Real estate brokers are generally in the eat-what-you-kill business, working as independent contractors whose main source of income is a commission check rather than a salary. In New York City alone, there are more than 50,000 licensed real estate brokers, a majority of whom get paid only when they close a deal.
In past crises, those workers were usually left out of government bailouts designed to assist companies keeping employees on the payroll.
Now, the federal government’s $2 trillion relief package extends aid to that usually overlooked segment of the workforce. But there’s a question as to whether the available funds are adequate to cover the expected deluge of layoffs amid the widening coronavirus pandemic that has shredded the economy.
“Normally, self-employed or independent individuals are not able to take advantage of a lot of these programs,” said Phillip Schreiber, an attorney in the labor and employment practice at the law firm Holland & Knight. “At least not in this capacity.” Schreiber noted that Washington lawmakers acted quickly and with force in an attempt to prop up workers so they’ll be in a position to hit the ground running once the pandemic subsides.
“I think that’s why you see this expansion to a group of people that are not traditionally covered,” he said.
The Coronavirus Aid, Relief and Economic Security (CARES) Act, which President Trump signed into law Friday, provides employment relief through the Small Business Administration.
It has two loan programs for small businesses with 500 employees or less.
The larger of the two is known as the SBA 7(a) Payroll Protection Program, which provides a loan up to $10 million to cover expenses like payroll, mortgage interest, rent and utilities for the period from Feb. 15 to June 30.
Individual salary amounts are capped at $100,000. And if the employer keeps payroll expenses at 75 percent of the previous year’s level, the loans will be forgiven.
A spokesperson for the National Association of Realtors said the program is available to individual brokers, meaning they can take out loans to cover lost commissions as payroll.
“These loans are available to the self-employed/independent contractors, and the forgivable payroll amounts includes those as well as commission-based employees,” NAR wrote in a note on the package.
The second program is the Economic Injury Disaster Loans — known as SBA 7(b)(2) loans — which provides $10,000 advances on emergency loans that are supposed to be dispersed within three days. The loans are limited to $2 million.
Combined, though, those programs only offer $359 billion in relief, which may not be enough for the unprecedented number of people expected to lose their jobs nationwide.
Economists at the American Enterprise Institute think tank estimated the need could be more than triple that figure.
“We estimate the cost of replacing 80 percent of the revenue for three months of private-sector firms with fewer than 500 employees, excluding the manufacturing, health, education and finance industries, to be $1.2 trillion,” they wrote.
Some of the largest brokerages have already made moves to cut costs.
Compass last week laid off 15 percent of its total staff. Those were limited to employees though, and not agents. Compass has 2,500 employees and 15,500 agents nationwide.
Realogy also temporarily cut the salary and work week of a “majority of our employees,” the company disclosed in a regulatory filing last week.
And on Monday Meridian Capital Group, New York City’s most active debt brokerage, laid off a “small number” of support and back-office workers.
Last week, more than 3 million people nationwide filed for unemployment benefits. In New York state, more than 80,500 claims were filed for the week ending March 21.
Schreiber said brokers who are eligible should apply for the SBA loans as soon as they can.
“As more people sign up for them, the backlog is going to increase,” he said. “There are only so many loans that can be processed at a time. That alone suggests waiting is probably not ideal.”
Contact Rich Bockmann at [email protected] or 908-415-5229