Realty License Rush Is on : 120,000 to Take Test Before Stricter Rules Apply

The first “land rush” in Oklahoma in 1889 attracted 50,000 settlers and the second, in 1893, lured another 100,000.

Or a total of just 30,000 more applicants--over a four-year span--than will have signed up for the great California “land rush” of 1985. Not to homestead land, but to obtain the state’s blessing to sell it.

In just nine days, at midnight, Dec. 31, those Californians who have filed their applications and have forwarded their exam fee ($25 for salespersons, $50 for brokers), and have had them received by the California Department of Real Estate, will be able to take the state’s examination for real estate sales licenses under the old, more liberal rules.

Those whose applications are received on Jan. 1, 1986, or later, will find themselves facing new educational requirements simply to take the exam.

Swell Real Estate Ranks

By the end of the month, department commissioner James A. Edmonds, Jr., estimates, no fewer than 120,000 applications to take the exam will have been received this fiscal year--a stampede that has kept the state regulatory agency on an overtime basis since early summer and has put the administration of the exams on a six-day-a-week schedule.

If all 120,000 applicants this year actually pass the exam, it will swell the number of individuals licensed to sell real estate from the present 287,000 to 407,000, a 41% increase.

Based on estimates by the California Department of Finance, that would put one in every 43 adult Californians in the real estate business. Historically, however, Larry Cannon, managing deputy commissioner for the DRE, points out that only about 44% of the sales applicants taking the exam and 54% of the broker-applicants pass the exam on the first go-around.

Although the new legislation stiffening the educational requirements for both real estate brokers and salesmen (SB-1042, sponsored by Sen. Bill Lockyer (D-Hayward), was signed into law by Gov. George Deukmejian on March 29, 1984, it went virtually without notice for more than a year.

Applications Rising

“Until this May,” according to Tom Hensley, the DRE’s managing deputy commissioner, “applications for the exam kept coming in at about the usual rate--anywhere from 4,800 to about 6,000 a month. And then, all of a sudden, my chart started going up like crazy in May--to about 10,000 a month for the next five months and then to 13,000 in October.

“We don’t have the final tally for November yet, but the figure will be over 15,000, and we expect to have 20,000 or more for December.”

The best previous year was the boom period from June, 1977 to July, 1978, with 106,000 exams administered, while the worst time was 1982-83 when sky-high interest rates virtually shut down the entire real estate industry and only 23,000 applicants were optimistic enough to take the test.

Until Jan. 1, 1986, however, the old (present) rules apply, and those getting in under the wire need only to be at least 18 years old and have a warm body to take the exam--which, because of the backlog, Hensley said, could drag out through February or even March, two to three months, after the cut-off date.

“We’ll accept the applications and checks right up to the Dec. 31 deadline,” Hensley adds, “which means that a lot of these people applying for a sales license could really wait until the last minute, knowing that there will be this time lag in assigning them an exam date--and giving them time early next year to take some sort of training to prepare them for it.”

Required Course Work

But those applying after Jan. 1 must have already taken, and passed, at least one college level course--Real Estate Principles--administered by an accredited school and, within the next 18 months, must also take two additional courses from the following list:

Real estate practices, real estate appraisal, accounting, business law, property management, legal aspects of real estate, real estate financing, real estate economics, escrows, or real estate office administration.

The attraction of getting in under the wire is only partially financial, Cannon emphasizes--the $25 or $50 exam fee remains in place, whether the application is accepted before, or after, Jan. 1.

But, for those sales applicants successfully passing the exam under the existing rules, the license fee, itself, is a flat $120. Those passing the exam under the 1986 rules will also have to have under their belt the basic, three-hour, principles of real estate course which, in itself, requires an outlay of cash to an accredited school.

They will also find that the $120 license fee is the minimum --applicable only to those who not only successfully pass the exam, but who also have completed the other two required courses as well.

Otherwise, the license fee will be $145, with the additional threat hanging over their heads that if they don’t pick up those two other courses within 18 months, their newly won license will be automatically suspended.

Long-Standing Goal

Even though the tightening in educational requirements has been a longstanding goal of the California Assn. of Realtors, the passage of it last year still caught the DRE by surprise.

“We were always in favor of it,” Edmonds adds, “but we weren’t too optimistic about getting it through because the Legislature, traditionally, has been reluctant to increase pre-licensing requirements in any field. So, we didn’t really expect it to pass.”

