at 70-95% without the big broker training budget- in fact, that size of a split says you need no training and no help- you’re on your own managing your own brand with even less experience- and here we are in 2008.
This problem has devalued the agent in most cases and is how many come to complain that there are just to many bad agents out there. They may be right, but little has been offered as a solution to this problem. As I mentioned above, the answers are many but complicated and very unlikely to ever take real shape- but I have a thought…
What I am proposing is a minimum practice standards for all newly licensed agents. Minimum Right to Practice would require the Broker (or a designee) to assist the transaction of new agents for a term of 10-20 sides. This would require the broker to be the agent named on all listing and seller agreements. The requirement would also satisfy continuing education requirements that would now have to be increased to include this hands on broker training. I would also implement a minimum transaction requirement on new applicant brokers as well as increase the standard to (4) years. The kicker to this would be that it is required of teams as well that often have a Team Leader with buyer and seller reps below him or her to carry out the Leaders transactions. We’re talking training here, not free labor and Teams that are allowed to recruit must be held to the same standard.
- Standard CORE Education Requirements
- 15 Agent Transactions w/Broker (or designee) Accompaniment
- Standard Continuing Education Requirement at (1st) Year End
What I’m proposing here is for the State Board or the licensing board to implement this plan which would effectively stop the rush to agent status, broker status, private brand status, team status, and require Brokers to improve training and eduction of their agents. This would better serve not only the Broker as a base in which to offer real value to the new agent (split justification), but to better build the Broker model on solid Standards of Practice. This would better serve the profession as it would raise the standards of practice nationwide, creating real value for consumers with better trained and more qualified and experienced agents. This new standard would force many to stop and think before (A) starting into Real Estate, and (B) stop Brokers before hiring poorly qualified potential agents. The Broker would now be forced to look at the applicant in close measure of previous employment, education, criminal background and yes, ability and competence.
Most large brokerages offer training and continuing education, but by locking them (new agents) to the broker for a term to satisfy the agent’s education, you get a real sense of what I am proposing here. At first glance, I would imagine many brokers getting really ticked at such a strategy, but sitting back and giving such a radical idea some thought, the broker will see how advantageous this will be for them, as well as for the profession.
Vicki Moore
May 6, 2008 at 4:33 pm
Who do we call to insist that this be considered? Our respective Departments of Real Estate? NAR? I think this is a great suggestion and should be disseminated to the powers that be with AG’s loud and powerful mass behind it.
larry cragun
May 6, 2008 at 4:51 pm
I was licensed in a shop that had no training and little oversight. I couldn’t stand to be there now, didn’t want their reputation.
This proposal would raise the bar. lar
Jason Mook
May 6, 2008 at 7:58 pm
Washington REALTORS successfully worked to update Real Estate license laws during the legislative session this year. While not all of your suggestions were implemented, one significant change was that Teams will be required to have someone with their Brokers license overseeing the Team. Education and supervision requirements for Brokers was also increased.
Read more: https://www.agenerouspeople.com/legislation/real-estate-license-law-reform/
Daniel Rothamel
May 6, 2008 at 8:09 pm
I’m glad that you took this topic on, Benn. This is a debate that seems to come around every now and again, but not nearly often enough.
The frustration that many people, you and me included, feel about the quality of our profession stems from a whole lot of sources. It is something that I have thought about very often, and it is something that I’m never exactly sure how to address effectively.
The more I think about it, the more that I keep coming back to the feeling that one of the things that I love about the real estate industry is also one of the things that I hate about the real estate idustry– independent contractor status.
As a real estate licensee, I am an independent contractor. I am not an employee of a broker, the broker simply allows me to hang my license and practice under the aegis of the brokerage. On the one had, this gives agents a great degree of freedom. We pretty much call our own shots. We make the ultimate decisions, and interference is little, with the exception of whatever rules the broker sets forth.
That’s the crux of the matter– it’s up to the brokers. The problem, however, is that while one would think that brokers would want to take the time to train and supervise their agents, that doesn’t always happen. The reason that doesn’t always happen, it seems to me, is because of the strange independent contractor relationship that exists between agent and broker.
The broker is only KINDA responsible for the agents. In the brief experience that I had working for a broker (at least, one to whom I was not related) was that there is often a, “well hey, you’re an independent contractor so. . . ” type of attitude that surfaced from time to time.
