Raising the Bar

Since Real Estate Sales is a unique beast and over the years has gotten more and more complicated and litigious, I thought it would be interesting to follow up on Robert’s post about the education needed to become a real estate agent. There are so many fields of knowledge that are needed to practice adequately, and requirements to get a license don’t even skim the surface. I’ve never understood why the standards for entering this profession are so low given the magnitude of the effect an agent’s knowledge has on a customer.

Every real estate contract I’ve ever written has had potential to blow up into a legal battle. None have so far, but that’s probably because my errors mostly went unnoticed, were negotiated away or didn’t do any financial damage. Agents can get in trouble when first opening their mouths to talk to a client about buying or selling real estate and I know that the average agent doesn’t even know what he or she doesn’t know. Despite the many years as I’ve been in the business, I learn something scary on nearly every deal.

When I wrote my first contracts in 1978, I didn’t even know what title insurance was and yet I was HANDWRITING a title insurance contingency (I had language that I copied). Things have changed, the contracts are now boilerplate, but most agents still don’t understand that boilerplate well. Experienced agents understand a whole lot more than the newbies since most of us learned it by doing it wrong at one time or another.

For instance, my buyers were under contract on a vacant house last year and I brought in a heating contractor to get a bid for replacing the furnace. Oh oh, the CO level was at 92%, according to the technician and guess what, he had to decommission the furnace (a state law, apparently) in the middle of a very cold January. The seller was livid, my broker was stumped, the other broker was stumped, but we negotiated our way out of it. The seller (an attorney by the way) paid for the furnace and my buyers refunded him at closing since they wanted to install a new furnace anyway. I got lucky.

That’s just one of hundreds of stories. The scope of a real estate transactions is so broad, that experience in construction, architecture, inspections, repairs, real estate contract law, title and escrow issues, Fair Housing, underground storage tanks, septic systems, well water, lead paint, mold, radon, multi-cultures, finance, accounting, a working knowledge of condominium law and association lawsuits, and all the lawsuits relating to OSB siding, Cadet heaters, etc etc almost seems to mandatory..

Before you think I’m being dramatic here, these issues all come up during a normal realtors practice on one level or another. If an agent isn’t scared of saying or doing the wrong thing, then they’re not aware enough of what can go wrong. Since attorneys aren’t in the showing and listing business, it’s not practical to have one tag along with the agent all day to make sure that every written and spoken word is legally correct.

The only cure for at least raising the odds of being competent is to require a higher level of education. To sell real estate, I don’t think you need English grammer (would be nice) or calculus or History of the World, but you do need to know how to compute fractions, percentages, and know how to qualify a buyer for a home or at least understand how the lender does it. You need to understand the accounting basics of the normal transaction, some basic understanding of 1031 exchanges and for sure, understand all of the multiple forms, what they mean and how to fill them out legally. We’re supposed to say “I’m not an accountant (attorney, etc) and I can’t give you advice in that matter

12 thoughts on “Raising the Bar

  1. Rather than try and restrict licensing state-by-state, why not just raise the standards for membership in the National Association of Realtors (NAR)?

    Right now, the term Realtor is a marketing cliche, it has no teeth. NAR has spent millions marketing the Realtor label; wouldn’t it be nice if it meant something? Essentially any idiot who can get a license and pays his couple hundred bucks can call himself a Realtor.

    How about this: in order to join or renew membership in NAR, you need to demonstrate that you have successfully closed 10 transactions in the last 3 years. If you aren’t doing at least 3 deals a year, something’s wrong. Heck, as long as we’re at it, why not have multiple levels: Realtor, Realtor Silver, and Realtor Gold? Let the consumer decide: are they willing to pay for expertise and experience, or do they want the cheapest neophite agent they can find?

    Legislation isn’t the answer. If we’re serious about increasing competency in the industry, we can do it ourselves. NAR just needs to decide if it wants quantity or quality.

  2. Other than the problem with so many non-Realtors still being out there practicing and screwing up deals, that’s a great idea. Hmm where do we start. It sure would give the consumer a way to decide what to do and if they chose not to use a Realtor Gold, then, client beware!

  3. I did choose to “apprentice” with a top agent back when I started. I agree with you there, but it was my choice. I also paid a 25 year top Broker $25,000 to teach me how to value view property about 6 years ago. But I don’t think you can “require” that kind of dedication from everyone, can you?

    Should I mention here that I am not currently a Realtor? Should we also mention that a lot of Realtor’s are not allowed to discount their fees below a company policy level here in our market? Should we mention that the COE removed the word being “fair” to all parties a few years back? Not picking on Realtors, but let’s not wave the brush of “non-Realtors” as if somehow I changed after 14 years of being a Realtor. Especially with the DOJ suit going on and some of us siding with the consumer on that one and some other issues.

  4. I think that to most consumers,a Realtor is an agent and agent is a Realtor. There is no difference.

    Ardell, I like your style.

    PS. I’m thinking of getting my license. I know, you’re all rolling your eyes and thinking oh sheesh, another agent entering the market, while you are running to the fridge to get the nearest tomato to throw at me…..just kidding. 🙂

  5. Hey, I think “Legacy” is a great name for an agent LOL. What IS your name? Since we can’t see it at the top, how about putting it at the bottom? Are you going to be a boy agent or a girl agent? Would be great to see you blog on the experience of becoming an agent from start to finish. That could be an eye opener. And we could tutor you onblog!