But as far as the CAR is concerned, the trade group’s vice president for governmental relations in Sacramento, Doug Gillies, adds, the drive for stricter requirements “was more than just an effort to get more professionalism into real estate.

“It was a question of considering the added complexity of the field. If, 15 years ago, you wanted to explain a mortgage to a home buyer, there was no problem--you had a 30-year fixed mortgage, probably FHA insured, at 6%, and that was it. Now, the broker has to understand adjustable rate mortgages, negative amortization, caps, 15-year, as well as 30-year, mortgages--the whole thing.”

Greater Legal Liability

And, Gillies emphasizes, the problem doesn’t end with mere complexity, but with the tremendous increase in disclosure requirements in the field and the much greater legal liability involved.

“It’s become our No. 1 concern--how professional liability insurance rates have skyrocketed and, in some cases, coverage simply isn’t available. Your people have to be well-informed these days to protect both themselves and their broker against potential liability.”

And, as the real estate field has exploded in California, Gillies adds, the CAR has been concerned about a parallel upswing in “quickie” education courses and a corresponding drop in examination techniques.

“It used to be,” he says, “that the DRE would sit an applicant down and give him a real estate problem to solve--working out all of the arithmetic of it, all of the calculations, and an explanation of everything that was required and why.

Multiple-Choice Tests

“Now, we’ve gone to multiple-choice exams which lend themselves to these schools that have gotten into the real estate education business--weekend seminars . . . a couple of days . . . to cram it into you and promise you your money back if you don’t pass the exam. All they do is teach the answers to the questions, instead of how to perform and what your responsibilities are.

“We found ourselves hiring people who have just passed the state exam,” Gillies adds, “and who didn’t know how to fill out a deposit receipt.”

(The current real estate exam, the DRE’s Cannon says, consists of about 150 multiple-choice questions for sales applicants and about 200 for brokers.)

With a membership of 105,000--about one-in-three of the real estate license holders in the state and about 40% of all the brokers--the CAR’s concern over the quality of real estate education here is deep-rooted. “Those 40% of the brokers who are our members,” Gillies explains, “probably do 75% of the business in the state.”

Deals Gone Sour

And, by implication, carry 75% of the legal liability for real estate deals in the state that go sour because someone, somewhere down the line, didn’t know what he or she was doing in handling a buyer or seller.

Admittedly, commissioner Edmonds adds, the last-minute dash to apply for the real estate exam is largely confined to those at the sales level. Brokers, themselves, would be hard-pressed to make the deadline at this late date.

They must already have the Principles of Real Estate course, and a couple of others, under their belt and must also meet long-established experience-or-education requirements (a college degree, for instance, in lieu of several years of hands-on brokerage experience).

And, after Jan. 1, the education requirement for brokers goes up from the present six college-level courses, totaling 18 units, to eight college-level courses totaling 24 units. And, Edmonds continues, some of the tightening-up of the educational requirements has already been in effect for some time for those already holding either sales, or broker, licenses.

Continuing Education

Both under the existing, and the Jan. 1 statute, for instance, license holders must participate in a continuing education program (encompassing 45 hours over four years) but, since the summer of 1984, this has required more than mere attendance at seminars and meetings designed to broaden the license-holder’s understanding of his field.

“We found that too many of them,” Edmonds adds, “were simply sitting there, reading the paper or working crossword puzzles. So, since August, 1984, they’ve had to take a test on, or write an evaluation of, each course they attend. And for brokers, three of those 45 hours have to be devoted to a study of the Code of Ethics for the field.”

Meanwhile, even during Christmas week, the rush to get applications into the DRE office accelerates and the hard-pressed state agency is scrambling to find space to give the exams during the first two or three months of 1986.

“Most of the exams,” according to the DRE’s Hensley, “will be given on-site at our offices in San Francisco, Santa Ana, Fresno and Sacramento.”

Rented Space at Schools

But in both San Diego and in Los Angeles there are problems--either logistical or in terms of sheer volume. Since the DRE’s San Diego office is in the process of moving, Hensley adds, “we’ve had to go out and rent school space wherever we can find it.”

And the number of applicants from Los Angeles has become so unwieldy, Edmonds continues, that normal accommodations available were simply too small.

“We couldn’t hire the Los Angeles Convention Center,” he adds, “so we’ve signed a three-week deal and will be starring at the Hollywood Palladium Ballroom for a three-week run, from Jan. 14 through the 29th.

“We figure we’ll be giving the exam to about 1,800 applicants a day during those three weeks,” he says, wearily.