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Is it time for more stringent regulation in the real estate industry?

This subject might not appeal to many real estate practitioners because none of us like regulations. However, with the barrage of misleading information out there, I wonder if our lawmakers are paying attention. After all, it was only in the recent past that we almost experience financial collapse. Were there co-conspirators from the real estate industry? Will we be on the radar screen in the foreseeable future?

As a consequence of the aforementioned crisis, the current administration is taking measures to reform the way business is done in the financial industry. Yes, they are re-writing the rules of the game. Considering the fact that we are intricately related to the financial industry, why would they not look at us? One only has to take a look at the latest foreclosure statistics to see that there are some serious problems that need to be addressed.

Besides that however, there are some very reputable Realtors who are addressing problems that exist in the real estate industry. Below, I have cited two very prolific bloggers, Lenn Harley of Rockville, Maryland and Ruthmarie Hicks from White Plains, New York. I have provided an excerpt from their blogs.

Lenn Harley, Real Estate Broker, Rockville, MD in her blog entitled, "LOOKING AT REAL ESTATE TEAMS AND TEAM SPECIALISTS," addressed the following questions: DO REAL ESTATE "TEAMS" EXHIBIT EXPERTISE. The concept of "teams" in real estate practices is popular and often compared to medical "groups". I see little to no resemblance and, in fact, assigning a title of specialty such as "Buyers Agent" to a member of a team is often misleading to the consumer."

Ruthmarie Hicks, Associate Broker, White Plains, NY in her blog entitled "This Brokerage Has 750 Listings.....So they must be the best! (Part 1)"

Here are some of the issues she brought up, "Does size really matter? Does the number of listings or the size of the brokerage have anything to do with the ability of the agent to market and sell a home successfully? Is it the brokerage or the agent that is the determining factor? What Does the Brokerage Bring to the Table?"

What is your opinion?

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Posted by C Lloyd McKenzie, MBA, e-PRO, CDPE on 11/01/2009 01:52 AM

Comments (51)

active rain, cdpe, distressed property expert, foreclosure specialists, realtors, shortsale specialists

This post has been included in New Mexico Information

51 Comments on Is it time for more stringent regulation in the real estate industry?

NOV

It is never time for more stringent regulation- especially for Real Estate. Our industry has a unique ability to police itself if we are allowed to do it. In my market, the Justice Department came in and made our multiple listing service stop doing criminal background checks on new members. They said it was an anti trust violation because it made it too hard for new competitors to get in the business. So let's work as hard as we can to keep politicians out of our business and let's eliminate any perceived shortcomings ourselves.

Thanks for the mention.

This post is a timely warning to real estate practitioners of the possibility of things dire to come.

I firmly believe that, once the federal government as constituted today, gets further into regulating and controling the financial entities in our country, they will naturally gravitate to the real estate industry like a child gravitates to desert at dinner time. Gobble through the main course and let's get to the desert.

Of course, the Congress and the Executive will get to us. Who will the "Real Estate Czar" be???

Isn't most RE law other than fair housing handled on a state level?

RE is subject to the same laws as other businesses and we have seen the FTC, DOJ leaning on NAR and state associations for infractions real or imagined for a number of years.

RE license law for the most part is up to states and IMHO should remain in the domain of the states.

I don't think government regulation on a national level is far off! Any message from REALTORS opposing this must be strong and carefully crafted. As with anything the government becomes involved in, it's going to cost money!

NO MATTER HOW MUCH REGULATION IS IMPOSED BY THE GOVT THERE WILL ALWAYS BE FRAUD AND BENDING OF THE RULES. I BELIEVE THE KEY TO SUCCESS IS FAIR COMPETITION, LICENSING, AND COMMON SENSE CAPITALISM.

WORKING AS A LOAN OFFICER FOR THE LARGEST BANK IN THE U.S. FROM 2001-2009 I RESIGNED IN AUG 2009 DUE TO OVER REGULATION.

IF AN APPRAISER DROPPED THE BALL OR MADE A MISTAKE ON AN APPRAISAL WE WOULD HAVE TO CONTACT A PERSON AND THEY WOULD HAVE TO CONTACT 4 OTHER PEOPLE TO FIX THE ISSUE, TAKING WEEKS TO RESOLVE!.

A SPORTS ANALOGY IS INSTANT REPLAY. IT WORKS GREAT IN CERTAIN CIRCUMSTANCES BUT IMAGINE INSTANT REPLAY AFTER EVERY CALL. THE GAME WOULD TAKE FOREVER AND THE PLAYERS WOULD LOSE THEIR CONFIDENCE. THE LOYAL FANS WOULD QUICKLY LOSE INTEREST.

