Sell real estate without a license and earn more than an agent: Arek Drozda

I was recently tagged on an article that did the rounds on LinkedIn. The article proposed the notion that professionals in the financial sector are fearful of being ostracised by developers. More to the point, John Collett of the Sydney Morning Herald wrotes “The brokers fear that they will be ostracised by developers if they go public…”.

Perhaps I’m totally misunderstanding the writer’s point and the genesis of the brokers’ fears. Have I missed something altogether? Let’s discuss.

I don’t disregard what Collett writes and I’m glad to accept that there is one more voice crying foul-play when it comes to overinflated commissions and the financial sector being induced to participate. I am however, bemused that none of Collett’s interviewees or article subjects, shed any light into the simple truth that selling real estate without a license is against the law.

If the single and only notion is that “the brokers fear that they will be ostracised by developers if they go public” then I believe the financial sector has totally missed the required need to be a “licensed real estate agent” to sell real estate.

For over 4-5 years I have been writing about the need to have Real Estate Commissions disclosed by one form or another. I have tracked over the last decade how “Marketing Fees” have moved from 4% to an alarming 10% value off the sale price of a property in the new construction sector. The average or typical real estate agent’s commission on a sale is 2%. In an overly heated market, these fees are added to the end values of the properties, which in turn only add more fuel to the property bubble.

Hopefully, we will soon hear the voice of the consumer crying foul-play, as the properties that were marketed by the financial sector and brought through SMSF property investment schemes, lose value.

We already have hints of such concerns, as new properties in mining-town sub divisions which were notoriously preferred by these schemes are now losing value due to high vacancy.

Soon enough and on the agenda, will be high rise apartments in capital cities and in particular projects that are still under construction. Presently there are properties being sold for $360,000, with "marketing fees" reflecting 10% or in real terms $35,000.

Huge losses incurred by the investors may be the trigger or the catalyst for the regulators to take more assertive action. These are actions that will hinder the sale of property by spruikers and marketing companies that don’t hold real estate licenses.

Nonetheless, it won’t stop most. However, if commissions were disclosed the consumer stands a better chance at discerning what is good value or not. Don't you think?

How this is allowed to happen and why is this so prevalent is no real secret. As to the how? It all comes down to one word. Replace the word “commission” with “marketing” and the fee payable need not be disclosed and anyone can sell real estate.

As to the why; the exaggerated fees are readily passed on to “property marketers and spruikers” mainly involved in the financial sector, all because they have an immense amount of influence over the purchaser. The spruikers assist with the decision making and place high recommendations on the development/project. This in turn allows the developer to inflate the price of the property to make room for the 8-10 percent commissions, sorry I meant “marketing fees”.

Again, please enlighten me, why brokers should fear developers? They get a commission under their job description as pointed out by Jan Kirstein and that is mortgage brokering. However, even Kirstein only refers to “something going wrong” as the main reason and conflict of interest, should things go pear shaped. Again, there is no mention of the need for a license. Leave the sale of real estate and reasonable commissions to the licensed real estate agents, is my suggestion.

At this point I ask, where are the Real Estate Institutes on this topic? I first raised this very issue and the need for agents to be protected against spruikers tainting the industry, over 4-5 years ago.

The financial industry was encroaching in our territory even before the “property boom” hit town. And before it was fashionable to set up SMSF schemes to buy property. Or better still, before they learned to by-pass the real estate agent and go direct to the source, the developers.

The further demise of the real estate industry and in this arena where simple regulations can also protect the consumer, is not due to lack of education on the part of the agents. We know very well not to make any reference to any financial gain, assertions about return on investment and capital gains. But, it seems clear that the financial sector are not well versed on who can sell real estate, legally that is.

One of the key rules I share with my friends and family, when it comes to being offered property by spruikers, accountants or mortgage brokers is; if they refer you to new property, then it’s just not worth the risk. If they in turn, refer you to a buyer’s-agent to help you find something other than new or off-the-plan, it would make more sense. However never avoid doing your own research. Nor underestimate, the power of simply calling a local agent in the area to ask what comparable properties are selling for and they don't need to be new.