PII: S1057-0810(97)90022-6 FINANCIAL SERVICES REVIEW, 6(2): 109-124 Copyright 0 1997 by JAI Press Inc. ISSN: 1057-0810 All rights of reproduction in any form reserved. The Use of Professional Designations in the Real Estate Industry Susan Logan Nelson and Theron R. Nelson A series of surveys investigates the recognition by consumers of professional designa- tions in a variety offinancial services fields, but with an emphasis on the real estate industry. The results from the 1991, 1994 and 1996 surveys are consistent in revealing a general lack of recognition by consumers ofprofessional designations, with the nota- ble exception of the CPA. The CFP and CLU also fared somewhat better than the real estate designations examined both in terms of consumer recognition and perceived competence of those holding the designation. Consumers indicate, however, a generally strong desire for dealing with professionally designated individuals when making financial decisions. I. INTRODUCTION The real estate industry, particularly the brokerage and appraisal segments of the industry, has come under increasing scrutiny from both consumers and government in recent years. Evidence which indicates a lack of satisfaction with, and confidence in, real estate service providers continues to build. In 1983, a Gallup Poll found that only 13% of those surveyed believed that real estate salespeople had high or very high ethical standards, while 28% believed that real estate salespeople had low or very low ethical standards. By 1988, those who believed that real estate salespersons had high or very high ethical standards had remained constant at 13%, while those who believed they had low or very low ethical stan- dards had risen to 34% (Filisko, 1989). A 1989 survey of almost 72,000 readers who had sold property between 1985 and 1989 was conducted by Consumer Reports magazine (Do Real Estate.. , 1990) on a related topic. Although most surveys of service providers conducted by the magazine indicate that about 10% of customers are left dissatisfied, the survey of real estate brokerage service users found that nearly one-third reported trouble of some type and about 20% were left Susan Logan Nelson l Professor of Marketing, Department of Marketing, Box 8366, College of Business and Public Administration, University of North Dakota, Grand Forks, ND 58202; e-mail: sunelson@badlands.nodak.edu. Theron R. Nelson l Professor of Finance, Department of Finance, Box 7096, College of Business and Public Administration, University of North Dakota, Grand Forks, ND 58202, e-mail: thnelson@badlands.nodak.edu. 110 FINANCIAL SERVICES REVIEW 6(2) 1997 dissatisfied-double the expected rate. These findings are consistent with a March 1989 survey conducted by the National Association of REALTORS. The much smaller NAR survey of 1,000 people who had recently worked with a real estate salesperson found that 82% were satisfied (Filisko, 1989). Such reports, when combined with research which has indicated quite clearly that training, education and professional competence are important to consumers in selecting brokers and salespersons (Chamber, Dotson, & Dunlap, 1985; Little & Myers, 1991; Nelson & Nelson, 199 1; Patton & Peterson, 198 1) lend credibility to statements like that of a recent home seller that “[tlhere are good and bad real estate salespeople, and you have to choose the right salesperson when you put your house on the market” (Filisko, 1989, p. 46). If we accept that the consuming public is wary of the real estate industry to some extent, then the process of communicating to clients that certain practitioners possess superior skills, training, experience, education and competence becomes critical. Most professions which deal directly with consumers in providing a service have turned to the use of professional certification and designation programs for this purpose. II. THE CERTIFICATION AND DESIGNATION PROCESS The term “professional certification,” as recognized by the awarding of a professional des- ignation, is often confused with the terms “accreditation” and “licensing.” Although these terms are similar in that they all relate to standards of education, training, experience, and knowledge, there are distinct differences as summarized in Table 1 (Bratton & Hildebrand, 1980, p. 23). In this paper the term designation is used to represent the completion of a profes- sional certification program or process which then entitles the individual to advertise this fact through the use of a particular title which is abbreviated in use. The most common example of this is the CPA designation which is simply an abbreviation of Certified Public Accountant. Thus the term designation essentially becomes synonymous with the notion of certification. For certifications (or designations) there must be an association or agency which establishes the program, administers or coordinates the educational programs and testing procedures, and markets the designation. There are numerous associations, probably too many to count (Davis, 1990, p. 40), which offer one or more designation programs. Per- haps the leading organization offering real estate designations is the National Association of Realtors (NAR) and its many affiliates. Technically, however, NAR does not issue any designations. Its most popular designation program, the GRI is administered separately in each state. Other designation programs are handled through the many Institutes, Societies and Councils of NAR. TABLE 1 Distinctions Among Professional Credentials T.vpe of‘ Crrdenricrl Recipient of Credenticrl Credenticding Body Required or Vo1untut-y Accreditation Programs Licensure Individuals Association/Agency Political Body Voluntary Required Certification Individuals Association/Agency Voluntary Professional Designations 111 Although a reported top executive of a national real estate organization describes des- ignations of the “mail order” variety that “you can obtain by sending $50 to get a certificate and some initials to put behind your name” (Davis, 1989, p. 1.57) there are usually specific