Wednesday, August 6, 2008

Property Fee Guidelines Must Go, Says Watchdog

Source : The Straits Times, Aug 6, 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.

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