THE GOVT DOES NOT HAVE ONE PERSON ON CAPITAL HILL THAT HAS WORKED FOR A SMALL TO MEDIUM SIZED BUSINESS AND THEY THING BIGGER IS BETTER. IF YOU ARE TOO BIG TO FAIL THEN YOU ARE JUST TOO BIG.

THE GOOD NEWS IS THAT LOCAL LENDERS ARE GETTING A REPUTATION FOR ANSWERING CALLS, EMAILS AND CLOSING DEALS IN 30 DAYS OR LESS. IT IS LIBERATING WORKING WITH CUSTOMERS WHERE OUR STAFF KNOWS THEIR NAME AND SITUATION AND THE LOAN IS SIMPLY NOT LOAN #58585059590505.

As a property manager, one of the MAIN reasons I do not respond to BBB complaints is that our business is ALREADY over-regulated so I do not want to INVITE yet ANOTHER entity into my business.

I have operated under 3 code of ethics * NAR, NARPM and IREM * NARPM code actually conflicts with my state law * and have state, federal and LOCAL laws that govern my business. I NOW have to call MissUtility BEFORE placing a sign in a yard of a property.

It should be HARDER to get a real estate SALES license (class time 60 hours in VA) and it should be HARDER to get a BROKER license (class time 160 hours in VA) and the length of time between sales and broker license should be LONGER (3 years in VA) * it should be 5 years and the courses need to be RE-WRITTEN to include 2.0 technology and business practices!!

If Congress will start an investigation in our industry. . is not going to be good news for all of us. . after all we have NAR to protect us and they still trying too figure out about short sales as we speak. . they haven't done a thing as thousands and thousands of homeowners have foreclosures because of their inaction.

We are doomed!

Regulation is coming to all aspects of the housing industry. The good news for real estate agents is that NAR is strong and respected and it is likely that the recovery will lessen the need for regulation.
Also, with health care and the coming debate over non bank financial institutes - it is likely that momentum will run out before real estate agents are targeted.

I do wish they would focus more on expanding the now shrinking pool of qualified buyers. Minorities have been especially hit hard by tightening regulations. I'm sure unintended.

Since our Federal Government is already so big, I sometimes become overwhelmed by thinking about the things they are trying to accomplish on a national level. Its just too big already for my wittle pea brain.

But, I can think in terms of local government. And here's my analogy:

Federal Government regulating business that they've never been in is rather like the local school board regulating the schools. Many, if not most, school board members have never been in a classroom and have no idea what damage their micromanagement of classrooms is causing. Similarly the State Board of Education passing curriculum requirements while having never been in a classroom, is equally absurd and damaging.

Same with the Federal Government. I say slow down and work on fixing the messes they've already caused.

I don't see how any real estate agents could have caused this mess. They for the most part are just selling a property for the most the market will bear. If anything other than that is happening there has to be more professions involved such as title companies, appraisors, etc.

As far as the sayings from other blogs, I don't see whay there is a problem with saying someone is a buyers agent or listing agent, actually it can be better than claiming to be the so called expert in every possible field that comes up in our industry.

higher licensing standards and actual experience versus CE. If you have been licensed for 3 years and sold 1 house you don't need a license, plain and simple.

The industry should be self policing but it isn't. There are so many aspects of listing, showing and selling that no one can be perfect 100% of the time. Agents are reluctant to report other agents for violations because they can expect swift retribution.

I think that brokers should play a much greater role in regulating the industry and I question whether brokers should be involved in actively listing and selling or, rather, should be managers of the agency and agents that they have responsibility for. If brokers set the standards for agent conduct and competency, I believe that alot of poor and marginally-competent agents will, in fact, be weeded out.

C Lloyd,

Thanks for posting this. Unfortunately, we will bring further regulation upon ourselves.

Until we have meaningful CE and internal enforcement, we will be absolutely ripe for further regulation.

Additionally, further intrusion into all personal realms was the cornerstone of this administration's electoral campaign, and the electorate spoke clearly in their desire for that intrusion.

I would like to see a Licenses that covers all states and do away with Salesman license altogether. Brokers have too much liability. You don't see one lawyer or doctor will all the liability and you shouldn't here either.

Instead of more regulation, I would really like to see total transparency to remove the hype, spin, exaggerations, puffery, false claims, misleading self-promotion and the like so consumers can truly determine what it takes to be competently represented. This would not be an easy task, but look at the gulf between a good listing agent and a seller on what it really takes to sell a home as a concrete example.

