Transaction and Regulatory Committee
Legislative Committee

This material is for discussion purposes only and has not been approved by the Transactions and Regulatory Committee, the Legislative Committee, Executive Committee or the Board of Directors.

Issue:
Should C.A.R. sponsor legislation to change the term of the real estate license from 4 years to 2 years?

Action:
Optional; difficult to implement in 2010.

Options:
1. Do Nothing.
2. Defer action now, direct staff to more fully study the proposal during 2010 and review for inclusion in C.A.R.'s 2011 sponsored legislation package.
3. Support DRE-sponsored legislation to change the term of the license, but not introduce as C.A.R. legislation.
4. Sponsor C.A.R. legislation to change the license.
5. Do Nothing

Status /Summary:
The suggestion has been made that the term of the real estate license be shortened from 4 years to 2, with the goal of improving the currency of continuing education and evening out the numbers of licensees up for renewal in any given year. The license renewal (but not application) fee would also be cut in half.

In 2009 the Legislative Analyst's Office (LAO) released a report on DRE entitled "Opportunities to Improve Consumer Protection" which included, among other things, a  recommendation that continuing education for maintaining the real estate license be required on an annual basis. It did not recommend a change in the license term itself. DRE has not been authorized by the Administration to sponsor legislation in 2010.

Discussion:
LAO report.
As mentioned, the LAO recommended a number of changes to DRE, including better pre-license education and annual continuing education. The report pointed out that California has an exceptionally long cycle of requirement for real estate continuing education.  The concern is that taking course work only every four years may not ensure that licensees are current on the latest developments in the real estate business.

A similar concern was shared by C.A.R.'s Business Practices Task Force which recommended that DRE prohibit so-called "all in one" seminars that purport to award all 45 hours of required education in a single seminar.  At the urging of C.A.R. the DRE limited continuing education to 15 hours in one day, and required (among other reforms) an examination for each class. The Task Force did not recommend an annual requirement.

The LAO report also noted that the new S.A.F.E. Act mortgage loan originator license endorsement will require some real estate licensees to take annual course work to maintain their license. The report suggested that other states require annual education and that it seems to work.

Other recommendations included changes to the DRE disciplinary process and pre-license education and experience requirements.  Some of the suggestions included proposals that C.A.R. has either sponsored or requested over the years.

Again, DRE (like other regulatory agencies) has not been authorized to sponsor legislation in 2010 and it is not clear where the department would stand on the proposal.

The full report may be seen at http://www.lao.ca.gov/2009/trns/real_estate/real_estate_051209.aspx

Time is short.
The deadline for introduction of legislation in the 2010 legislative session is February 19 (approximately two weeks after the Board of Directors meeting).  Whether an appropriate, capable, author can be found to carry the legislation on short notice, or that a bill draft can make it through the required administrative processes in time to be successfully sponsored in 2010 is problematic. Sponsorship has been made particularly difficult by reduced bill limits for legislators. In all likelihood, a sponsored bill would fare better as a 2011 effort.

What's wrong with 4 years?
Only a few other states have a 4-year term for a real estate license, and even in California the real estate license is unusual in its length. Most professional licenses are subject to annual renewal, even when they have a longer period in which to take required continuing education.  For example, attorneys renew annually, but demonstrate continuing education only every 3 years.

DRE tries to ensure that all licensees pay the same fee for their license and renewals, both because of fairness to various annual "classes." Also when DRE holds the line on fees over a longer period, there is less confusion in the ranks of licensees over amount, and thus a reduction in the inadvertent errors in fees received. Unfortunately, in order to hold the line against fee fluctuations the DRE retains larger operating reserves to buffer the effect of ups and downs in the economy and the licensee base -- and in the current fiscal environment, larger reserves make an agency a larger target for "borrowing" of its reserves. 

An additional concern with a 4-year term is that it means there is more "dead wood" in the ranks of licensees (inactive licensees still on the rolls). 

Why 2 years?
A shorter license term builds in the objective of more current continuing education sought by both the LAO and others.  DRE would appear to favor a 2-year term so that it doesn't need to review the continuation education annually.  The two year term would still double the frequency of the continuation, but not be as burdensome as annual review.

If more frequent education is the goal, it can be accomplished without changing the overall license.  Some licenses, like those of the State Bar, are renewed annually but the verification of continuing education is only required every third year.  Other licenses, like the new mortgage loan originator license endorsement are attached to a 4-year license, but require annual education.

The real estate continuing education requirement could be set at every year or every other year without changing the 4-year term of the existing  license. However, the DRE would incur a larger administrative burden to do so.  In light of the growing popularity of E-licensing renewals, it is unclear how burdensome such a rule would be.

Also on the plus side, DRE could see a more rapid response to fee increases (or decreases) made in response to market conditions, since every licensee would be effected rather than only one fourth of them, as under the current license. Of course this more rapid response comes with more administrative activity and more opportunity for expensive and time consuming confusion on the part of licensees.

Would a shorter term be better? Would a two-year term be better than an annual renewal?

It is unclear how REALTORS® would view the prospect of a shorter license term. 

Would it be appropriate to research the reaction of rank and file members before making a decision on such a significant aspect of the license?