How Real Estate Licensing Should Be

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I’ve made no secret of my opinion that current real estate licensing is a catastrophy and that it is ruining the industry and hurting the public. I’ve written about fixing it before, but here’s my solution to the problem (and it doesn’t call for eliminating all requirements and making things worse.)

The purpose of requiring a license to do something usually begins with the noble idea of protection. Protecting people from being hurt from others doing a job they are unable to do well (or something like that). There is also some accountability that comes from licensing. It requires a license to cut and color hair (for profit), give a massage (for profit) or represnt people in court (for profit). Without these licenses the public would even more full of people with screwed up hair, having their back messed up during a massage and losing the lawsuits against those who did it to them.

Licensing can be a good thing. If my roof needs to be replaced I want a licensed roofer replacing it so I know they know what they are doing. If I hire an attorney I want to know they went to law school and passed the bar and are licensed to represent me. Does this mean that everyone who has a license does a good job? No, of course not… but here’s the thing;

Having a license should mean that you know more about that subject than most people do. And most new agents don’t have a clue how to perform the task of representing people in buying and selling property. Often they have never owned a home and haven’t even gone through the process of buying or selling a home for themselves. They have no training about what to expect or how to use leverage in negotiations for their clients. They don’t know much at all about the actual practice of being a Realtor.

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So here is how to fix the problem…

Begin by replacing the real estate license with a degree in Real Estate Practice. This would be a two-year degree which would include five seperate areas of study-

 

History and Framework of Real Estate– this would include the history of how real estate began being transferred, how it is currently transferred, the make-up of the Division of Real Estate and how laws are passed and directors are seated, etc.

Real Estate Law– education regarding law and the practice of real estate contracts. Learning the contracts, HUD and closing documents, title reports, mortgage laws and types of loans. Learning case study, zoning and building issues, community development, attending city counsel meetings, city planning, etc.

Practice– learning the ins and outs of real estate development, how to figure cap-rates, how real estate cycles effect appreciation, floorplans, new trends in home design, how to work with different types of buyers and sellers, what to expect in different situations and how to deal with them. How to market properties, home inspections, appraisals, home warranties, geological issues such as septic tanks, private wells, earthquake and flood issues, etc.

Agency– learning what it really means to represent someone, including scenarios and implications of different types of agency. Learning how to educate clients, negotiate for them, and assist them through the enitire process of transferring real estate.

Apprenticeship– working with local, experienced agents and brokers in their day-to-day business. Learning by application and witnessing the process first-hand. Like getting a learners-permit to drive a car- having someone there to help you learn the process and then do the process with their guidance. They would also attend closings, inspections, title searches and escrow proceedures.

There should be separate requirements (or different course classes) specifically for commercial real estate and property management. These should be treated seperately and not lumped-in with residential real estate. And all licensees should be required to be Realtors and adhere to the code of ethics.

After going through the required two-year course the person would earn a degree in Real Estate Practice and be licensed to sell.

Think about working with an agent who holds this degree. They would have more knowledge than most (including most current agents), they would have actual practice in the business and would have learned about and seen what to expect during the transaction and they would have actually gone through a certain number of deals.

If being a licensed Realtor were treated with magnitude it deserves there would be a different level of professionalism in the industry and the consumer would be much better protected. Would there be fewer Realtors- who knows?

But I am convinced that there would be better ones.

Real Estate Licensing Makes a Mockery of the Industry

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Would you like a life of luxury? Driving around in your new BMW looking at expensive homes and having all the free time and money you could ever want? Just get a real estate license and you’ll be living the high-life making way too much for doing way too little.

That’s the promise and dream of many who get into the real estate industry.

And that’s what many are told by attending “career nights” that are held all over the country by brokers wanting to hire new agents and schools that want the tuitions. And the state’s don’t mind because they make tens of thousands of dollars every month from real estate licensing fees. 

The barrier to entry is so low that most people jump into real estate thiking they’ll just give it a try, and why not- it only takes a month of schooling and a few hundred bucks to get the license. They don’t know the whole truth about a career in the business, and it’s so easy to get in that they figure it’s worth a shot. They’ll try it part-time until they can go full time or they jump in full time confidant they’ll be wealthy by next year.

This hurts the real estate industry, the people getting into the business, and mostly it hurts the general public who hire these new agents and have horrible experiences with them before they eventually leave the business.

