Exotic Dancers, Real Estate Agents and Minimum Wage

Earlier this month, Bloomberg reported that a U.S. District Judge ruled that exotic dancers at Rick’s Club in New York are entitled to minimum wage.  The decision came on the heels of a class action lawsuit filed on behalf of 1,900 dancers whose only compensation had been the tips they received from customers.

The Plaintiffs’ lawyer said the ruling “makes clear that employers cannot pass their statutory duties to pay wages on to their customers and gain an unfair advantage in the marketplace while their employees go without guaranteed or long-term benefits such as Social Security.”

As usually happens when I read a story about exotic dancers (or almost anything else), I thought about the real estate business (!).

You know real estate, don’t you?  It’s that business that thousands of people enter every year when what they really wanted to do doesn’t pan out. They become ‘Independent Contractors’ (which is what Rick’s Club considered its dancers to be) and only get paid when they bring in a commission.  The business model is a little like Avon or Amway or Herbalife where the number of people you recruit is more important to success than the amount of product you sell.  In real estate almost anyone who has a license can go to ‘work’ for almost any broker whether they ever produce or not because, hey, they’re not costing the broker anything, are they?

The end result of this idiotic business model is awful productivity.  The average real estate agent sold fewer than 8 homes in 2012 and made about $34,900 gross (before business expenses).

Can you imagine how quickly the whole industry would turn around if brokers were forced to pay their agents minimum wage?  Massive staff cuts would occur across the board.  Century 21’s sales force would shrink by 70% and all of those people would get letters from the Unemployment Office informing them that as Independent Contractors they are not eligible for benefits.  Keller Williams would have a big company-wide picnic to say goodbye to half of its agents (a picnic because they have such a family-like culture).  Re/Max would shrink to a dozen offices nationwide because there would be no independent contractor agents left to rent desks.

Nothing much would change at Help-U-Sell, though.  Our business model (which, HELLO, is completely different than the rest of the industry), makes it impossible for us to maintain non-productive agents already.  An agent doing industry average production in a Help-U-Sell office is costing the broker a king’s ransom in blown leads and lost business.  So we’re already lean and mean.

Funny thing:  that bit about an agent doing average agent production in a Help-U-Sell office costing the broker a ton of cash?  That’s true in the other guys’ offices too.  It’s just that they don’t pay attention to that kind of stuff.  Like the Herbalife people, they believe their success is dependent on one thing:  how many agents they can stuff into their offices.  Productivity doesn’t matter.  What counts is bodies.

Prior to the downturn, Help-U-Sell had a very carefully conceived salary model in place.  It worked beautifully . . . when the market was somewhat normal.  When the business went off the cliff, however, much of what worked so well stopped functioning.  Almost everyone went into survival mode, abandoned the salary model and cut back on staff.  One notable exception was Patrick Wood, owner/broker of Help-U-Sell Prestige Properties in Chino Hills, CA.  He continues to run his office on a modified salary model and, coincidentally, has ranked in the top 5 of all Help-U-Sell brokers for years.

I have been pretty tongue-in-cheek in this post . . . except for the parts about Help-U-Sell: that was quite serious.  But let’s remember that the IRS has been after the real estate industry for years.  They’d like to see the Independent Contractor status of agents get tossed and it’s only been the flexed muscle of the National Association of REALTORS that’s kept it from happening.  If that kind of change did occur, many real estate brokers would simply shut down.  They couldn’t make their business model work with that additional constraint.  The survivors?  They’d do something the industry has historically NOT done very well:  they’d adapt.  And after a little shake out time, the industry would be better, the consumer would be better served and real estate would start to be an occupation people choose, not just fall back on.

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