Industry reacts to minimum wage

Industry reacts to minimum wage

MAIN IMAGE: Tony Clarke, managing director for the Rawson Property Group; Paul Stevens, CEO of Just Property; Nondumiso Mthwa, CEO/principal of Idwala Property Group; Charles Haigh, broker/owner RE/MAX Elite.

The application of minimum wage in real estate is not straight-forward – will the additional financial strain discourage agencies from taking on new recruits or will it motivate more people to join this tough industry?

Being a commission-based industry, no-one expected that payment of minimum wage would be applicable to traditional real estate. However, industry body Rebosa has done their homework and obtained detailed legal opinion on the matter.

This made it clear that “estate agents (whose employment agreements qualify them as employees) who doesn’t make any sales or earn less than R3 500/month in commission qualify to be paid a minimum wage (R3 500 per month or R20 an hour is the national minimum wage set by the Act)”.

Read: Estate agents could qualify for minimum wage

This means in effect that agencies would have to revisit the contracts they offer interns or new agents so that it makes provision for the applicable conditions when payment of minimum wage would apply.

Jan le Roux, CE of Rebosa, expressed apprehension on how this development would be received by an industry in which minimum ‘salaries’ never applied saying it may well negatively affect the appointment of new agents. On the other hand, he said the prospect of earning a basic salary might also motivate recruitment as new young agents battle to make ends meet in their first year of employment.

Many agents expressed deep concern about the financial strain payment of minimum salaries might have on agencies. One of them is experienced RE/MAX Elite broker/owner Charles Haigh, who has been in the industry since 1987. Their franchise model is based on a fixed fee per agent payable to their international office in addition to operational costs per agent. He has serious concerns about various issues connected to implementing minimum wage, but chief among them is the financial strain the addition of a minimum wage would make to the overheads of any agency, irrespective of its’ size.

He says their figures indicate the actual cost to company for an average intern agent will be close to R15 000. Sellers are looking for low commission rates, so while experienced agents can easier justify their ‘higher’ commission rates because they have a strong network built up already, new agents may find it harder to prove their mettle to justify their commission. Haigh is also concerned about agents who are not making sales due to the current economic climate. “Do you cut them loose because of this and in turn contribute to unemployment stats?” he asks.

Lastly, he says experience with the One Learner One Agency recruitment initiative of the Estate Agency Affairs Board (EAAB) showed that due to a lack of proper screening of candidates, some recruits were accepted that applied purely to receive the stipend. “It won’t be long before job seekers know that estate agencies offer employment opportunities, albeit for minimum wage, because that is more than they currently earn as an unemployed person,” he says.

“There are a lot of dynamics to this. It is not a black and white, straight cut issue,” says Nondumiso Mthwa, CEO/principal of Idwala Property Group in Durban. She says should minimum wage be enforced then it would have to be on a give and take basis where agencies are entitled to some percentage of pay back after an agent makes a commission. This might make principals skeptical about taking on new agents which would be detrimental in terms of the country’s high unemployment rate. This would also then be a damper on the transformation drive in the sector.

It would also lead to stricter measures in terms of managing staff Mthwa says. “Non-performing agents will no longer be tolerated or given a chance. Three months is too much when, for example, you must pay 3 non-performers who have not managed to sell anything for three months,” she concludes.

A stricter performance model that will drive greater professionalism will be welcomed says Tony Clarke, managing director for the Rawson Property Group. “Paying a minimum wage to interns who have little or no experience could possibly drive higher standards and healthy competition amongst agents in the real estate industry,” he says.

Clarke says there’s a fundamental attitude shift that needs to happen. “Establishing strictly enforced ethical standards should become a high priority for every real estate company, together with ongoing management, mandatory agent training and working with a mentor. I believe that the shift to an employee model may just raise the bar with regards to professionalism, and drive the business to be more profitable, proactive and efficient.”

In addition, he reckons it will help agents, especially interns, to have a stable income while learning the ropes and building their client base in order to make their first sale. He also thinks the introduction of minimum wage may attract more people to work in traditional real estate. “Many people are simply not able to get into real estate as they cannot afford to have a period of no earning while they wait for their first deal to be concluded,” he says but acknowledges that paying basic salaries may place strain on real estate business owners who are not used to it.

“Much attention would need to be focused on the employment contract specifically salary and commission structure. Ideally this would need to be negotiated resulting in a win-win situation for both parties,” advises Clarke.

Another supporter of minimum wage in real estate is Paul Stevens, CEO of Just Property, who says the National Minimum Wage Act should be supported as it seeks to give South Africans a fair chance at making ends meet.

“The important thing is not to limit the focus on the baseline of agents earning the minimum wage. Our focus right now is on ensuring that our employment contracts remain firmly grounded in the law, on revisiting our business models (including commission structures) and on improving our business pipelines so that our agents can achieve their financial goals,” he says.

Stevens says they are confident the overhead cost of paying fixed salaries will not have a negative impact on the transformation of the real estate industry. “In fact, we expect just the opposite. If principals are required to invest in people by paying fixed minimum salaries, they will choose those people more carefully, they will mentor them more carefully and they will performance manage them more closely. All of these behaviours will have a positive impact on the experiences of our customers and that is something that excites me. We may have fewer agents, but they will be better agents,” he ends.

Of course, it remains to be seen to what extend government will enforce the new Act yet the most prudent route for agencies to take would be to revisit their contracts as soon as possible to ensure it conforms to the letter of the law. The challenge lies in drafting a salary and commission structure that results in a win-win situation for both parties.

Comments on articles in Property Professional are welcome and may even be published on our comments page Speakers Corner (subject to editorial approval). Email contributions to editor@propertyprofessional.co.za.

Comments
  • Johan Meyer
    Reply

    We are already paying a basic salary plus commission to Interns in our Rental Market and have been doing so for some time. I believe that there needs to be some consideration given to basic salaries but then there are going to have to be strict enforcement of job descriptions hours of work and availability. Currently most agents have freedom to work whatever hours they wish as long as they are successful. It is going to mean a stringent selection process and I agree that we may see fewer agents in the Industry who provide a better quality of service. Our Industry has been a pure commission based business for too long which as I have commented on before is a barrier to entry for some.

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