Room for debate: Should commercial real estate agents be licensed?

Milton Cockburn: Don’t let the REIA’s self-interested assertions torpedo important agent licensing change

It is now clear that the Real Estate Institute of Australia, and its various state bodies, intend to torpedo the proposed national licence for real estate agents. The REI has made false claims of a “dumbing down” of educational standards; silly demands for a diploma level of education; and misleading assertions about the consequences of removing licensing requirements for commercial agency work. Despite the REI claiming that it “supports national licensing” it is now obviously bent on derailing this vital COAG initiative, instead of constructively responding to the regulation impact statement (RIS).

Unfortunately, while most industry associations regard the removal of unnecessary “red tape” as a major objective, some associations are secretly happy with government regulation. Such regulation erects barriers to entry to their industry and therefore reduces competition within the industry. Regulation, in the form of compulsory licensing and continuous professional development, also provides a handy income stream for these industry associations and for their training providers (which are often one and the same). The REI has been a beneficiary of both outcomes, and these are now under threat. The REI’s self-interest, however, must not be allowed to dictate the national interest.

The REI claims the educational requirements of the proposed national licence, which were determined by an industry/government working group, are a “dumbing down” of educational standards. What it hasn’t revealed is that the REI had three members on this working group – far more than any other organisation – and these representatives all signed off on these requirements. The educational qualifications for the proposed national licence are the same level of qualifications currently required for real estate agents in Queensland, NSW and Victoria, where more than 80% of real estate agents practice. Can anyone recall the REI previously suggesting that real estate agents in NSW, Queensland and Victoria were under-qualified (“dumb”?) compared with their counterparts in SA and WA? Of course not! In its desperation to sink the reforms the REI is sprouting nonsense.

What about its claim that the proposed removal of licensing for commercial agency work will leave the consumer unprotected and that “16-year-olds” will be able to sell commercial property? Let’s leave aside the fact that the existing real estate licence (as well as the proposed national licence) doesn’t teach the holder anything about commercial property, since it is overwhelmingly oriented to residential property.

The REI also ignores the fact that the “consumer” being supposedly protected by a licence is not the “man in the street?. The consumers are the owners of commercial real estate, and these are businesses (often very large ones), or business people, who have selected their own managers (agents) and who have the protection of an enforceable management agreement (contract), as well as commercial recourse, if the transaction goes wrong. They do not need, or want, taxpayers’ money being spent to protect them. Of course there are occasional risks in commercial real estate transactions, just as there are risks in any business transaction, but in a market economy this does not necessarily mean such transactions should be regulated by governments (through licensing and compliance with estate agents’ acts).

This is “nanny state" thinking. In any event the RIS, after surveying the state regulatory authorities, could find no evidence of significant risks warranting regulation at either the higher end or the lower end of the commercial property industry. All that licensing and regulation does for commercial property owners is impose unnecessary costs on managers (which are inevitably passed back to the owner) and restrict their ability to negotiate optimum arrangements with other property managers (such as solicitors or accountants).

The national licensing system (for a range of occupations, not just real estate agents) will improve workforce mobility, reduce business costs and boost national productivity. The RIS states removal of licensing will save commercial property owners up to $2.37 million a year, a considerable underestimation. The REI’s false and self-interested assertions must not be allowed to jeopardise this very important microeconomic reform.

Milton Cockburn is executive director of the Shopping Centre Council of Australia.

Pamela Bennett of the REIA responds on page 2

Pamela Bennett: Skilled agents key to consumer confidence in real estate

The Real Estate Institute of Australia (REIA) rejects outright claims made by Milton Cockburn of the Shopping Centre Council of Australia that it is trying to “torpedo” COAG’s national licensing plan for real estate professionals.

With all due respect, Cockburn is misinformed, pure and simple. We do support national licensing, but we are determined to look after Australian property consumers by fighting for the highest possible standards across the board.

The REIA representatives involved in the Property Occupations Interim Advisory Committee (POIAC), prior to the release of the regulation impact statement (RIS) on national licensing, argued for diploma-level qualifications.  The rest of POIAC settled for lower qualifications.  The REIA argued for compulsory professional development to keep the profession up to date but again, the rest of POIAC did not.  The steering committee, compiled of state and Commonwealth regulators, not POIAC, made the final decision.

Diploma-level qualifications, currently in four states and territories, are desired by our members nationwide.  Real estate agents are proud of their profession and the important service they provide to the Australian public, and they want to grow their reputations, not go backwards.  Real estate institutes do not think it is “silly” to be highly qualified.

With regards to commercial property, agents are currently licensed, but the proposed regulations would strip that away.   This leaves the consumer completely vulnerable.  Quite literally, anyone could sell commercial property.  Yes, even a 16-year-old.

POIAC did support licensing of commercial property agents.  A hurdle of $100 million was suggested at the time, but again, the steering committee made the final decision to deregulate commercial property transactions.

Contrary to what some may think, most commercial property sales are under $500,000. In Victoria 51% are under $500,000, so we are not talking the big end of town.  We are talking about “mum and dad” investors who invest in commercial property, either directly or through superannuation funds, and they should have the security and peace-of-mind of having a licensed agent manage their transaction.

For example, the owner of a family sandwich bar in the food hall of a shopping centre wants to sell. In the absence of a licensing regime for commercial sales that provides the consumer with information as to who has the appropriate qualifications and insurance coverage to handle such a complex transaction, the vendor would be vulnerable to anyone who wants to deal in commercial transactions without any qualifications.  On top of this, both parties would take a huge financial risk with their life savings.

I’m quite stunned at how the consumer point of view has been left out of the calculations in the RIS and that the process has been driven by regulators who are not experts on the real estate profession. Their proposals, if implemented, will be detrimental to consumers. The RIS on national licensing states that deregulating commercial property will save a comparatively small $2.37 million.  What this figure does not take into account are consumer costs.

The REIA is also concerned with the proposed deregulation of rural property.  Not all rural property is like Cubbie Station.  In Victoria in 2011, 76% of farms were sold for under $500,000.

The Real Estate Institute of Australia will continue in its endeavours to achieve outcomes that will provide for a national licensing system that supports high standards and not those of the lowest common denominator.