14 December 2014

Threat to Fixed Fee and Free Advertising Real Estate Agents; Queensland Commission Rates Deregulated


Queensland Real Estate professionals have feverishly been updating their knowledge, systems and processes to transition from the repealed Property Agents and Motor Dealers Act to the new Property Occupations Act, and for agents carrying trust monies, the Agents Financial Administration Act 2014 effective from the 1st December 2014.

The key changes include the replacement of seven separate agent appointment forms with a single standardised form;

  • deregulating the maximum commission rates for real estate sales and property management
  • removing the requirement for agents to disclose to a buyer the commission the agent is receiving from the seller
  • extending the statutory limit on lengths of appointments for a sole or exclusive agency from 60 days to 90 days to better reflect market realities; and
  • abolition of a separate Form 30 Warning Statement which will be replaced by a short prescribed statement included in the relevant contract.
The real estate industry has responded positively to the changes because of the reduction of "red tape" with simplified forms allowing agents to spend more time and energy servicing clients needs instead of filling out forms and worrying about paperwork.

Although the Property Occupations Act deregulates commission that agents can charge clients, Townsville Real Estate Blog has observed that agents are not increasing their commission rates for residential sales at this early stage in the new regulations regime.

Instead agents are reluctant to charge higher commissions in the Townsville market due to the strong competition for new listings. So clients, both sellers and buyers, find themselves in a strong position to negotiate with agents on the commission rate and marketing budget.

However, clients are cautioned not to seek open quoting on price. Service-centric agents are unlikely to quote in an open tender process where price is the main driver for the client enquiries because service quality is the corner stone of most agents' reputation in the industry.

When to negotiate commissions with agents is behind closed doors in person. Either as part of the agent's pitch for your service (if you are price or costing saving focused) or after the pitch for your service. Choosing your preferred agent wisely is born from purposeful research of the solutions being proposed by the agents.

To the surprise of some sellers or buyers agent consumers, price cutting is not a solution to the real problem of achieving the highest possible price within a reasonable time frame. Keeping the marketing costs to a minimum such as advertising, communications, etc. is a project specific factor in the solutions package. But marketing should not be associated with the effective management and leadership of the solutions package. The typical analogy described in the service industry for this misunderstanding is that "you pay peanuts and you get monkeys".

Finding the right agent is therefore synonymous with finding the right solution! Selecting the right solution is finding the right leader in the industry of which there are many. The decision is not easy. Recruit the right team of suppliers coordinated by a lead agent and you will give yourself favourable opportunity to achieve your objectives accompanied by personal satisfaction, exhilaration, joy or overwhelming relief when the job is done.

Beyond the appraisal and price prediction phase, asking the right research questions centred around the agents solutions such as the team, suppliers, schedule or time on market, target market reach, technology, innovation examples, and Townsville Real Estate Blog believes perhaps the most important, is the passion, enthusiasm and posture shown by the agent for the product and neighbourhood in which the asset is located.

Ask until you are satisfied even if it takes an hour or more. If you sense the agent struggles to answer  unscripted questions, then perhaps the leadership suitable for your marketing project is unsuitable and the package of solutions is unworthy of your business.

The agent commission rates should be the very last question you ask once you have chosen the right leader for your marketing project. If that means paying a commission above the average commission rate in the market, then take the risk within your appetite (what can be tolerated as an acceptable loss) and make the investment. Remember most agents in Townsville have a 'no sale, no charge' proposal so agents that have a tendency to give their time and wisdom in good faith, are more likely to treat your asset with respect and a hunger for success.

Townsville Real Estate Blog will continue monitoring the prices agents are charging over the coming weeks and years. The commission rates may increase in the short term for projects that are resource intensive such as marital separation matters and other resource intensive projects where a proportionate sale price is less than the viable profit for an agency. Such projects could include land sales, rural and remote properties and low end unit and house sales found in small markets.

As market confidence expands, and niche selling and buying opportunities manifest in the market, commission rates may increase on a project by project basis. By and large most agents will seek to keep their cash flows moving and therefore be open to negotiation on their commissions.

Full fee agents, those agents that have not set their commissions on a fixed price under the old legislation, are likely to fight for commission based on a percentage of the sale between 2.5 to 3 percent for residential sales.

Remote, rural and regional areas are more likely to find agents charging higher commissions because of limited competition between agents and the maturity of the asset price points in these markets. Agents that have positioned their brand and reputation on free advertising could also find greater competition in that alternative agents could simply offset the risk of supplier overhead by increasing their commission rate.

Full service agents may seek to neutralise fixed price and free advertising agents by offsetting agent-paid marketing risk with higher commissions.

Evidence of agents increasing their commission rates cannot be substantiated in the Townsville market at this time. We may see movement in commission rates in the future when the market has an appetite for a change in culture.

References:

Townsville Real Estate Blog
REIQ website
Local Townsville Real Estate Agents
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