I agree with Chris - we have the laws in place. In my area at least ... little more than a hand slap happens to an agent that violates. The DRE needs to step up and begin to take action sufficient to cause Agents to "fear" ... yes I did say fear the consequences of wrong doing. Presently there is little or no consequence to wrong doing (in my area) and agents know it. We need a higher standard to be held to. We need more agents willing to report agents who are not fulfilling their duties.

I absolutely believe that we already have adequate laws on the books. What is lacking is enforcement. Exhibit A is the story of Michael Ashley of Lend America. Click here to year the story of the Michael Ashley and Lend America. He was permitted a 20 year career depsite admitting fraud, price gouging and illegal tactics.

We have more than enough regulation in the real estate industry. If you open the door to more regulation what you will eventually have is, for starters, a federal cap on commissions. Don't think it can happen? Have a discussion with the CEO of Bank or America.

One thing we must all keep in mind is this - politicians have rarely ever run businesses. They are usually lawyers or folk who had a choice between being a televangelist, game show host or elected official. The less they are involved with our lives the better.

I agree with Paul Warkow -- what we lack is enforcement. Many of the regulations that we have in place would clean up a ton of infractions that real estate agent and brokers make, if there was the proper agency to enforce them.

Many times what I observe is that we get agents to tattle on each other and we should not be going down that road.

Every point you bring up in your blog makes sense . None of it should be regulated. We currently have advertising and truth in llending laws and that really should be enough.

We already have plenty of laws on the books for scams and frauds. The government just ends up doing little to no enforcement of these laws until after the fact. Instead of creating yet another layer of laws, why not enforce the ones already on the book. Last I heard, stealing and fraud has been illegal for decades.

Type in "real estate fraud blog" into Google and see what appears.

This is exactly why I ran for Secretary of my local Association this year. Wake up people! If you don't like what's going on, then get involved. The biggest problem today with what's going on is too many people criticize from afar or are much too willing to dish out an opinion, but when it really matters, too few step up and take up arms. Get involved and protect your livelihoods. Donate to your local PSF as if it were a local business license. These people lobby to protect your livelihood every day and it's times like these that you need to donate now more than ever.

Lloyd,

You raise some good points. I see the problem more based on lack of enforcement than a need for more rules. The rules are already there in place.

In most situations, issues and problems arise because enforcement is quite "lax". Certainly, that seems to be the case in Ontario.

Brian

i think that a real estate team would only be as strong as its weakest link and the size of a real estate company does not guarantee that the agents are good.

Really not a fan of more regulation in any area. That being said, I also realize that our nation has a long history of creating new laws, rules and regulations rather than enforcing anything that already exists. If we spent more time making sure things were being done as they should, we would spend less time trying to fix things with new rules.

Lots to think about here, Lenns' post sent me here. Not in favor of more regulations in the RE industry.

Just enforce the ones there....and make it harder to get licensed than 40 hours and 250.00.

The entry is so easy.

@ Mike J: I don't believe the electorate voted for intrusion. A majority of those that voted were a backlash against Bush. They weren't looking at all the baggage that came with their choice. "Yes, We Can" has taken on a whole other meaning when it comes to government intrusion in private business affairs.

I think many who voted for O are regretting the choice. Not that McCain would have been any better. I voted, but not for either of them.

In this case, the perception was the Titanic was sinking. "We have to do SOMETHING" . OK, there's a plan to level the ship. We'll punch holes in the stern and let more water in, but the ship will be level.

And the majority of those that voted said "OK".

I agree with Missy. We already have enough regulations. We just need to have better enforcement of them.

No to yet more regulations - and certainly not be central government. Each state regulates their laws and it needs to stay that way. Enforcement on the other hand - with cutting staff and budgets it almost impossible to enforce the rules. So many things are overlooked these days.

Size of company of number of listings doesn't mean squat. It's the professinal agent that gets the job done.

I'm with Missy and Nancy regarding enforcement. Here's a strange proposal for education. Pop quizzes.

First, keep entry to the profession and continuing education as they are now with no college degree needed. Then require agents and brokers register online or by mail to recieve continuing education updates. These would consist of information on a current topic with 10 or 15 questions to answer. The updates should be current, extremely relevant, and the test would be open book. The whole process should only take 15 or 20 minutes. There should also be an ample amount of time to respond and at least one warning before a license suspension is imposed.

The occurance of these updates should be both irregular and infrequent and they should only be issued when there's a real need. There's an obvious potential for abuse here, but intelligently applied something like this might go a long way towards keeping all of us more current on important issues as they arise and stimulate timely and relevant discussions in the community.

Hi Lloyd~ We just need the rules we have to be enforced! New regulations would not really be needed.

GOod post today, makes sense.