Along with this issue of independent contractor status is the method of compensation. Because most agents are compensated solely through the commissions that they earn, there is no relationship or responsibility established between agent and broker through compensation (like employee and employer). 100% commission arrangements just seem to exacerbate this problem. The agent just looks at the broker like “the thing I need to be able to work” and the broker looks at the agent like “another fee I can collect.”
The whole thing is a mess.
The other service professions to which agents like to compare themselves simply don’t have the issues that real estate has when it comes to compensation and employee status. At a law firm, the attorney is an employee of the firm. Same goes for accountants. Sure, some of them are incentivized based on performance, but they are earning a salary, and that compensation establishes a responsibility with both parties. The firm is making a significant investment in their employee, so they have a vested interest in his success. The employee is being compensated largely by the firm, so he has a vested interest in doing things right.
Then there is the issue of enforcement. Let’s say that Benn’s proposal could be adopted tomorrow. Who would adopt it, and how would they enforce it? For the sake of argument, let’s say it is made a licensing requirement. Take my fine Commonwealth of Virginia as an example: I can say with a pretty high degree of certainty that the VA Dept. of Professional and Occupational Regulattion wouldn’t adopt something like this simply because they wouldn’t want to spend resources on enforcement. Commercial brokers have been trying for a little while in VA to get a separate license for commercial real estate agents and brokers. Commercial brokers actually WANT more regulation when it comes to the profession. Guess what the state legislature has said so far. . . NO DICE– Can’t establish a considerable harm to the public from the current system, and it would cost too much.
When you want to improve your profession and the government tells you, “thanks, but, no thanks,” how are you going to get anything done?
It all comes back to those brokers and agents. The change is going to have to come from within. The change is going to have to come from *brokerages* that adopt Benn’s proposal, not from governments that adopt it. If associations try to do something like this, there will be very loud cries of anti-trust violations.
It is going to come down to the brokers. They are the only ones with the power to adopt such policies and really change the way that real estate is practiced. It is going to take brokers who are willing to commit to the idea of improving the profession through proper training and education. It is going to take brokers who are willing to turn away those who can’t or won’t do what is necessary to make the grade.
It won’t happen overnight, but the damage that has been done CAN be undone. It is going to take a major change in the philosophy of many brokers. Although, I am beginning to think that the market is about to take care of a lot of this on its own, thinning out at least some of the agents and brokers who are unwilling to commit to professional excellence and superior client and customer service.
Markets have a funny way of doing that. . .
Benn Rosales
May 6, 2008 at 9:59 pm
“Right to Practice” Very important words here Daniel. I’ll zero in on one point that you make several times here in order to demonstrate where I am going with this.
This is a moot point when Standards of Practice are in play because it is now a Licensing Requirement for year II. By allowing one year, this allows individuals who simply want the license for specific uses such as selling grandmas home or to do investments. A licensee simply doesn’t have to continue to the step of Standards of Practice, as he or she will simply always remain a licensee and nothing more.
By creating a separate standard to actually “Practice” you now supercede the licensing standard.
Best interest of the Broker:
The Broker takes up to 80% in some cases with newly recruited agents. This is one way a Broker can justify such an cost to the Agent. Brokers now have a new way of competing with one another as their standards of practice may be even better than anothers.
Best interest of the Agent:
As a new licensee we were all looking for just a sponsor to get our license- now we’re looking for more, we’re looking for the best. The agent will not own their first designation and can proudly wear it on their lapel (jk, or am I).
Best interest of the Consumer: (how I address how a Broker or designee could handle such a feat.)
The Agent is now forced to be upfront with the consumer by acknowledging his or her status as a new licensee. The consumer is now protected in that an established and experienced Representative of the Brokerage is overseeing their transaction. This would require a designee be present at any signing of any contract- but I see the Agent doing the leg work as instructed by his or her standards coach.
Simple accounting for Boards or Commissions
We simply fax in certificates of our certifications here that we get from our local or online colleges as well as classrooms to the board, they are Signed by the schools in question.
The same standard would apply here. A new document attached to the listing/sellers agreement is signed by the seller at disclosure that the Broker Representative is the lead on the transaction for said Agent, and title company to verify their side at closing by signing that same statement at disbursement. These are compiled at completion and submitted to the licensing office along with any other continuing education requirements at the end of year I.
Those that did not complete their sides would simply lose their sponsorship and need to reapply- using the curriculum standard, the inactive agent would simply document how many sides completed and the balance would be required by the new or even previous sponsoring broker if the Broker wishes to continue their relationship with the agent.
