It is common knowledge that many California real estate companies and agents are feeling a serious pinch as a result of the downturn in the real estate market. Less well known is the fact that the state agency which regulates those companies and agents is having a similar experience. Directors of the California Association of Realtors® learned about this at their recent meetings in Monterey when they were addressed by Real Estate Commissioner Jeff Davi.

Unlike many state agencies, the California Department of Real Estate (DRE) is not supported by the state's general fund. Like the Department of Fish and Game, its financing is provided by charging for various fees and services. In the case of the DRE, the bulk of the money it brings in is from the issuance of new and renewal licenses and from fees charged for the administration of licensing examinations.

Guess what? There are not as many people seeking real estate licenses as there were during the past few years. In the last half of 2008, the department administered 11,626 real estate salesperson exams. That is down 80% from the 57,518 exams that were given during the same period the year before. Broker exams were down 42% from the previous year. During the same half-year period, 6,810 new salesperson licenses were issued, a 67% decrease from the 20,567 issued in the second half of 2007.

Actually, the total population of real estate licensees has not diminished that much. At 532,531 (one for every 53 adults in the state) it is only down 3% from the year before. Of course that vastly overstates the number of people who are still engaged in the real estate business. Many have dropped out, but, because the license is issued for a four-year period, they still show up on the rolls of the DRE. More to the point, the department derives no yearly revenue from licensees. Money comes in if a licensee renews, but that only happens after four years. Besides, not many are renewing.

The drastic drop in license applications has taken a serious toll on the department's financial health. In the past twelve months, reserves have decreased from $45 million to $30 million, a 33% drop. Were losses to continue at this rate, in two years the DRE would be insolvent.

Now many might say or think, "Just a minute. If the department is no longer administering so many exams and issuing so many licenses, it should just cut back on personnel in order to compensate for the loss in income." But there's another dimension to be considered. The department's revenue-generating operations have decreased dramatically, but that doesn't mean it's not busy. To the contrary, the DRE's investigation and enforcement activities have increased by leaps and bounds.

It is an unfortunate characteristic of a down real estate market that the scam operators come out of the woodwork. (Think of the economy generally. Most businesses are scaling back; but the bank robbery industry is up.) The DRE is swamped trying to track down and shut down the hundreds of illegal and phony loan-modification and foreclosure-rescue operations that are out there. (I'm not saying there aren't also legitimate ones.) The DRE staff that used to work in licensing and exams? Now they're doing enforcement work. Unfortunately, though, enforcement operations don't generate revenue for the department.

So, what to do? The department's options are pretty limited. Hence, it is proposing to raise fees in those areas where revenue is generated. It intends to raise the broker license fee from $165 to $300 and the salesperson license from $120 to $245. Exam fees will also be raised. DRE fees are statutorily controlled. Its proposals here represent the largest fee increase allowable. Hearings are set for March of this year. Legislative approval is expected.

Published: March 18, 2009

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Bob Hunt is a director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .