Market players said on Wednesday that the move to scrap guidelines on property agents’ fees by September 25 is unlikely to leave a deep impact on the real estate sector. But they warned against rogue agents who might try to cash in on the change in rules.

The Competition Commission of Singapore (CCS) ruled on Tuesday that the fee guidelines adopted by the Institute of Estate Agents (IEA) should be removed as they are uncompetitive. Under the current guidelines, property agents stand to pocket a commission of 2 per cent of the transacted price.

With the removal of the guidelines, buyers and sellers will be free to negotiate the fee payable to their agents.

Real estate agencies are generally supportive of the move, but they are concerned that the lack of fee guidelines could trigger more rogue practices.

Chris Koh, director of Dennis Wee Group, said: “If the owner is not aware of what the market price of his property is, then he may fall into a trap where the rogue agent says, ‘Ok, you want a million dollars, that’s what you said you want. I will get you that S$1 million, but if I sell your property at S$1.2 million, then that S$200,000 is for me to keep since there is no guideline that it must be a percentage’.”

Another real estate company, Propnex, warned against agents who offer unnecessary services just to quote a higher commission.

Without any fee guidelines, market players said it is down to the agencies to set their own commission structure. Propnex said consumers must assess their agents based on their commitment, track record and knowledge of the market.

Some industry players said the removal of the commission guidelines will not spark a price war because the cost of marketing a property has nearly doubled in the past ten years, and it will not be sustainable for agents to start under-cutting each other.

On average, about 10 to 20 per cent of the agent’s commission goes into marketing efforts, such as taking out advertisements to promote a property. Paying a lower commission does not necessarily mean a better deal as agents may not put in as much effort to sell a property.

Some Singaporeans prefer to sell their properties on their own. Rosanah Mon helped her mother sell her three-room flat at Jalan Bukit Merah for S$230,000, saving over S$2,000 in the process.

“I don’t see the necessity (to get a property agent), if you know the procedures well and you follow the guidelines,” she said.

In fact, the Housing and Development Board (HDB) said it has seen an increase in the number of such transactions – rising from 5.5 per cent of total resale transactions in 1998 to about 8 per cent now.

To boost greater understanding of the sales procedures, HDB holds monthly resale seminars, with the next one scheduled on September 6. More information is available online at www.hdb.gov.sg.

Source : Channel NewsAsia – 6 Aug 2008

Move could foster competition and a price war among real estate agents

Home buyers and sellers will be able to haggle over the commission they pay property agents after a guideline on fees is axed next month.

The Competition Commission of Singapore (CCS) said yesterday that the guidelines adopted by the Institute of Estate Agents (IEA) in 1999 are uncompetitive and must go.

The surprise move could spark a price war among agents, say some experts.

Mr Seah Seng Choon, executive director of the Consumers Association of Singapore, believes buyers and sellers will be the winners: ‘Consumers should not accept agents who are harping on the old fee practices and should be free to bargain.’

At present, sellers of Housing Board flats generally pay the agent 2 per cent of the purchase price while the buyer pays 1 per cent. In private property transactions, only the seller pays 2 per cent.

The IEA guidelines have become standard practice, a point addressed by the competition watchdog yesterday.

It said that while the guidelines are not binding, ‘they provide a focal point for prices to converge. This will… dampen competition and facilitate price coordination.’

It also noted that they are stated as a ‘minimum fee’, which discourages any price competition below that rate.

‘Agents should not be constrained to offer the same price,’ said the CCS, which told the IEA on June 25 that the guidelines ‘are likely to infringe the Competition Act’.

IEA president Jeff Foo said the institute, which represents about 1,600 agents, will axe the guidelines by Sept 25.

Industry leaders had mixed reactions to yesterday’s news. Some say the impact will be minimal as agencies will keep the status quo but other experts forecast an agents’ price war, especially during market downturns.

‘This throws open negotiations between agents and sellers or buyers. Market conditions will determine who has the upper hand,’ said Mr Colin Tan of property firm Chesterton International.

In bad times, agencies could start under-cutting each other, or conversely, agents could demand higher commissions from desperate sellers and buyers, said Mr Tan.

Mr Chandran Pillay, senior vice-president of Global Real Estate Services, said smaller agencies like his cannot lower fees too much as they are already quite low and the costs of selling a property are high.

House-hunter Tania Goh, 24, welcomed the room for negotiation but she was concerned about agents who ‘can abuse this system when they know a buyer strongly desires a property’.

PropNex chief executive Mohamed Ismail said the removal of guidelines ‘may not be a bad thing’ if agents up their service quality to justify the commission they get. His agency will use the IEA fee guidelines as the basis for negotiations with its clients.

Mr Eugene Lim, assistant vice-president at ERA Asia Pacific, said the 2 per cent fee is lower than the 6 per cent norm in the US, for example.

IEA’s Mr Foo said consumers should get written agreements on agents’ fees before accepting any services.

Source : Straits Times – 6 Aug 2008

IEA has until Sept25 to remove its recommendation on fees, fee structures

Existing commission guidelines for property agents – drawn up by industry body Institute of Estate Agents (IEA) – are likely to infringe the Competition Act, the Competition Commission of Singapore (CCS) said yesterday.

The guidelines stipulate fees and fee structures for agents and agencies dealing with various types of property transactions. For example, for HDB properties, the guidelines state that a seller pays a minimum 2 per cent of the contracted price as sales commission and a buyer pays one per cent of the contracted price as service fee to agents.

The IEA’s position is that the guidelines are non- binding and that agents are free to negotiate fees with their customers.

However, the CCS holds the view that even if the price recommendations are not binding, they will still provide a focal point for prices to converge. ‘This will dampen competition and facilitate price coordination,’ the commission said in a statement yesterday.

CCS further noted that the fees payable by sellers are couched as a minimum fee recommendation in the guidelines. Said CCS: ‘This practice discourages any price competition below the recommended rate. More efficient estate agents or agencies, which are able to charge lower rates, will have little incentive to do so.’

Estate agents and agencies should set their fees independently, the commission advised.

Likewise, consumers should exercise their right to negotiate fees and terms with estate agents as this will encourage competition among estate agents and agencies, CCS said.

CCS’ decision came about after the IEA had applied to it for guidance on whether its published fees guidelines could restrict competition in the real estate agency market in Singapore.

CCS, which found that the guidelines are indeed likely to infringe the Competition Act, informed the IEA on June 25 and advised it to remove its recommendation on fees and fee structures. IEA now has until Sept 25 to comply.

Property firms here said that the removal of the guidelines is unlikely to have much of an impact.

‘IEA’s guidelines shadow what most property agencies have in place,’ said Eugene Lim, assistant vice-president of property agency ERA Asia-Pacific.

The fee structures are unlikely to change with the removal and agencies will not undercut one another by lowering their fees, he said.

‘IEA’s guidelines were, in essence, just that – only guidelines,’ said PropNex chief executive Mohamed Ismail. ‘Many agents on the ground often negotiated their own commissions anyway.’

The move by CCS, Mr Ismail said, was not unexpected. The Singapore Medical Association and Law Society were also subject to a similar removal of guidelines, he added.

Separately, the Consumers Association of Singapore (Case) said it is glad that the guidelines will be removed. ‘In our view, the guidelines are anti-competitive in orientation and work against consumers’ interest,’ Case said.

Source : Business Times – 6 Aug 2008