Marketing costs don’t reflect a property’s value, and Queensland’s form 27c is a joke

Who said I don’t read my mail!  I might be a bit tardy in my replies.  OK, outright ignorant at times, but our post last week got a high proportion of direct email replies questioning the impact of Form 27c on commissions and the market in general.  A few poor souls think that Form 27c has no bearing on valuation.

For those who don’t know, sales commissions are fixed in Queensland at 5% on the first $18,000 and then 2.5% thereafter, plus GST.  It is “illegal” to charge the seller commission above this amount.

Form 27c – as I understand it – is simply a disclosure by the selling agent to the buyer of all fees or favours that are incurred as the result of a sale.  It discloses actual commissions paid, marketing fees/costs paid, management overriders, referrals paid and to whom; and even introductions to other parties (i.e. finance brokers, solicitors, etc) that could assist the buyer –  even if it was a verbal or written reference with no fees paid.   Any party to a real estate sale transaction must be identified, and the remuneration or otherwise identified.

I know it is agony reading such legal-speak but bear with me!

All agents charge the statutory maximum or less as the commission for the transaction.  A number of agents charge their marketing costs on a per transaction basis.  Most sellers of suburban residential real estate are either charged an advertising cost before sale, or some agents are happy to carry this cost on the basis they are paid from sale proceeds.  This can be a higher amount than a pre-sale advertising cost due to the risk to the agent of no sale. However, it’s a great benefit to the seller because they don’t pay unless they “get a result”.

In a buyer’s market, sellers should be budgeting on about 2% of the end sale price for presenting and promoting their property.

In fact, today the normal budget for a sales campaign (including commission, advertising and marketing costs) of a residential property, should be 5% to 6% of the likely sale price.  The commission element is 2.6% on a $500,000 i.e. $13,000.  It’s not hard to spend another $15,000 on marketing and all other costs of sale.

In short, valuers are NOT considering the normal costs of sale.  Too many think (or the banks/mortgage insurers think on their behalf) a property should sell without marketing.

For local property observers, yesterday Place released research showing 450 new apartments (totalling something like $230 million of sales) were reported sold during the March quarter.  Putting aside when these sales were actually made, what Place’s work doesn’t outline is the typical cost per sale.

Most high selling new apartment projects are incurring advertising and marketing costs of between $25,000 and $30,000 per apartment.   True, the smarter in the pack have lower costs per sale.  But most don’t.  In some instances promotional fees exceed $50,000 per apartment.

And it is only going to get more competitive if Place’s research rings true, as there are now 48 major apartment projects across inner Brisbane with a total of 2,100 new apartments for sale.  Importantly, 36 of these projects are either under construction or completed.  These apartments will need to be sold.

In short, Form 27c is a joke because it is now being wrongly used to determine valuations.  Its application does not reflect the current market conditions or how real estate business is really done.

If I want to spend $1 or $1million to market my property, how does this relate to the property value?

Michael Matusik is the director of independent property advisory Matusik Property Insights. Michael is a 25-year veteran in the industry and his firm has helped over 550 new residential developments come to fruition.  Michael has launched a new initiative, called Think Matusik.  Think Matusik brings together expert opinion and select property opportunities.