Patricia/Seacoast NH

Hi Lloyd, Certainly there were enough bad agents who found ways to scam people during the last 3-4 years that the Feds might want to take a close look at us. The bad guys are better at scamming us than we are at protecting ourselves from them !

Wow! I am not sure how to approach this. I was not expecting this level of response to my post. Let me thank each and everyone of you for your comments. Let me also say that I am indebted to Lenn Harley and Ruthmarie Hicks whose blogs I cited to make this one possible.

Regards,

C. Lloyd McKenzie

www.LloydMcKenzie.com

Good post and information.

AS a 1099ed individual I would hate to see big government throw any more wrenches into our real estate life !!!

Being relatively new to this industry (just under 3 years), I am still amazed at how much of it seems to already be regulated! I also wonder how there was so much fraudulent lending as to cause the downfall of the housing market BECAUSE it seems like Big Brother was already watching. Needless to say, with the current troubled housing market, I think there will be further regulating to come. Which is also the reason that I will most likely never want to have my own brokerage. I own another small business which has NEVER had the kind of hands on regulating that the RE industry has. And I am very grateful about that!

The People voted for change and the People received a BIG Government in return. There's some change for you. The writing is on the wall for reform. We will all be waiting with bated breath to see what reform will come. I am hoping the reform and regulation will remain with the individual states.

How about this... Do away with licensing. And then get the NAR or other trade organization to grade the members... You don't need a license to work on a car, but screw up a brake job and people can die. The trade group (NASE) requires tremendous amounts of testing and CE. You can't get a Brake Cert. until you have shown that you deserve it... Or Tune-Up... or anything else.

If you think a broker has a lot of liability, look at a service center. But they seem to do it without onerous regulations...

Just sayin.

Good and well told information. Thanks! I appreciate it very much. Great stuff.

Good and well told information. Thanks! I aprpecaite it very much. Great stuff.

That's what Aaron Vaughn says on all his commenets. He's SO BORING!!

Real estate is local, and local it needs to stay. That said, whatever changes and overalls that are given, I really think it would be better served to be enacted by NAR, and not Uncle Sam.

I expect there will be more regulation coming. Big government can't seem to help but create more regulations and more bureaucracy.

NOV

The Writing is On the Wall...

Barney wants the Federal Government in the Housing Business

"But Frank tells Weisberg that he isn’t planning to leave Congress in the near-term. “I want at least two years with President Obama and a solidly Democratic Senate so that we can get the federal government back in the housing business,” he says."

C. Lloyd,

Both writers that you have quoted bring up some good points as do you. I have thought for some time now that we need to have better CE, ie. broker related topics for brokers or those that are thinking about becoming a broker. But we do need to do a better job of policing ourselves if we want to have big brother stay out of our business..

Just keep raising the entry level, and increasing the fees would help this proble. Unfortunately large organizations like NAR don't see this as a good idea. Physician heal thyself.

I might be missing something here, but I'm confused as to what the blogs about whether a team is a valid business structure or discussions about the size of a big real estate company has to do with regulation?

Lloyd,

In the first place, real estate is local. In the second place, real estate salespeople are licensed by their respective states. Therefore, the federal government has no role. :)

Steve

LLoyd, I think a large part of the blame for the financial crisis was BECAUSE of government intervention and the last thing we need in any industry is more government intervention. It seems every time government gets involved in trying to fix something they screw it up even more...HVCC would be a perfect example. That said, I think it would be a good idea if the industry did a better job of policing itself in regard to ethical and educational standards.

Any changes brought on by the government will probably make a sick market even worse. The problems we have are not caused by realtors, they are caused by lending money to people who can't make the payments. I don't know how regulating realtors can help that, except to find another opportunity tax for the Obama team.

Wealth redistribution as he says. Don't we all feel wealthy?

NOV

The overwhelming majority of respondents to this post are opposed to more government intervention. I agree with that point of view also. But let's face it, there are problems in the real estate industry. This blog merely suggests the possibility of government intervention. It is a subject that all of us should be talking about. To take it one step further, we should be brainstorming ideas of how we are going to address problems that exist in our industry. If we do not, the government might just step in and fix them. Far fetched? Look at the financial industry.

Here is Chris Olsen's idea, "total transparency to remove the hype, spin, exaggerations, puffery, false claims, misleading self-promotion and the like so consumers can truly determine what it takes to be competently represented."

Sorry Linda, it wasn't meant to confuse anyone. Actually, "discussions about the size of a big real estate company has to do with regulation?" was not the subject of the blog. The two excerpts were merely used to support the premise. There is a lot of chatter, that might have already caught the attention of lawmakers.

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