requirements for obtaining professional designations. However, there are no specific stan- dards which apply to the organizations sponsoring them. While NAR and its affiliates, as well as several other real estate organizations, are well known and have solid reputations, the same is not always true for other organizations. The National Commission for Health Certifying Agencies (NCHCA) was created in 1978 at the urging of the U.S. Department of Health and Human Services to foster consistent testing guidelines in the health profes- sions. The NCHCA became, in effect, an organization which certifies organizations that offer certifications to members. With the rapidly growing interest in, and popularity of pro- fessional designations in fields outside the health area, the NCHCA created a sister organi- zation, the National Commission for Professional and Occupational Certifying Agencies (NCPOCA), and placed it, with NCHCA, under the umbrella called the National Organi- zation for Competency Assurance (NOCA). Thus there now exists an organization which establishes criteria for approving certifying agencies. NOCA even provides a package to assist organizations in developing certification programs. III. GOALS OF CERTIFICATION PROGRAMS The rapid proliferation of certification programs in many fields is testimony to the popular- ity of designations. Why, one might ask, are designations so popular? What need do these programs satisfy in the market? Commentators have suggested numerous criteria to be fol- lowed in structuring certification programs. Gilly and Galbraith, in a survey of professional associations and/or societies which had implemented or substantially revised a certification program within the past 20 years, identify ten qualification criteria for attaining certifica- tion (1988, p. 14). These are, in rank order of importance: 1. Professional experience; 2. Successful completion of a written examination; 3. Completion of a program of study or desired number of years of education; 4. Currently employed in the respective industry/trade/field; 5. Successful completion of a performance examination; 6. Membership in [the sponsoring] professional organization; 7. Completion of additional training and/or continuing education; 8. Evidence of ethical behavior; 9. Personal and/or professional references; 10. Completion of an oral evaluation and/or interview. In a survey designated to measure the need for, and desired characteristics of, profes- sional certification of individuals with a professional specialty in marketing research, McDaniel and Solano-Mendez identify a similar list of criteria for structuring a certifica- tion program (1993, p. 25). In order of importance, these are: 112 FINANCIAL SERVICES REVIEW 6(2) 1997 1. Evidence of ethical behavior; 2. Professional experience; 3. Current employment in the field; 4. Examination over knowledge in the field; 5. Academic preparation/program of study; 6. Personal and professional references; 7. Performance examination; 8. Membership in that professional organization; 9. Oral examination (i.e, demonstration of skills in a simulated exercise). The importance of ethical behavior revealed in the McDaniel and Solano-Mendez sur- vey is reflected in most certification programs. An often stated belief is that “. . [a] certifi- cation program without a strong code of ethics would be a disservice to our profession, our clients, and ourselves” (Wukitsch, 1990b, p. 69). Some researchers, however, assert that “certification could be misleading to a naive client. Also, whereas certification cannot ensure ethical behavior, it could conceivably be used to mask unethical behavior” (Ritten- burg & Mudock, 1994, p. 8). In many cases, however, adherence to a code of ethics is a condition of membership in the sponsoring organization and is not contingent upon completion of a certification pro- gram. Such is the case with NAR. It is not necessary to complete, or even begin, any of the numerous certification programs available to retain membership in NAR. Thus adherence to NAR’s code of ethics is not contingent upon obtaining a designation, nor do any of the designation programs carry more stringent ethical considerations. The fields offering certification programs are generally those which deal directly with the public in some capacity. In most instances the push for certification is strongest when the field is one in which poor performance offers the potential for harm to consumers. Although this is most evident in the health professions, the potential for harm is also present in those fields that involve financial decisions. In some instances, the protection of the public is insured through legislative methods. This is certainly true in the field of real estate brokerage, and has become the case for real estate appraisal (Lahey, Ott, & Lahey, 1993). The legal basis for licensing is, in fact, the need to protect the public welfare. Licensing statutes are permitted as an exercise of the police power of the states. Thus those fields which require licensing already have a mech- anism to protect the public. Therefore, the existence of certification programs suggests that the minimum standards of practice required under the licensing statutes are not sufficient to adequately protect consumers, or that the licensing statutes are not adequately enforced. IV. ADDITIONAL CERTIFICATION CONSIDERATIONS The goals described above are those most often used to explain the need for creating or main- taining certification programs. The need for certification programs when any or all of these goals are not being met is clear. In the field of real estate brokerage, and most related real estate fields, these goals are generally met through legislative requirements (licensing and continuing education) or a strong national organization with an appropriate code of ethics. Professional Designations 113 Unless the public demands a standard of performance beyond that required by the combination of legislative and professional organization efforts, certification programs would appear to serve no real need. One