Now, this isn’t perfect but as you can see, just home from the gym I can see 1001 ways to simplify the process into a no brainer. Brokers would be fools to turn down an opportunity to shore up their flock and actually charge for it. Agents will be more successful having done it, not to mention more effective.
To address one last point
You mentioned the Broker can’t make you do anything- you’re right. Don’t show up, fail your continued ed, then you as an agent have not earned the Right to Practice, will lose your sponsorship if the Broker hasn’t cut you lose already for utter incompetence and failure to apply yourself. Now go try and find another Broker willing to allow you make the same mistake twice… What has the Broker lost? Nothing if the agent brought a transaction at any time during their first year, and even if the agent didn’t then the Broker never spent a single minute with the agent.
The big kicker in all of this? Who needs a real estate commission to create this standard- the local boards could do it in just this same fashion, and you know what? In the process of increasing standards of practice, they have now justified a fee for just such a designation.
This is a 360 degree win. Thinning the herd is a moot point as there will be another bubble again somewhere and we will repeat this very same failure.
Daniel, the Real Estate Zebra
May 6, 2008 at 10:07 pm
Ben,
Hmmmm . . . you bring up good points. I’m gonna have to chew on this one some more. . .
Bill Lublin
May 7, 2008 at 6:50 am
Benn:
I really need to spend some time answering this because I think you have some terrific points but today is a tough day for me. I will respond further later, but there is a really major point that is very misunderstood in the industry and that is the Independent Contractor status – it is a tax status providing safe harbor for people to be paid Gross Commissions without all of the myriad complications of employee status.
INDEPENDENT CONTRACTOR STAUS DOESN’T RELIEVE THE BROKER OF THE REPOSNSIBLITY TO ADEQUATELY SUPERVISE THE AGENTS WORKING FOR THE FIRM – NOR DOES IT ALLOW THE AGENT TO DO ANYTHIGN THEY WANT TO DO WITH THE BROKER’S APPROVAL! Sorry, I didn’t mean to shout. 🙂
But it is really an issue that addresses many of the issues you raise. However when the Agent thinks that they are “Independent” and the Broker doesn’t think they need to supervise the agents cosely , the problems are generated. Any agent that works for my firm that doesn’t COMPLETE COMPANY TRAINING, follow company policy, the Code of Ethics, the applicable laws, and the standards of practice in the firm is terminated – effectively we take away their “right to practice” (in PA you need to be employed by a Broker)- And yes, I know they can go down the street to be hired by someone else, but that becomes the other Broker’s Lawsuit waiting to happen.
The issues of training, recruitment, compensation, etc are all business based issues, which I would love to go into but my time is limited right now – I’ll try to get back later so I can more fully explain what I mean, but in the main, I agree with what I think is the main issue here – We need to improve the level of expertise in our business-
Glenn fm Naples
May 7, 2008 at 1:49 pm
Reading this after having a terrible morning as the result of an agent that could not properly write-up the offer and present it to the sellers which are my clients.
Should I mention that the agent has been licensed for 10 years?
Of late there seems to quite a few conversations regarding increasing the professionalism within the real estate profession.
Benn, I give you a lot of credit for writing this article and offering suggestions, however as an earlier commenter noted, the profession needs to change from within if states are not willing to implement the various statutes and rules.
IMHO – NAR needs to take the bull by the horns and implement some enhanced requirements to be a REALTOR.
12 years ago, when I started in the profession – my major concern was placing my license with a brokerage that had a good strong training program. Little did I know what I should have been looking for. Eventually, I placed my license with a franchise brokerage with about 20 agents. The broker even assigned a mentor to me – to assist me with training.
What I found – 1) the training program from the franchise was not being offered in the local area – so I traveled 130 miles to another location to attend the training. The training was really very good compared to the local brokerage office. 2) The mentor had about 12 to 18 months of experience which was not sufficient to be a mentor. The mentor did not understand the contracts and implications of some of the clauses. (I should mention that my parents were quasi real estate investors.)
Maybe the state tests need to be more complex and really test the applicant’s abilities to comprehend real estate laws, practice, and transactions.
Another thought would be for NAR to authorize or empower local boards to administer competency testing – you don’t pass the test – no membership.
As far as continuing education – the tests administered are a joke IMHO.
I know I am complaining and might not offering any solid solutions – but I did determine, that I can only change the profession from within and have become active on a few committees of the local board.
