Real estate law: expectations not met

The real estate law could have brought a revolutionary change in the quality of services on the real estate market. In the form discussed by the government, however, it is as weak as a three times infused fruit tea bag.

On Monday, the government discussed and approved a bill on real estate brokerage that had been talked about for ages. So now the new regulation is waiting to go to the Chamber of Deputies, if it is passed there, then to the Senate and finally to the President. The Minister for Regional Development, where the bill originated, believes that it could come into effect as of the beginning of next year.

It can be characterized by the classic „good intention, poor design„.

No clean-up of the market

One of the main effects of the new law was to increase the quality of brokers‘ work. Today, anyone can be a broker, it’s a free trade. The draft law on real estate brokerage takes into consideration the amendment of the Trade Licensing Act aimed at incorporating real estate brokerage in licensed trades and carrying out real estate brokerage will then require certain qualification requirements – to have a certain level of education, experience, professional examination… so far so good.

However, most of today’s brokers won´t need to spend sleepless nights due to the lack of qualifications, three years of previous experience will be absolutely sufficient for them. So there´s no screen in the form of an exam as other professional organizations or chambers have. „Brokers“ who deal in real estate for extra income will continue to be able to provide real estate services – they can be taxi drivers, bartenders, it can be a mother on maternity leave, a student…  What they all have in common is that they don´t care for real estate, their services are usually appalling and they do brokerage to earn some extra money sometimes. Recently, I was sitting with a person interested in the sale of an apartment for about ten million in his restaurant and when discussing the sale, he told me with a serious face that a real estate agent worked for him and that he had also discussed the matter with him – and pointed to the young man who was bringing us coffee…

If someone wants to become a new broker or is already a broker but doesn´t have adequately long experience or education, they´ll have to pass a proficiency test. But will the exam level be adequate? If we look at who will perform the tests, as early as now we´ll find 21 authorized entities and there will probably be many more after the law comes into effect. The Ministry of Regional Development swears that it will keep an eye on the quality of the examination bodies, in my opinion it is too optimistic a statement. The state is unable to control the level of universities, let alone people working in real estate who are very resourceful; in the end some subjects will turn the exam into a cakewalk.

It´s said that we have the most brokers per capita in the Czech Republic, currently the trade is carried out by 14,000 people. If they work full-time, one broker can sell 14 or more properties each year. Approximately 270,000 properties are sold annually, of which about half are sold without a broker: it it´s the acquaintances, colleagues at work, neighbours and relatives who sell and buy them. The other half, i.e. about 135,000 properties, are left for real estate brokers. It´s obvious that if the law set a finer screen and stricter criteria for the operation of the trade, there would certainly be no risk of a shortage of brokers as ten thousand would comfortably manage the market. The authors of the law don´t have this ambition unfortunately.

Stricter rules for money safekeeping have not been passed

There was probably only one fundamental change in the draft of the new law that could have had a very positive impact. That is, the restriction of the possibilities of safekeeping of the real estate purchase price only to safekeeping by notaries, lawyers or banks. Some real estate agencies, and some of the largest ones, safekeep the purchase price of the property on their accounts. The problem is that safekeeping of money by real estate agencies isn´t under supervision, nor are there rules concerning what can be done with the money, in contrary to safekeeping of money by notaries or lawyers.

However, the section that could terminate safekeeping of money on real estate agencies accounts was eventually dropped from the law during the government’s discussion. According to the information from the Ministry of Regional Development, real estate agencies won´t be allowed to offer explicitly their own safekeeping. So it’s going to look a bit like when a broker tells a client something like A lawyer will safekeep it for five thousand, a bank for ten – and then there’s another option that I can’t offer you directly… Real estate agencies that do safekeeping probably voiced their “concerns“ loud enough stating  that moving safekeeping outside their scope would make services more expensive which would ultimately burden the poor consumer. This is nonsense, of course, safekeeping outside the real estate agency isn´t so expensive that this cost couldn´t be covered from the commission.

Drawbacks of the new law

I find the law to be very general in many parts. One such case is the obligation to inform that the broker has towards the customer. According to the proposed wording of the law, the broker will be obliged to submit a title deed to the person interested. However, given what you need to know about the property before buying, it is quite an insufficient requirement. For example, if we talk about an apartment, in addition to the title deed you should know about the acquisition title, owner’s declaration, overview of advance payments, billing for the last year, construction and technical state of the apartment, no-debts confirmation of Owners Association, energy performance certificate, data on Owners Association financial management and performed and planned repairs in the building. I could imagine that the law will include summaries of information that the broker is obliged to acquire and pass on to interested parties before the purchase, for various types of real estate – apartment in private ownership, membership rights and obligations in the cooperative, house and plot of land.

Furthermore, the law doesn´t deal with the reservation of real estate at all. In today’s practice, completely insufficient reservation contracts are common and they don´t guarantee to buyers that they´ll eventually be able to buy the property, nor do these contracts address essential aspects of the transfer that need to be clarified in advance between the buyer and the seller. It often happens that the buyer takes the deal for granted but the seller sells the property to someone else, or that the seller or buyer is disappointed with the sale because not all the conditions were clarified in advance.

Possible improvements to the law

What could be done better in the law:

• Mandatory examinations for all brokers, including those currently operating
• Examinations taken at a single authorized entity in order to achieve the same quality of examinations, similar system to which tax advisers, lawyers, notaries and others have
• Allowing the safekeeping of the purchase price performed only by a notary, lawyer or bank, exactly as it was included in the bill prepared for discussion by the Government of the Czech Republic
• Complementing the overviews of documentation for individual types of real estate which the broker should have available for those interested in the purchase so that those interested have as accurate an idea of the property as possible
• Describe in detail the essentials of the reservation contract so that the buyer has the security of purchase when signing it and that no doubts exist between the seller and the buyer concerning the essential aspects of the transaction

Eventually, it is possible that some of today’s hobby brokers will drop out because of the new law as they´ll incur a new cost in the form of compulsory insurance which they won´t be willing to pay just for the occasional extra income. It´s also possible that some brokers lacking a sufficiently long experience won´t like to take the brokerage exam, but, on the whole, the law missed the chance for a more substantial change in the real estate environment and the setting of the benchmark for higher quality standards.

Written for www.penize.cz