State governments across the US have been engaging in much hand wringing these past few years about the “gig economy.” Loss of potential tax dollars and lack of government regulation keeps many state lawmakers awake at night; so much thought has been put into shielding Uber drivers and Waitr delivery guys by using sketchy income documentation as exploitation by their clever, capitalistic overlords so they don’t pay payroll taxes or workman’s compensation insurance premiums because of their workers’ independent contractor status.
Perhaps to no one’s surprise, the first state to pass legislation to regulate the industry and require workers be moved from independent contractor to employee status is California. Whether this move is truly about protecting labor or collecting more taxes is a matter of opinion, but other states will undoubtedly follow suit and the laws they enact could have far reaching implications beyond their original intent, as is often the case with government regulation.
So what does any of this have to do with real estate? Many people outside of the industry don’t realize that the vast majority of real estate agents are independent contractors. They are not employees of their respective brokerages and they don’t get paid a salary of any kind. In fact, they are the ones who have to pay the brokerage, and they don’t earn a single dime until the actual sale of the house closes. This is why agents get mad when they show you 25 properties and you decide to pursue your passion for underwater basketweaving with the money you had saved for a down payment.
The argument that agents are independent contractors is shaky at best and has only survived thus far through a number of legislative exceptions and the gargantuan lobbying efforts of the National Association of Realtors (NAR). But what happens if cash strapped state governments decide the potential tax dollars are a higher value proposition than all that sweet lobbying money? NAR is fast losing clout as it continues to get all aspects of industry innovation wrong. The organization is further threatened by a growing number of lawsuits brought by fed up consumers, and cheered on by real estate industry disruptors, challenging the organization’s monopoly of the multiple listing service or MLS. If NAR loses control of the MLS and can no longer force membership in order to gain access, those membership dues and lobbying dollars will disappear faster than a house priced $50,000 below market value in the hottest neighborhood in town.
The next question to be pondered is what does all this mean for consumers and current real estate agents? If the sacred cow of independent contractor status is ever slaughtered, it is a sure bet that your local big box real estate office that brags about being the biggest will no longer have 200 agents working under that brand’s name in the “I can only work for this broker and I am legally required to be under their supervision, but I am somehow an independent contractor” status. Let’s not even think about the upheaval it would cause in the trendy team structure because team leaders aren’t brokers anyway so are they even really exempt from having to pay the people working on their team? It’s all too much and sadly, it’s likely your local big box brokerage office would cease to exist. Having to retain agents as employees and paying the resulting salaries and benefits is a direct assault to companies whose business models rely on hiring as many agents as possible with a pulse and the ability to pay fees.
Social media feeds would also be much less crowded with people like me standing besides people holding sparkly keys, posting our listing for the eleventieth time, and reminding you daily we are a Realtor and we LOVE referrals. The inevitable massive culling of the real estate agent herd would mean a more peaceful, less annoying Facebook scrolling experience not only because of the reduction of agents, but also because the best of the best professionals left wouldn’t need to resort to relentless marketing to compete with all five of your cousins and your buddy from work’s wife who all just got their real estate license.
The other side of that increased professionalism coin, is consumers will likely see a slowing in the downward pressure on commissions. When you are left with the truly professional creme de la creme, they will expect to be compensated as such as will their employers who need that money to pay all those payroll taxes and worker’s comp premiums.
Lost in all this, is the real estate agent who does just fine with their job, takes care of their clients, and makes a nice primary or supplemental income providing a valuable and needed service. Maybe they need the flexibility of a real estate career because of health reasons, or they need the extra money they earn helping a friend find a house to care for an aging parent. Maybe they are themselves a parent who simply want to give their kids a better life and take them to see Mickey Mouse a couple times before their time with them is over. They knew there were no guarantees, no salaries, and no benefits. But they chose this path because it worked for them. They will join the thousands of former gig economy workers who have to look elsewhere for work to help them reach their goals and dreams.
Whether or not this is a good or bad thing, is once again a matter of opinion.
The current real estate industry structure that relies on the designation of agents as independent contractors is safe for now, as the final version of the California legislation includes the usual real estate related exemptions. How long that status quo will last in a rapidly changing industry is anyone’s guess.