Housing Agent Fees: How Low Can They Go?

Source : The Straits Times, Aug 7, 2008

With guidelines axed next month, rates will come under pressure but big fall unlikely, say experts

PROPERTY experts expect agents to feel the pinch once fee guidelines are abolished next month, but the big question in the industry is just how low fees can go.
Real estate insiders concede that fees will come under pressure with buyers and sellers free to haggle, but dismiss the notion that rates could plummet to zero.

'In a buyer's market, perhaps, buyers can get away without paying. But agents also need their salaries and ultimately consumers will get the service they pay for,' said PropNex chief executive Mohamed Ismail.

Agents spend about 40 per cent of their commission on the marketing, transport and operational costs of selling a flat. Active agents earn about $5,000 a month, said Mr Ismail, so how low rates go will depend on the individual.

Those who aim for a large turnover of properties might be willing to slash rates but this could be at the cost of service quality, he added.

Mr Eugene Lim, assistant vice-president at ERA Asia Pacific, does not see rates falling drastically as the current rate is one of the lowest in the region.

Fees will be negotiable next month, thanks to a decision by the Competition Commission of Singapore, which told the Institute of Estate Agents to axe its guidelines on commissions.

The 1999 guidelines were based on a 1974 Government Gazette that stipulated a 2 per cent fee payable to agents from sellers. In the past, when Housing Board prices were relatively low, agents began charging buyers a further 1 per cent.

The Consumers Association of Singapore is advising people not to be held to old guidelines and to avoid giving exclusive rights to agents. It also said agents should not collect fees from both buyers and sellers, due to conflict of interest.

The new playing field will offer plenty of scope for buyers, sellers and agents to negotiate, but agency boss Albert Lu of C&H Realty pointed out that the real estate market is 'already very competitive'.

For private property sales, for example, agents are known to cut their commission charges from the recommended 2 per cent to 1 per cent for sellers.

'It's not in the interest of agencies to start price wars, as we end up hurting ourselves,' said Mr Lu. But he suggested that agencies might devise ways to entice buyers and sellers, such as bundling home services.

Industry leaders do not rule out a 'one-stop shop' concept where agencies could offer agent and legal services along with loans, for example.

Analysts believe consumers will be quick to take advantage of the new system and start haggling, but given the slow market, it is unclear who has the upper hand. Prices have eased in favour of buyers but many sellers are not budging, so with volumes down, agents may see an incentive to give discounts.

Homebuyer Vivian Wong, 25, said she will bargain harder while agents vow to fight and justify commissions. HSR Property Group's Mr William Tan, 43, said he was confident of retaining the 2 per cent commission.

'In this new landscape, the better agents will survive because they will offer quality service consumers will pay for.'