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Many say that the responsibility lies with the brokers who hire and train the new agents. These brokers need to take responsibilty for their training and the agents need to take the business and their responsibilities seriously enough that they will go through the training and have mentors and will prepare for the financial and emotional stress that getting into the business can bring. Well to those people I say Bravo for an ideallistic and ridiculous view of how we can fix the industry and improve it’s standing among professions and the perception is has (earned). The reality is that the brokers make money from these new agents getting into business and will not, and have not, fixed the problem. In fact the brokers (in general and as a whole) have been one of the main reasons so many unprepared people get into the industry in the first place.

Consider for a moment the responsibility placed on a professional real estate agent. Representing someone with their greatest financial asset, coordinating and enabling people to relocate their families, coordinating and following up with people as they walk strangers through their homes. These are things that individually merit enormous responsibilty and care, yet state-given licenses are handed out like candy to anyone 18 years old with a month to go through school and few hundred bucks.

Licensing should be much different than it currently is. It should prepare agents for what being a real estate professional is supposed to be about and educate them to how to perform the work and train them on the responsibilities, not just a brief history of the business and memorizing a hundred terms they’ll never use again.

So what should real estate licensing look like? Since I’m complaining about it, what is my answer for it and my great idea that would supposedly fix the problem? Stay tuned…

Blog Tour Rolls Into SLC Tonight

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The Sellsius Blog Tour is a 24-City tour of the country by Rudy and Joe at Sellsius Blog. They’ve got an RV, a lot of free time, and some large livers- and they’re rolling into the valley July 23rd.

There will be an industry party at the Cottonwood Oyster Bar, Tonight at 6pm where you can meet some of the local real estate bloggers, real estate people, or just have a drink and socialize. The tour kicks off the Big Apple and ends at the Bloggers Connect event in San Francisco.

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Here’s the route. As you can see- these guys love the coasts, pandering to the largest crowds possible, and completely despise the south (they told me so themselves). It would have been much simpler for them to straight-shot from Denver to AZ and then up the coast, but they zig-zagged over to SLC just to see the LDS temple (Rudy is Mormon) and to get a shake from Iceberg (Joe judges ice cream for a national competition sponsored by Ben and Jerry’s).

Don’t tell, but while in town they will be staying in their RV, parking it in the parking lot of the Dan’s grocery at Highland at Fort Union. They do not have permission to do so and may well have their RV impounded. Of course they’ll need to cancel the rest of the tour, but there is Crystal Inn within walking distance of Dan’s so they should have a place to crash after the arrest.

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This isn’t the first time the guys have been in town. Last time we met up Rudy got toasted and spent the night in the slammer with a dude named “Big Al”. He won’t talk about it.

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Alright, I made some of that up, but not all of it. The tour party will, in fact, be Tonight at Oyster Bar- 6pm. There’s usually a good turn-out at these things so you might want to come early.

See you there…

Why 90% of Realtors Fail

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My first day in the business I attended a Mike Ferry seminar that my brokerage had organized. I took a lot of notes (which I still have). Mike was up on stage telling stories about the 90/10 rule and about agents failing and how he believed successful agents became the top in their field (mostly it involved cold-calling). The next day (my first day actually working) his theory was confirmed when I went into the office and my broker showed me a desk with a phone and a Coles Directory (basically a telephone book listing names and numbers by street instead of by last name). He told me I’d be sharing the desk with about two or three other new agents and he showed me how to use the directory and where the copy room and break rooms were and that was basically my initial training. Later I would attend a two week training course the office had, but at the beginning it was all about that phone. So I got on the phone and began making calls.

The calls went something like this…

Hi, my name is Greg Tracy and I’m with Coldwell Banker Real Estate. May I speak to the owner of the home? I’m calling to ask if you have thought about selling your house now or in the near future? If you were to move where would that be?And when would you be making that move?Do you know anyone who may be thinking of selling at this time?Thanks, have a nice day.

Here’s a checklist to making money in real estate;

Take one month going through schooling – About $450 Pay Licensing and Association fees – About $1000

Buy business cards/yard signs/open house signs – About $400

Find home to sell

Market home – discuss marketing with seller and choose from following;

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(Of course these costs are one reason so many agents simply put homes in the MLS and hope they sell)

Go through escrow period (inspections, appraisal, title, loan)

Close deal

Closing gift – Up to $100’s

Finding a home to sell is the hard part because who wants to list with a brand-new agent who has no experience? And if you do find a home to list, what if you spend the money marketing it and then it doesn’t sell?

What if you are really good (or lucky) and find five homes to list and spend $500 to market each of them all and two of them sell?

