Commercial real estate agents should be licensed, just as residential agents are

While yesterday’s release of the draft rules for national licensing for real estate agents (otherwise known as the consultation regulation impact statements – or RIS – for property occupations) has the potential to lay the foundations for a truly national profession, it is also disappointing.

As the profession considers the far-reaching changes, it is immediately obvious that one recommendation runs counter to the notion of improving skills and education in the 21st century and shows a total misunderstanding of the issue at hand.

The Council of Australian Governments (COAG), through the national occupational licensing system, has proposed that licences should no longer be required to perform commercial and industrial work.

The rationale for this is flawed.

It is based on the faulty premise that “consumers” in the commercial sector are well resourced and sophisticated investors. This is not always the case. Think of every “high street” with its myriad small businesses whose operators need to lease or buy their premises. They are not shopping centres, they are not multinational firms negotiating with super funds over office space. They are more akin to the hundreds of thousands of people who benefit from the licensing in the residential market. Like home buyers, they are busy with their lives or businesses and expect that a real estate agent has a proven knowledge of the laws and knows how to transact property.

A review of transactions in the commercial market last year’s demonstrates this. In 2011 there were around 10,400 commercial sales, according to the Valuer-General, and 34% were valued under half a million dollars. This is hardly an example of the market dominated by well-resource, “sophisticated” investors.

The RIS advances a risk-based analysis to justify this, suggesting that because “there are few complaints to consumer protection agencies in relation to these transactions” there is no need to protect consumers. It could be equally the case that, due to the existence of minimum educational requirements as expressed by the current licensing system, the commercial and industrial real estate agents are simply doing a good job that meets the needs of their clients.

One wonders if this logic could be applied to other professions. Are lawyers regulated because they have a high level of consumer complaints? Should the registration of architects be removed because they do a good job? A review of the residential market shows how flawed this idea is. In Victoria real estate agents have an excellent record of compliance with the law yet COAG has not recommended removal of licensing.

Of equal concern is the recommendation’s ignoring the substantial investment in their education made by the existing licensed commercial and industrial agents. For governments that claim to want to lift Australia’s education and training standards, it seems counterproductive to totally remove them.

Like many other professions, commercial real estate agents spend a considerable amount of time, effort and money to meet the educational requirement of the licensing system. The entire transitional system benefits from this. Through education they are able to more efficiently and effectively undertake the role of buying, selling and leasing on behalf of their clients. A non-regulated profession would open the door to any number of people who say they are able to undertake the property transaction – but could they? Would they understand the complexities of the role? Would they know how to provide professional services to their clients?

Licensing in this case cannot be characterised as “red tape” that increases the cost of the transaction, because there is nothing to compare it to. If governments want to reduce the cost of the transaction and increase the efficiency, there are plenty of other ways to do that without devaluing this profession.

For instance: stamp duty rates are too high; in Victoria there is double taxation of some leased commercial premises; and landlords are forced to lodge leases with the government for no practical reason.  Dealing with these issues first would substantially cut the cost of the transaction and deliver a net benefit to the economy, one that would be more proven than this recommendation to remove licences for commercial and industrial work.

In conjunction with the REIA, the REIV will fight this proposal because we believe the economy benefits from real estate agents who meet basic educational standards.

Trevor Booth is president of the Real Estate Institute of Victoria.