ANALYSIS - Cutting comments

ANALYSIS - Cutting comments

07 October 2011 by Staff Reporter 0 comments

For most agents, discounting is a highly sensitive and contentious issue. But, as Real Estate Business learns, there will always be agents that lower their commissions

There is no denying that discounting is an everyday occurrence in the real estate industry across Australia.

Many agents remain adamant they would never discount, while others openly argue it is sometimes vital to cut commissions to retain valuable business.

A Real Estate Business straw poll found that more than 40 per cent of respondents admitted that they are discounting their commissions in a bid to secure vendor business. This equates to over a third of agents that are willing to forfeit profit to secure business.

Century 21 chairman Charles Tarbey says he is not shocked to hear that four in ten agents were discounting, particularly given the current state of ‘blue ribbon’ property markets.

Mr Tarbey claims discounting to be common practice in most of the nation’s prestige markets, due to sizeable profit margins and the value of property on offer in these regions.

“Most discounting occurs in these upper markets, and in some cases agents have charged zero commissions, just to get the profile [from] completing the transaction.”

“If you have 59 per cent on your books saying they are not discounting I wouldn’t disagree, because the majority of the sales...are in the $300,000 to $800,000 price range,” he says.

Yet he felt discounting wouldn’t be as prevalent in the months ahead.

“There a fewer agents around the traps, and agents have got their hands on fewer transactions, so you will find in these markets that the actual commissions should probably increase,” he said.

Raine and Horne chief executive Angus Raine says agents that discount may be undermining their brand in the eyes of the consumer. A lower commission rate may suggest an agent doesn’t have the confidence to make the sale, he says.

“If I was the public, I wouldn’t be asking for a discount in a softer market like the one we are experiencing now,” Mr Raine says.

“An agent’s commission is a success fee which you only pay if the agent achieves a successful result, so if I was selling my property I would go to an agent that I know will achieve a result.”

Starr Partners chief executive Douglas Driscoll says agents that offer discounts could be placing themselves at the top of a slippery slope.

“The worst [thing] any agent could possible do is to cut their fees.”

“Today, business is noticeably tougher, and some agent’s believe quantity is the key to success. But the real problem lies in the ability to turnover a profit. If an agent is continually dropping their rates to make a sale, how are they going to survive over the longer term?”

These comments were echoed by Mr Raine.

“[Discount operators are] not a sustainable business model,” he says. “With the amount of overheads that agents face with technology, staff and everything else, [discounting] is just not a sustainable model.”

Jock Gilbert, managing director of Jock Gilbert Real Estate, from the Adelaide suburb of Rose Park, agrees that there will always be those agents that cut rates to secure business, but what is surprising is how low some are prepared to go.

“Some agents will always offer discounted commissions, but what is really concerning is how far they cut their rates,” he said.

“In South Australia, we are seeing commission rates as low as one per cent. In today’s market two per cent is reasonable but one per cent is seemingly desperate.”

While new operator Refund Real Estate refunds part of its commission to both the buyer and seller, it doesn’t see itself as a discount operation.

The company, which has plans to open 50 offices by July next year, opened its first office in South Brisbane in July.

The company disagrees with the description of Refund Real Estate as a ‘discount’ agency, saying their marketing concept differs from the majority of agents, offering vendors their expert service without the costs of marketing and commission.

Stan Crook, general manager of Refund Real Estate, believes agents who cut their commission rates are detrimental to the industry.

“Agents are not so much offering ‘discounts’ as such; they are cutting their fees during the negotiation process essentially as a means of securing the potential sale,” Mr Crook says.

“To me, there should not be any discounting or lowering of an agent’s fee for the sake of winning a listing.  That is demeaning the professionalism and the service we are offering.”

Mr Crook is adamant that the difference between Refund and ‘discounting’ agents is the company’s service offering.  He says Refund’s business model functions as total package - or a “one stop shop” - for vendors and home buyers alike.

“Through the involvement of the group’s synergistic businesses, customers can receive financial planning advice, a range of mortgage products and purchase a property all in the same Refund Real Estate office. It provides the convenience of one stop shopping.”

“And on completion of the transaction vendors and home buyers will receive a share of the agent’s commission,” he said

“If you are offering a service, not only service but a darn good service, there is going to be a fee attached to it. But at Refund, what we do is offer a refund to both the seller and the buyer.”

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