of the major concerns voiced in the appraisal industry is “whether professional designations awarded by associations.. .will be as impor- tant, because all an appraiser needs to work for a federal-related institution or agency is to hold a state certificate or license, not a designation” (Davis, 1989, p. 154). There are, how- ever, several additional factors which may explain the continued demand for designations. Nancye Kirk, staff vice president for the Institute of Real Estate Management, lists three “rewards of professional designations” (Professional Designations.. .1987, p. 65): 1. Increased credibility and enhanced job opportunities; 2. Professional contacts which accompany association membership; 3. Enhanced earnings potential. Glenn Crellin, formerly Vice President for Economics and Research at NAR, points out two additional reasons for certification. First, the mandatory continuing education (MCE) requirement found in real estate puts real estate agents back in the classroom. “Once in the class, the motivation to stay to receive something tangible for the effort is expanded. In many cases that result becomes a license or a designation” (Crellin, 1991). Crellin also points to a variation of the “enhanced professional contacts” role mentioned by Kirk. Approximately 70-80% of NAR’s membership operates in the general area of resi- dential brokerage. Thus, finding a peer who specializes often becomes a difficult process. For many, the most reliable method of locating specialists is to seek out those agents who hold an appropriate designation. Galbraith and Gilley (1985, p. 13) provide a summary list of “other purposes” for cer- tification, including to: l Promote professionalism; l Enhance the prestige of the profession; l Improve academic programs; l Be an income producer; l Distinguish individuals from peers and colleagues; l Encourage individuals to remain in the profession; l Avoid external governmental regulations; l Stabilize individual’s job security; l Protect clients/employees from incompetent practitioners; and l Prevent cannibalism (the recruitment of individuals from other professional asso- ciations in order to strengthen one’s own). These goals are obviously designed primarily with the welfare of the recipient of the designation in mind, not the user of the service. In similar fashion, Gilley (1988) suggests a seven-step plan to “market” a certification program. Interestingly, the marketing plan is I‘. . .focused on meeting the needs of certified or potentially certifiable individuals” (Gilley, 1988, p. 110). It would appear that in many fields (Gilley was speaking specifically about the interior design field), the concerns expressed by organizations do not relate in any 114 FINANCIAL SERVKES REVIEW 6(2) 1997 meaningful way to the unmet needs of clients. Rather they seem to be based, at least in part, on the need to generate revenue and other benefits associated with a successful certification program. Because certification “can guarantee only that an individual meets certain knowl- edge, education, and/or experience requirements, it cannot guarantee competence” (Ritten- burg & Murdock, 1994, p. 7). Some researchers argue that “certification would benefit only those doing the ~e~i~~ation, entrenched practitioners, and academics-not the pub- lic...” (Rittenburg & Murdock, 1994, p. 8). Shimberg (1984, p. 14) similarly cites the ability of certification credentials to ‘&. . .pro- vide significant economic benefits to those who possess them.” One danger in such pro- grams is the temptation by sponsoring organizations “. . .to restrict the number of certified individuals by increasing the difficulty of the tests or increasing other qualifications, thereby giving special benefits to those who are already certified.” The antit~st charge made under the Sherman Act is that such programs act as a “conspiracy to monopolize” trade in a particular market by creating membership restrictions for organizations or ser- vices essential to competing on an equal basis. Although frequently raised, this argument appears to have little, if any, validity. Webster, citing Internal Revenue Service and Federal Trade Commission rulings and guidelines, finds that “[alntitrust violations need not be engendered if the program is educational in nature, is open to all, and is not designed to fix prices, exclude members, or allocate markets” (1989, p. 132). V. EVALUATING CERTIFICA~ON PROGRAMS The evaluation of certification programs may proceed from the criteria developed by NOCA involving the structure of both the sponsoring organization and the certification program. There may be compelling reasons for the existence of a particular certification program based solely, or almost so, on the basic goals of certification described earlier. The ce~i~~ation programs in appraisal, for example, have their origins in meeting these needs in a field which until recently lacked legislative efforts. In similar fashion, the accounting industry has remained almost solely self regulated through the use of the CPA program. The focus of this paper is on a field, real estate brokerage, which has long been char- acterized by strong legislative efforts in mandatory education, licensing, and continuing education. Such a field would not appear to be in need of independent certification pro- grams. However, real estate brokerage boasts many certification programs that apply to individuals who must also comply with state licensing regulations and adhere to a compre- hensive organizational code of ethics. Thus, with basic certification goals already met, there remain only two reasons why such programs exist: 1. Legislative efforts to protect the public are insufficient or are not enforced effectively. If, for example, a distinction exists between complaints filed by consumers against certified brokers (or salespersons) as opposed to noncertified brokers, then a case could be made on this basis. Although there is very little, if any, research in this area, it would appear that such is not the case. The Hawaii Real Estate Commission, in preparing to ini- tiate a MCE program, did note that in anaiyzing its complaint files “lilt appears that licens- Professional Designations 115 ees with nine or more years of experience had a disproportionately higher number of complaints than did licensees with less than nine years” (Ordway & Yee, 1989, p. 13). This study, like other similar efforts, was aimed at an evaluation of the need for MCE and did not directly address the use of certification programs per se. It is implied, however, that since the certification programs had been available for a considerable time period prior to this finding, either licensees in Hawaii did not pursue such programs in sufficient numbers, or the certification programs did not provide the additional public protection desired. Unfortunately, since no research efforts have been aimed specifically at this question, only speculation is possible. 