There’s plenty of evidence to suggest that the number of real estate agents around Australia will decrease over the next 12 months....
Last week I shared my thoughts about how this cycle of the market will leave many agents considering other career options.
There is another big factor in my reasons for believing that the number of agents will hit a significant decline (my prediction was a culling of around 15-20% of agents in Queensland within the next 12 months) and this reason centres around new legislation for sales people employed within the industry.
Back in the day when I first entered the real estate sales industry in the year 2000, I was employed on a ‘commission only’ basis despite having no prior experience in the industry.
Many agents who entered the industry around this time (or before) were likely employed in a similar way.
A number of years ago, the Government changed the laws regarding the employment of real estate salespeople whereby a person could only be employed on a ‘commission only’ basis should they have proven that they could earn 115% of the award wage in real estate sales or another similar sales related industry.
This legislation was introduced bu not policed very heavily and whilst it made waves at the time, little change was made by the industry as a whole.
Some agents are employed on a ‘retainer’ whereby they are provided a regular income (the award at the time was around $40,000 per annum) and any commissions earned would be off-set against the repayment of this retainer.
Again, this was quite legal at the time.
If an agent quit the industry, the employer didn’t have any rights over this retainer if some of it was still owing by the salesperson and this was the risk that the real estate agency took in bringing on a new salesperson.
In more recent times, the legislation has sought to increase the minimum retainer and introduced additional amounts for a mobile phone allowance and car allowance as well.
In April last year, a complete ‘shakeup’ of the industry was announced whereby the ‘retainer’ model would no longer be accepted and an agent could only be employed on a ‘commission only’ basis should they have proven within the previous 12 month period that they could earn a figure that is 115% of the award (which is approximately $52,000 per year and includes a car allowance and phone allowance).
If an agent can’t demonstrate the ability to earn this amount, they must be employed on a salary (or non-repayable wage) of at least the minimum wage (approximately $52,000).
As an employer of real estate salespeople, if an agent isn’t making the required amount of sales, then it does (in many cases) become financially unviable to employee them on a wage of such an amount as they’d be costing more money than they’d be making the company.
One of the frustrations I’ve had with real estate agents over the years is that many don’t treat it like a full-time job when they’re getting started – they don’t spend 40-50 hours per week of solid work in order to generate business and flourish.
Agents needs to be self-motivated and the truth is that many of them are not this way inclined.
The truth is that running a real estate company is sometimes not the huge financial windfall that many would expect.
After an agent takes their slice of the commission (which is usually more than half), the agency must pay rent, utilities, insurances, subscription fees (which are considerable), marketing costs, training and support staff wages…just to name a few of the main costs involved to keep the doors open.
What’s interesting and has upset the industry is that there’s plenty of ‘part-time’ agents that might be semi-retired or people supplementing their income that don’t earn this amount but are happy to work on a ‘commission only’ basis…but new legislation dictates that there’s no room for these people in the industry anymore.
This legislation took effect on April 2, 2018 and offered a 12-month grace period for agents to prove their earning capacity – in other words, by April 2, 2019, any agent that can’t demonstrate an ability to earn approximately $52,000 per year must be employed on a salary or simply have their employment terminated.
The Government has promised harsh penalties for those real estate agencies that do not adhere to this new legislation.
When statistics tell us that the average agent in Australia makes only 9 sales per year (and by the time an agency takes their slice), I can tell you that there will be an enormous number of agents that will fall into this category.
Like all new legislation, some real estate Principal licensees will simply ignore it and ‘stick their head in the sand’ whilst others will make immediate changes.
Some will seek to find ways to ‘get around’ this new legislation and others will be forced to start laying off under-performing staff.
In any event, I have every reason to believe that a culling of 15-20% might be quite conservative and this number could be a lot higher if the industry does police this new legislation with a heavy hand.
Like all predictions, only time will tell.
Until next week…Happy Listing & Happy Selling.