Letters to the editor: Agents commissions
Our editorial mailboxes are regularly filled up with article requests, feedback and thoughts, and we welcome this from every reader. You can contact me via jduke@propertyobserver.com.au, the entire team via news@propertyobserver.com.au and you can find individual reporters' details at the bottom of their articles.
Here we share a couple of the inbox highlights.
Garth Rothwell - Property1 (In reference to 'Queensland agents no longer need to disclose commissions to buyers under new laws')
Hi Jennifer,
I read your article with some interest, the Form 27c Agents Disclosure was always a farce, general real estate agents never cared and those who wanted to circumvent the disclosure statement did so with consumate ease, quite legally.
I remember telling one person the disclosure did not provide him with the right to negotiate fees in order to get a rebate or price reduction, he had the right to know but not to negotiate upon which he went from a wolf to a sheep and said 'what use is that to me then" my response was "none" he was not happy but his wife still wanted the property - she won and he lost.
The only thing the form 27c ever did was provide politicians with a tub thumping exercise, which is the closest many of them ever got to aerobic exercise.
- In further correspondence
Buyers mistakenly believe commission equates to value but in reality it has little to do with it, let me ask you a question, the Australian Cricket Team is sponsored by Weet Bix, what part of the sponsorship do think is not in the price of a box of Weet Bix? Do you ask to see the Cricketers Contracts and try to work out how much it has increased the price by or do you just buy the Weet Bix?Developers paid higher commissions because they could not sell their product through local agents when the market was in decline during slow flat periods in the mid to late 90's, the marketing groups had much higher costs than the local agents running large telemarketing teams and expensive media advertising.
the marketing groups had much higher costs than the local agents running large telemarketing teams and expensive media advertising. This additional cost can be paid for a number of way's, the developer pays for it directly and bears the loss if nothing is sold, which no developer is ever keen on doing, in which case the cost is added to the price and never declared as it is classed as advertising and marketing paid by the developer.
The alternative was to pay on "success" the Marketeeer's (rhymes with Mouseketeer's) take the risk but get paid a higher fee on sale and settlement on the property, either way the cost is added to the property there is no other way to do it, unless you expect the developer to sell at a loss in which case the developer goes broke, fails to pay the tradies and causes chaos in the market place.
In 2000 there was a development in Milton, 83 units, the developer spent $250K on a marketing campaign and got nothing for their efforts 4-6 months later the developer increased the prices by $3,000.00 - $5,000.00 to compensate for the loss, they also paid investment groups $20-$25K in commission to sell them. Within 12 months the market picked up and the units began selling, the developer increased prices by $30,000.00 - $40,000.00 and stopped paying the higher commissions because local agents and their own internal salespeople were able to sell them.
Question, would you rather have paid $40,000.00 less and purchased through an investment group 12 months earlier or paid $40,000.00 more but had the "Placebo Effect" of believing you got a good deal because the salesperson got paid less?
Fact No.1 - There is only one piece of information the buyer needs and should have and that is copy of the banks valuation for mortgage security purposes, it should be attached to the mortgage doc's signed and witnessed by a JP or accredited notary. This way the buyer knows what the bank is basing their risk assessment on as this is the basis for lending the funds in the first place.
Fact No.2 - Marketeer's simply sub contracted the selling to consultants with an agents licence and an ABN and paid them $5,000.00 commission and as per legislation the "agent" declared $5,000.00, the marketeer then takes their fee as advertising and marketing and as they are 2 separate entities, the marketeer declares nothing. That is one of several ways around the Form 27c, that took 34 seconds to work out and they spent 30 seconds of that making coffee.
As for my own practice I sold 2 townhouses at 93 Bilyana St unit 6 paid $375,000.00 which was $15,000.00 less than units 3 & 4 sold by Ray White for $390,000.00. I received $20K commission & marketing fee which was declared on the Form 27c. Ray White received the standard commission $10,000.00 - $12,000.00, so the commission paid had no bearing on the value of the property. You can verify that on RP Data.
The problem I have always had with the Mouseketeers was the type of investment and quality of advice they were giving which had a far greater impact on the clients than commission being charged but that is another story in it's own right.
If we can get the govt. to add the valuation to the mortgage documents 99% of the "problems" will disappear it is not rocket science!
Karina Peatley
I really love your newsletter, it's the most engaging and interesting property news out there. I think it speaks well to young people and covers legislative as well as light-hearted issues. I can't help but read it every day. Thanks very much, it makes me want to contribute!
- Karina also provided us with this image of a vendor in his own property photographs for our 'poll of the day'