Experience Requirements for Broker LicensureDecember 20, 2005Legislative CommitteeThis material is for information only and has NOT been approved by the Legislative or Executive Committees or the Board of Directors.Issue: Should C.A.R. sponsor legislation to impose an experience requirement on broker license applicants that would otherwise qualify based upon completion of DRE required courses and possession of an undergraduate degree (a “degree broker”)?Issue: IfC.A.R. sponsors experience requirements, should the legislation restrict the ability of a “degree broker” to practice on hisor her own, or only restrict the ability to employ or supervise others?Issue: Should the experience required be changed to include management or supervision experience in addition to “general real estate” experience?Action: OptionalOptions: 1. Do nothing2. Sponsor legislation to change the law to impose an experience requirement upon broker-applicantsotherwise eligible with a 4-year degree.3. Sponsor legislation or regulation to impose management experience requirements upon any manager that supervises other licensees.4. Other.Status/Summary: Over the last year, the Committee has received background materials summarizing the various combinations of qualifications that allow an applicant to be eligible for the broker license. In September 2005 the Committee considered more detailed materials in regard to imposition of an experience requirement and received the report of the Business Practices Task Force.The Legislative Committee approved a motion that echoed the recommendation of the Task Force calling for C.A.R. to sponsor: “[L]egislation or regulation to impose 2 years of real estate experience and education requirements upon anyone who would practice independently or manage/supervise other licensees.”After discussion, the Board of Directors did not approve the motion, and directed the issue back to committee for further consideration.Discussion Business and Professions Code Section 10150.6 requires all applicants for a brokers license (in addition to exam passage) to demonstrate a valid salespersons license and two years experience in general real estate. However, the section also allows the commissioner to grant the license to an applicant without experience that demonstrates “graduation from a four-year college or university course, which course included specialization in real estate” or to approve an application for recognition of equivalent education and experience.DRE has adopted policy to approve 4-year degree holders for the broker exam if they demonstrate that they have also passed the course work required for a broker's license. Such a requirement does not actually appear in the statute. However, the Commissioner is empowered to approve petitions for recognition of equivalent education and experience. Essentially, the degree is being treated as a standardized equivalency application, without the need for a formalized application. Interestingly, a 2-year degree is granted half credit (excusing the applicant from only one year of experience), even though the practice is not set out in statute. DRE will still accept petitions for equivalency (with the appropriate application and fee), regardless of academic background.Is the lack of an experience rule creating a “real world” problem? Put another way, is there any observable pattern of incompetent supervision by “degree brokers” as opposed to “experience brokers?” Are poor practice issues attributable to inexperienced degree brokers or are they instead the result of a high velocity market that has been flooded with inexperienced salespersons? The Task Force members concluded that failure to supervise is a “major problem” that needs to be addressed by an experience requirement. It is not clear in the Task Force report that a linkage had been established between degree brokers and poor supervision, but the experience change is a specific item of the report.Issues to consider in legislating a new experience requirement:1. What kind of experience?The argument for imposing an experience requirement on "degree" brokers is the assumption that two years of "general real estate experience" will qualify them to supervise sales agents. The Business Practices Task Force and Professional Standards group heard plenty of complaints about inexperienced and poorly supervised agents, but there is no evidence that the problem is disproportionately common to degree brokers. Should there be some showing of management or supervisory experience, insteadof or in addition to simply sales experience?2. What about office managers? Existing law allows sales licensees to act as office managers, with the same two years of "general real estate experience"-- again, without any showing of actual management training. Presumably the employing broker is being relied upon to make sure their experience is relevant as part of the hiring process, but it is not required by the statute. Should the experience criteria be the same as required of brokers, or is the decision of an employing brokerage sufficient protection against an unqualified salesperson-manager?3. Should degree brokers be able to work on their own without the required experience, so long as they donot supervise any salespeople? The task force recommendation that lead to the motion shown above that was made (and ultimately not approved) at the last meeting called for an experience requirement before a broker could “work independently without supervision (sic) or employ and supervise salespeople." If the degree broker cannot supervise, and cannot even work on his or her own, what is the advantage of the degree and the passage of the brokers' exam?Note that C.A.R. is already sponsoring legislation to repeal the conditional license, requiring salesperson applicants to complete three pre-license courses. Should C.A.R. go one step further and go to an "all broker" license like the state of Colorado? Changing the rule to require five additional college level courses would be necessary to bring salespersons up to broker eligibility.Will making a broker license more difficult look too restrictive to the legislature or too anti-competitive to the Department of Justice? Appearances will be important to the ultimate success of legislation, as the current administration has already expressed its opposition to barriers to entry to a career or profession.4. Should attorneys be restricted as well? Attorneys can sit for a license exam under a separate exception from experience requirements. The September 2005 motion made no exception for members of the bar, although discussion in committee seemed to be focused on four year degree holders and did not seemed to be inclined to restrict lawyers. It should be noted that in order to acquire a broker's license, the attorney must still pass the standard exam.Also, a lawyer has typically completed at least seven years of college and passed a rigorous exam prior to licensure, and is required to complete legal continuing education course work.Business and Professions Code Sections 10133 and 10133.1 already exempt a lawyer from the need for a real estate license so long as the licensed activity is incidental to the delivery of legal services. It would be ironic for the proposed legislation to prohibit a lawyer with a broker's license from activity that he or she can already do without a license.Perhaps of more pragmatic concern is the fact that attorneys (unlike degree brokers) are represented in the legislative process by several groupsof varying levels of potency. If one or more were to oppose the experience legislation, the whole proposal could be at risk.Colorado’s “All Broker” Law. The state of Colorado seems to suggest that it is management education, rather than general experience, that makes a qualified employing broker. Colorado took the unusual step of changing its license law to require all licensees to become brokers. The requirement was phased in over a period of years. However, it also differentiates among brokers by creating three classes of license: Associate Broker (entry level that must work for another broker); Independent Broker (two years experience, can work independently but not employ others) and Employing Broker (can hire others after experience plus additional management coursework).Since the Associate cannot practice without being employed by another broker, the level of licensure resembles the role of a sales license in California. The more significant change is in the experienced brokers. In Colorado, independent brokers can work on their own, but they cannot employ another broker unless they have taken additional required course work in management and escrow. This approach is not consistent with the Task Force recommendation.Colorado’s approach would seem to argue that both education and experience are important, but that in supervising others it arguably puts the most emphasis on education.SHOULD C.A.R. SPONSOR LEGISLATION TO IMPOSE AN EXPERIENCE REQUIREMENT UPON “DEGREE BROKERS?”SHOULD THE PROPOSAL CHANGE THE KIND OF EXPERIENCE REQUIRED SO AS TO INCLUDE SUPERVISION?SHOULD THE PROPOSAL ALSO INCLUDE ATTORNEYS?