Is Real Estate Ready For Term Licensing

Peter G. Miller
OurBroker®

More than two million people now have realty licenses, a number which raises a question: Does the marketplace really benefit from so many licensees?

The debate here is more complex than it may seem. As a society we want minimal entry barriers so that the business of real estate is open to all and also to assure that consumers have a broad range of choices. Thus we do not require a college degree to obtain a basic sales license, nor do we require an apprenticeship of several years.

Alternatively, we want to assure high levels of professionalism so that the public is well served. The best way to accomplish this goal, it's usually agreed, is to require extensive training and preparation.

Is there is a fair and principled way to reduce our licensee population and yet still have a profession which welcomes newcomers?

We could, for example, require a year or two of college-level courses to obtain a sales license. Such an approach limits licensure opportunities to those who can afford college and are able to pass standardized tests, but perhaps excludes those who have the best ability to serve consumers.

Or, we might establish a time commitment standard, say a requirement to work at least 40 hours a week on realty matters. This approach punishes the efficient, eliminates part-timers, and makes career changes needlessly difficult.

A better approach, I suspect, works like this: term licensing.

In the usual case, states have two levels of licensure. You can get a sales license by taking approved classes, passing a state-mandated test, and working under the authority of a broker. In effect, a sales license creates a right to work in real estate, but establishes no right to contract directly with the public. Thus, when a salesperson lists a property, the listing is actually between the owner and a broker. Because a salesperson cannot contract directly with a member of the public, a salesperson has no right to collect a fee from a buyer or seller. All fees must be paid to brokers.

To obtain a broker's license, one is generally required to take more extensive training and also to have several years of experience as a salesperson. With a broker's license, one can contract directly with the public, collect fees, sue if a fee is not paid, have salespeople under your authority, and have other brokers working through your license as associate brokers.

The catch is that you can be a salesperson forever. Yes, there are continuing education requirements, but there is no obligation to take the additional classes necessary to become a broker.

According to the Digest of License Laws from the Association of Real Estate License Law Officials (ARELLO) -- a guide that should be in every realty office -- the latest count shows somewhat more than 700,000 real estate brokers in the U.S., Canada, and U.S. territories. In addition, there are nearly 1.5 million individuals with sale licenses.

Because they lack time in the business, not all of those with sales licenses today could immediately convert to broker status even if they instantly took all required coursework. That said, there are huge armies of salespeople who have held licenses for many years and have not become brokers. And while education is not the only measure of competency, could it possibly hurt to have more training, invest more in one's profession, or encounter ideas and concepts at a higher level?

With term licensing it would be possible to obtain a sales license on the same basis as it is now available -- and that means the industry would remain open to virtually-all comers.

However, with term licensing it would no longer be possible to perpetually retain a sales license. License holders within a given time, say three to five years, would have to move up to a broker's license or leave the field.

Under term licensing open opportunities would continue for those who wish to enter the real estate. But there would also a gradual reduction in the raw number of licensees and higher professional standards. Individuals could continue to hold a license but remain inactive, providing they upgraded their skills so that if they did become active they would be better prepared to serve consumers.

For its part, the public would find more individuals with better training to handle its increasingly-complex realty needs. And brokers would benefit from greater prestige and fewer debates regarding the value of their services.

The Common-Sense Mortgage

The latest edition of The Common-Sense Mortgage -- in its second printing since September -- is now available in bookstores online and off. In print for nearly 15 years and widely recognized as the standard consumer guide to real estate financing, it's described by syndicated columnist Robert Bruss as "an encyclopedic, detailed summary of just about everything real-estate investors, agents, lenders and borrowers want and need to know about mortgages."

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"This continues to be the most, lucid, comprehensive treatment of the subject on the market," says The Real Estate Professional. "If you want solid, reliable information about residential real estate financing, written in a thoughtful, convincing style, this is your source."

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Question Of The Week

Q We are interested in buying a new home. The property will be financed by a lender affiliated with the builder. Two clauses bother us: First, we must agree not to sell or rent the home for a year. Second, we must agree that the boundaries for the property can be re-drawn. Should we be concerned?

A The builder likely wants the occupancy obligation because the loans is being created for owner-occupants, financing that represents less risk to lenders than loans for investors. The presumption is that a one-year period is reasonable evidence of your intent to buy the property as a prime residence and not as a rental unit. One question, though, is what happens if you need to move because of a job change?

When you buy a single-family detached house the lender typically requires a survey to determine the quantity of land purchased, the location of the property, and whether or not there are any encroachments. If the property lines can be changed, then the property itself -- the lender's underlying security -- has also changed. Such changes may require a release from the lender because without a release the lender may opt to call the loan.

If the builder retains a right to change the property lines, how long does this right continue? How much change is allowed? What compensation do you receive? Etc.

Before going further, please speak with other lenders to assure you are getting the best rates and terms. Also, speak with a knowledgeable real estate attorney before signing anything.

Weekly Resource

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Published: February 15, 2000

Use of this article without permission is a violation of federal copyright laws.

Editor's Note: This article reflects the opinions of Peter G. Miller only and not necessarily the views of this or any other publication, organization or Website owner.

Peter G. Miller, also known as OurBroker®, is the author of six real estate books -- including The Common-Sense Mortgage -- and is the original creator and host of America Online's Real Estate Center. Peter's weekly columns appear in more than 100 newspapers nationwide, he is also published in a variety of other media outlets and he is a frequent speaker at national events and conventions. Peter welcomes your questions, comments, and news releases via e-mail at .