2. Certification programs provide member and organization benefits. As discussed earlier, this reasoning seems to provide much of the basis for certifica- tion programs in certain fields. Since basic consumer protection needs have already been met through legislative efforts, real estate brokerage may fall in this category. If so, a cer- tification program must meet only two criteria to be successful: l Clients must express a desire for credentials and/or protection beyond those pro- vided by basic licensure; and l Clients must view those holding the designation as being more competent and/or more ethical than those who do not hold the designation. In this context, it is not even essential that members of the general public recognize the designation. Recognition by the client group, however, is certainly a desirable feature. Clearly, those seeking certification must believe that the program they have selected meets these criteria or that the supplemental benefits described earlier are sufficient. Obtaining a designation, however, can be a difficult and costly process. Obtaining the CCIM designa- tion, for example, is estimated to cost candidates a minimum of $10,000 to $15,000 (Davis, 1993, p. 78). Candidates continue to seek the designation, says Steven F. Pope, Executive Vice President of CIREI, because they “believe that they will have a better chance to sur- vive if they have the CCIM designation” (Davis 1993, p. 78). VI. REAL ESTATE BROKERAGE CLIENT SURVEYS Lack of recognition by the ultimate consumer group for real estate industry designation holders does not, by itself, completely eliminate the desire to obtain such certification. A poor level of recognition would5 however, cast into serious question the value in the mar- ketplace of many real estate industry designations. This study undertakes an assessment of the client group for residential real estate brokerage with regard to familiarity with profes- sional designations. The assessment consists of direct mail responses to three questions from a sample of potential real estate brokerage clients. The results of three such surveys are reported here. The first survey took place during 199 1 and was sent to a sample of U.S. homeowners. The second survey took place during 1994 and was sent to recent home buy- ers. The third survey took place in 1996 and was also sent to recent home buyers. A differ- ent source of mailing labels was obtained for the second and third surveys. These national 116 FINANCIAL SERVICES REVIEW 6(2) 1997 lists consisted of names and addresses developed from public records of deed recordings for home sales which took place during January 1994 and January 1996, respectively. The purpose of each survey is to investigate three aspects of client familiarity with professional designations. The first probes the level of recognition of a set of common professional designations, including one nonexistent designation. The second concerns the perceived level of competence for individuals with a designation when compared to individuals who do not hold the designation. The third involves a series of events which commonly call for the use of a service provider who may hold a professional designation. Respondents are asked to indicate how important it is that the provider hold an appropri- ate professional designation (even if they do not know what the appropriate designation might be). A. The Survey Instrument The survey instrument consists of questions addressing the three elements described above, along with introductory material describing the nature of the survey and a few demographic questions. Question number one provides the list of designations included in the study and asks respondents to indicate which type of business activity each is associ- ated with. The list of designations, presented in alphabetic order, represents a cross-section of common nonhealth related professional business services. The designations, and the full title for each, are listed in Table 2. The “Type of Business Activity” information is based on the choices available to respondents. In addition to the business activities listed in Table 2, two other choices are available. The only other business activity type listed is that of “marketing.” The nonexistent CMR designation, which could stand for “Certified Market Researcher” if such a program existed, is provided for two reasons. First, to test the willingness of respondents to attribute a nonexistent designation to a type of business activity. Second, to provide some early information on the potential need for a certification program in the field of marketing research, an area which has recently generated interest in such a program (McDaniel & Solano-Mendez, 1993; Phillips, 1989; Rittenburg & Murdock, 1994; Schlossberg, 1989; Wukitsch, 1990a). The other choice is a “Do Not Recognize” option for designations not recognized by respondents. Question number two, using the same set of designations from question one, asks respondents to rate the competence of someone who holds each of the designations when compared to an individual who does not have the designation but offers the service. TABLE 2 Designations Used in Surveys LkYi