Wednesday, August 6, 2008

Fee Guidelines For Property Agents Deemed Anti-Competitive

Source : The Business Times, August 6, 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.

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