  6. Ardell, that’s exactly my point. Precisely because there are many Realtors of questionable competency, the label means almost nothing. I don’t blame you for not joining the club, what’s the point?

    If the Realtor label signified achievement (and prospective clients knew it), that might be a reason to join.

    I certainly did not mean to tarnish all non-Realtors at all. Quite the opposite. Often, the more experienced an agent is, the less likely they are to be a NAR member. I think that bodes poorly for the future of the “Realtor” brand. Since I am a NAR member, I care about that brand.

    Legacy, I see a reality TV show in your future: “The Apprentice: Real Estate Edition”. 12 people train for their real estate license, and the chance to list Donald Trump’s house. 🙂

  7. Well Brian, can’t say I didin’t “join” the Realtor Association. I was a member for over 14 years. It’s just getting too old school. Holding the line on commissions, and ostracizing anyone who doesn’t. Pretending buyers are important and then telling them only sellers count when it comes to negotating fees. That’s just not the future. Of course they want buyers, but they want them to sign a contract and be “good little buyers” LOL.

    As to raising the bar, the ONLY thing that will raise the bar, is the consumer demanding higher quality. Would you not remove your child from a class with an incompetent teacher? Don’t you deserve at least as much regarding your most valuable asset as you would demand for your children. Why do people put up with that? It’s not like there aren’t enough to pick from.

  8. Ardell:
    Don’t you think it’s more the Big Agent factories that are so agent centric? It’s the companies policies that push the commission to stay at traditional levels. They even go so far as needing broker permission to discount a commission. Class after class, meeting after meeting were lectures and training on keeping the commissions as high as possible. Now, they’re teaching the Colorado style of 7%. I left the biggies, simply because there was no emphasis on the clients rights, companies were too agent oriented, from commissions to legal positions and in fact I left the day I was told I could not help my client solve a problem after closing,Isn’t that a hoot.
    I think of NAR more as an education and lobbying entity. The problems I see are with the brokerages policies.

  9. There is one really big reason why everyone is talking about “raising the bar”. It’s because the entire system of educating and training new agents has vanished, and I don’t think anyone can do anything to change that fact.

    Experienced and successful agents work from home!

    That is the single most important factor that has changed. Real Estate Commissions haven’t changed what they do, nor have many of the training programs changed. The fact is, most of us who are good, are good because we learned from the best. We watched and studied and “copied” the best agents in our offices. We sought their advices and we did Open Houses for them in exchange.

    I started in a buyer’s market and the agents taught me how to sell a house for a seller when only 3 of 10 were going to sell at all. I can’t say that I learned buyer agency that way, because I was already a top agent when buyer agency came about. I probably taught that to new agents more than I learned it from old ones. In fact, I’m still trying to teach it to some old ones 🙂

    As to companies and commission policies, I can’t say I was taught any differently. I just always did what my personal ethics and business sense told me to do, and though I guess that was against policy…no one stopped me. I was taught that I needed broker permission to discount. Did I ever ask the Broker? No. I always figured worst case was the discount came entirely from my portion, so that was nobody’s business but mine and the laws that govern such thing.

  10. The low barriers to entry in real estate can also be a competitive advantage. As my former managing broker used to say, the mom and pops in this business means real estate is filled with low hanging fruit.

    Sometimes the contrast between the high bar and low bar is painful.

    Yesterday I called a list of attorneys to get a legal opinion on gas/lease issues with a particular contract. The leases date from the 1970s, the house is in a development (but backs old railroad property), and the likelihood of somebody putting an oil pump on the property *seems* pretty low. CYA protocol means recommending to my clients that they get a legal opinion, which by the way, runs roughly $250 to $350/hour with a retainer. If they can find somebody (2 of 3 attorneys I called are not taking new clients).

    Given the lack of liquidity between the two deals involved (the buy contingent on the sale of existing property) I ended up doing some research of my own to help my clients, naturally cross stamped with disclaimers of it “not being legal advice.” My clients now have a little more peace of mind (and I have a new blog post).

    Meanwhile, I’ve got another contract stuck in the mud because the part-time listing agent (with another “real job,” she says) has repeatedly sabotaged her client and bungled the process with incompetence (including giving the appraiser our list of inspection items.) The equally low performing underwriter meanwhile is backing away from their (verbal, I now learn) loan commitment and tearing apart the file today.

    It’s now 11:45AM . Because of the errors/incompetence of the underwriter and the listing agent (i’m innocent, naturally) we still don’t know whether we’re closing at 4pm.

    What can I say? Clowns to the left of me, jokers to the right.. here I am.

    p.s. I’m in Colorado serving the Boulder/Denver area. The majority of BA/TA commissions are 2.8%, the listing commissions are generally 3%. It must be other parts of CO where 7% is the norm.

  11. Pingback: Central VA real estate news, trends and opinions - Tracking the Charlottesville and Central VA real estate market and more » Morning reading 03-24-2006

  12. It’s all politics and DUES. NAR telegraphs its focus when it runs ads touting over a million members. I doubt that we’ll find a lot of support within NAR for any, though much-needed, increase in education/training to get licensed. Cutting the membership obviously lowers the income as well as the political clout.

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