Who needs a principal?

28 August 2018

A recent article I read on trust accounts got me thinking about other impediments to entry and advancement within the property industry. While abounding in opportunities for individuals, our industry is riddled with inconsistencies.

To name a few...

* A principal can be involved in more than one agency, spreading the business risk and income opportunities. An agent cannot.
* Because of the EAAB "principal" requirement, agents cannot operate legally without one and are giving away huge chunks of commission for no-to-low value add.
* Transformation is hampered by high entry costs, (sustaining yourself for months).

The biggest inconsistency?

In my opinion it is the "principal" requirement compounded by the poor quality of support many principals provide, if any at all!

Yes, principals are usually also the sole proprietor and funder of the agency, carrying the burden of the fixed costs, providing offices (who needs them?) and facilities such as landline telephone system, colour printing and more. But they exact a heavy cut of the commissions to more than cover these costs.

Agents have no choice but to operate under a principal and therefore share their commission, typically 50/50 maybe 40/60 in favour of the agent. A number of agency models require "desk fees"to be paid and/or a percentage is deducted from the commission before split.

Other models take a cut until the agency has earned a specific amount (R250K per annum?) and then all commission goes to the agent less of course certain ongoing fees.

Principals also carry the vicarious liability for all agents under their FFC - an agent gets in trouble with the EAAB, the principal is also in trouble. Unfortunately, because of the poor policing by the EAAB and inadequate penalties, this liability is a low risk, low cost "burden".

So, let's ask the question. "Why do we need principals"?

The best answer I can think of is "Because the EAAB says so."

It would be good if all principals cared for and nurtured their agents. Some do, but many don't.

Yes, principals need to be qualified at NQF 5 level, but that doesn't mean they know more than an experienced agent, especially if they are not actively involved in the day-to-day business operations, and many are not.

I facilitate class sessions for NQF/RPL assessments and PDE exam preparations. The level of understanding and knowledge of the requirements and the process to be followed before the learners arrive for their first session is poor to non-existent. Many know nothing about the PDE exam they will have to sit. Two interns had been given NQF manuals to prepare themselves for the RPL process!

Two people from the same agency withdrew from the NQF process after their first session because they could not see themselves coping with the workload. Sorry, no refunds! Thousands of rands wasted and two lives thrown into confusion.

Where were the principals?

Surely a new agent has the right to know what they are getting themselves into before joining and paying out money for their FFC and educational courses?

One seasoned agent recently left the employ of a well-known agency because he accidentally saw the remuneration the principal was drawing and finally realised he was helping fund someone who was not helping him much, if at all. He just owned the franchise!

It's high time for the model to change, for these impediments to entry and advancement within our industry to be removed.

When you hear talk about "disruption" in our industry it's usually a euphemism for finding ways to reduce commissions. The best way to do that is to get rid of all the principals. That will reduce commission requirements immediately because it will greatly reduce agent costs. Yes, commission is a cost to the agent - an unnecessary cost at that!

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