Average price home in Salt Lake is around $260,000. If an agent lists a home at 6% and gives 3% to the other agent their commission would be $7800. Now pay the broker $2300 (30%- not bad for new agent) and subtract the $500 marketing and the agent gets $5000. Not bad, except how long did it take to sell that home and get that check? Average time on market is about two months right now, plus the average 30 day escrow and you’ve spent three months waiting for that $5000 check.

The average agent in Utah sells 3-4 homes per year- that’s $15,000-$20,000 per year. This is all agents- new agents sell less.

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Factor in the stress of a feast-or-famine income schedule, the emotional stress involved (way above average) and the process of prospecting for business (not very fun) and you begin to see the pressure a new agent feels. Many spend $2000 getting into the business and make less than $10,000 or even $5000 their first year.

And thousands of people get their real estate license every year and sell one or two homes and then leave the business. So those sellers may have listed with an agent who had little money to market their home and little experience to do the job and may have a bad experience. And that experience is how they now see Realtors.

There are over 8000 Realtors in the Salt Lake Board of Realtors, but only a couple hundred do most of the business. Most of the 10% of agents who do stay in the business are part-time, either because they have a full-time job or they have spouse who brings home the money and just do a deal or two each year. Or they think they are full time but don’t do much business anyway.

Starting out in real estate is a tough gig and I try to talk friends out of it. I’ve seen a lot of people get into the business feeling pretty confident only to leave a year later with their savings account drained and their confidence shattered.

Those who succeed can do pretty well, making a great living and enjoying a wonderful career, but the odds are 90-10 that it doesn’t happen.

Would you be Willing to Swap Homes?

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New website DomuSwap was created to assist would-be home sellers in swapping their homes, instead of selling them. The website says;

DomuSwap opens up an exciting new option for buying and selling real estate; by exclusively listing homes from sellers who will consider an exchange of property.

But home exchanging has always been a very small market. One reason (which the new website hopes to change) is the challenge of finding two sellers that have homes they both would want to exchange with each other. Another challenge is having the capital to pay the difference in home values with the exchange.

For instance, if I want to exchange my home with someone and my home is worth $100,000 and theirs is worth $90,000 I would expect them to pay me the extra $10,000 to make up the difference. This could be handled in cash, a note, or possibly with an equity agreement of some sort. But what about the mortgage carriers?

There are situations where an exchange makes sense (land deals, unusual properties) and there can be less cost to the transaction for both sides, but I wonder what it would take for exchanges to become mainstream. If major real estate websites began facilitating exchanges they would probably become more common, but the process and concept is still so unknown that it would take quite a bit for them to get traction.

Other sites that offer exchange services include ExchangeUK, Realty-barter-exchange, OnlineHouseTraders,

Your first home should be a good investment

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Actually, all of the real estate you buy should be a good investment, but first time home buyers often overlook the investment for the emotional pull of upgrades, proximity to friends and decor. A home is a personal thing for sure, but the reality is- buying a home is not like finding that one true soulmate you will spend your forever with. Rather, there are many houses in any given area that one could buy and be very happy living in.

A house is a shell of wood, brick and windows- it’s the people that make it a home. It’s the memories and the drive home after a long day of work. It’s calling it “my place” and spending time and money and energy fixing the faucet and mowing the yard or putting your favorite colors on the wall. It’s waking up there and creating your own space.

When buying home for the first time it is especially important to get a good investment because chances are, you won’t be staying more than a few years and you’ll want the equity from the home to buy your next place. Buying a home that is a good investment can be a major part of a solid financial standing. The tax benefits and equity earned can have a huge impact for people.

I bought my first house when I was 20. It was not a nice place, but it was a good investment. I actually bought it to flip. I figured I would take the money I would make from flipping it and buy a home to live in but my wife wouldn’t have it- she wanted out of the apartment lifestyle as soon as possible. So we remodeled and moved in. I sold the house a couple years later and made around $40,000. Not a ton of money, but for someone in their young twenties who is starting a family it’s a fortune. I could not have saved that much by putting away a little from every paycheck and clipping coupons.

Real estate has been my best investment. The stock market hasn’t been bad for me, but the investment/return on my real estate blows away my stocks. I can buy a home for zero out of pocket and make tens of thousands of dollars just by living there. Everybody’s paying a mortgage, either their own or the landlords. I might as well be the one making the money, right?

If you are in the market to buy, or have been sitting on the fence, undecided about whether to buy a home thake my advice, find one of the best Realtors in your area and let them help you find a good, solid investment as your first home- you’ll be glad you did.