I often chuckle at the comments and statements made here and across the internet calling for national licensing of originators and higher standards for real estate licensees. The arguments always have these three themes:
1- Consumer Protection: Are you kidding me? I have yet seen a state licensing board that seriously polices its licensees. State licensing boards allegedly screen applicants for "moral character". All they do is prohibit people with a felony from entering the business. I wonder if denying a gal who dated the wrong guy 20 years ago from making a living is fair. After all, she did "pay her debt to society".
Licensing boards do so little to monitor the behavior of their licensees post facto. In fact, I've seen the broker cabal "outlaw" an agent who was successful in client advocacy but hopped shops. The three brokers for whom he'd worked conspired to drum him out of the business because he had "burned them" and went to work for an upstart brokerage in town.
Occupational licensing "for" consumer protection is about neither. It's about protecting the status of the industry participants and collecting money for the State.
2- Competency: Do you really think that because you have a license you are competent? Competency comes from practice. I can recount many misdeeds from NASD licensees that weren't malicious but stemmed from incompetency. Most consumers who have bought one or two homes know more that 90% of the loan originators and 60% of the Realtors.
The occupational licensing supporters would do well to disband the agent and originator licenses and require all practitioners to be paid a salary to work for a licensee for two years as an apprentice. This would make real estate brokers and mortgage brokers think twice before "body-shopping" the way we have for the past 5-10 years. People who actually wanted to deal with a consumer would be required to pass a real estate broker's licensing test or a mortgage broker's licensing test.
3- Consumer Confidence: The occupational licensing supporters suggest that national licensing of originators and increased standards for real estate agents will inspire consumer confidence. Hog wash! The consumers don't think a real estate license or mortgage broker's license amounts to much because they already know most of what you know. The see you as a functionary not a fiduciary. They see you as a barrier to the money or the house and not a trusted advisor.
The only way to inspire consumer confidence is through reputation in the marketplace and reputation alone. No piece of paper with a state number on it is going to achieve what reputation does.
Why do I care about this? I'm already in the club and I have no doubt that my daughter will be in the club when she's ready. I care about it because deep down in most licensees' hearts, you want this to happen so you can create a smaller turnstile for the consumer to pass through. You know that if you increase the barriers to entry, you can charge an enormous amount of money for the right to cross through your turnstile for merely acting as a functionary.
Some of you may argue that licensing weeds out the bad apples; it doesn't. The bad apples always find a way to hide behind the implied respectability of the license. Others may argue that the last five years has produced an enormous amount of fraudulent activity, unsuitable lending practices, poor buyer's representation, etc. They'll point to the unregulated growth of our industries as the problem.
Nothing could be farther from the truth. Real estate went through a paradigm shift about six years ago, Half of us in the business before 2001 were antiquated and ill-prepared for the changes this new paradigm brought. The other half are figuring it out and will actually make a living providing good counsel for years to come.
The ones who are screaming for increased standards are still operating in an economic model designed by Franklin Delano Roosevelt. They're dinosaurs who attempt to hang on to their old ways by letting less of those in the know into the club. That's feudalism and the Peter Principle at it's worst.
It's just plain wrong.
Depression Economics
"watching a basketball pass through a python". Everything the Boomers touch goes up in price. Look at all of the elementary schools built in the 50s and 60s. The cost of a college education skyrocketed from 1975-1995 because of their impact. Housing rose during the 80s as they bought their nests, stocks in the 90s as they invested their 401-k accounts, and real estate in the first half of this decade as they purchased their vacation/retirement homes. Health care has steadily increased in costs during the past 15 years as the Boomers have aged and acquired aches and pains.
Brian Brady, America's most opinionated mortgage broker, takes the top spot this week. Brian is moonlighting as guest author at