It seems we also say it is the broker’s responsibility – it seems like a cope out to me, because where is the accountability? Maybe the fact is – it is not the agent that we should be looking at and pointing the finger, but it just might be the broker. If the brokers were held to higher standards maybe they would hold their agents to a higher standard.
I feel better now. 🙂
Benn Rosales
May 7, 2008 at 3:22 pm
Glenn, I understand your frustration and have addressed much of what you said in my follow up comment to Daniel- you and I are on the same page. Have a read at your first opportunity and let me know what you think then.
Glenn fm Naples
May 7, 2008 at 5:19 pm
Benn, here are some thoughts and they might be somewhat tainted because I practice in Florida.
Sales associates:
1) The state of Florida requires taking and passing a pre-licensing state approved course of 63 hours.
2) Pass the state exam.
3) Prior to the first renewal of the real estate license, the agent must take and pass a 45 hour state approved post licensing course.
Brokers:
1) Have an active sales associates or real estate license for 12 months.
2) Take and pass a state approved broker’s pre-licensing course of 72 hours.
3) Pass the state exam.
4) Prior to the first renewal of the broker’s license, the broker must take and pass a 60 hour post-licensing course.
We are required to complete 14 hours of continuing education every 2 years.
There is some legislation awaiting the governor’s signature requiring a sales associate to have an active license for 2 years.
Maybe, we should look at requirements for other professions or trades, where individuals are required to complete an apprenticeship before receiving their license. This would prevent many real estate agents from entering the professional for the occassional or one-time real estate transaction. As Floyd Wickman says “real estate is the easiest profession to enter and the easiest to leave.”
Now we have to look at this – not all real estate agents are REALTORS, but all REALTORS are real estate agents. Does the public perceive real estate agent = REALTOR? And does the public perceive real estate agent = real estate broker? Or, real estate broker = REALTOR?
Place the responsibility of a standard of practice on the broker’s shoulders, should be occurring now, as well as previously. You are right that brokers look at the collection fees because it adds to their bottom line.
I don’t know about how things are today, but the big franchises preach – to improve your bottom line you need to hire agents. So there is a push at all levels to have as many licensees as possible to increase the bottom line. The basic philosophy needs to change, through better cost accounting practices – cost of an agent versus revenue being produced. If the losing real estate agents would be terminated, would brokers really look at their work history and not hire them? HMMM – seems like we have logical view – agents that bounce around – brokers hire them – if you were running a normal business and interviewed someone with a work history that showed short periods of employment would you (the plural you) hire them?
With stricter licensing requirements or standards of practice, how would revenues for states, NAR, state associations, and local boards be affected? Would they be willing accept the lower revenues for a better end product? Maybe, the fees should be increased now?
Jay Thompson
May 8, 2008 at 1:16 pm
Great discussion. I absolutely think the bar needs to be raised. I’m not sure if regulation is the way to do it. If I wait on the Arizona Dept of Real Estate to implement any of Benn’s fabulous suggestions, I’ll likely grow old and die before anything happens.
As a freshly minted broker running an independent brokerage, I have to shoulder the responsibility to control my tiny slice of the pie.
I’ve already turned away more agents than I’ve hired. And yes, *I* am hiring them. Sure, they are “independent contractors” and technically not my employees. But if they are going to work for Thompson’s Realty, then they are going to meet certain standards before coming on board.
I was interviewing an agent just a few days ago. He said, “Why do I feel like I’m on a job interview?” “I’m supposed to be interviewing YOU”, he tells me.
Well, that’s not how it works at this brokerage. You *ARE* on an interview, regardless of the fact that you’re an IC.
Incidentally, he was not “hired” by us. His response (along with all the others we didn’t bring on) was “Whatever, I can hang my license somewhere else within 15 minutes”.
Sadly, that is a true statement.
We don’t take brand new agents because I don’t have the time right now to give them the training and mentoring they require. We also do not take anyone just because they have a license and a pulse.
Will my hiring practices change the industry? Of course not. But they will change the real estate experience for our clients.
Glenn fm Naples
May 9, 2008 at 8:38 am
“Whatever, I can hang my license somewhere else within 15 minutes” Yes, this statement is a sad commentary, but it does verify exactly the thought process which is out there. Brokers such as yourself will change the thought process.
Maybe NAR needs to better educate the brokers, as well as, brokers changing their “hiring” standards. If brokers changed the interview process, agents’ thought processes would change as well.