To pay or not to pay

May 13, 2008

WHEN SELLER'S AGENT CLAIMS FEE FROM HOME BUYER

To pay or not to pay

By Tan Hui Yee

ONE week after The Straits Times reported that housing agency PropNex was suing two independent home buyers for not paying its agent a fee, the firm withdrew its case.

The agent, Mr Ricky Low Yong Sern, had been hired by the seller of a $400,000 terrace house in Whampoa which marketing specialist Loh Yi Min and his wife, polytechnic lecturer Ariel Wee, bought last year. The couple had acted on their own without hiring an agent. They refused to sign the commission agreement to pay Mr Loh a fee equivalent to 1 per cent of the price of the property, which was classified as an HDB flat. Mr Low claimed he was entitled to the commission or a fee commensurate with the services that he said he had provided.

PropNex dropped its landmark suit as part of a confidential deal both sides reached through mediation last Tuesday. Given that the sum at stake - about $4,000 or less - would have been dwarfed by the roughly $10,000-per-day cost of a trial, it was surprising the case went as far as it did.

But the case is not unique in the HDB resale market, where a growing proportion of buyers and sellers is transacting without agents. Last year, 3.6 per cent - or 1,060 people - submitted their applications through the HDB's e-Resale system, which caters to buyers and sellers without agents. This figure has been creeping up - it was 2 per cent in 2003 and 3 per cent in 2005.

Growing awareness of consumer rights has given momentum to the debate over whether independent buyers need to pay a fee to sellers' agents. Adding to the controversy are rogue agents who mislead buyers into signing commission forms at the last minute by claiming it is a 'rule'.

Although the law does not stipulate who should pay the fee and how much is payable, it is common for sellers to pay their agents a sum equivalent to 2 per cent of the property's price, while buyers foot 1 per cent. If both sellers and buyers are represented by agents in an HDB flat transaction, both parties pay the fee to their own agents. This practice is known as co-broking.

Questions crop up when buyers act on their own - which is more common than sellers acting on their own. Many agents hired by sellers then try to claim a 1 per cent cut from buyers. This fee, peculiar to the HDB resale market, is levied because the quantum of commission on HDB deals is lower than that for private property deals, says the Institute of Estate Agents.

Agents and agencies cite other arguments:

Firstly, by advertising a property for sale, helping the buyer to make contact with its owner and negotiating the deal, the seller's agent provides a service to the buyer.

Secondly, when the deal is inked, the seller's agent has to do paperwork for the buyer, such as filling up the sale and purchase agreement and submitting the document.

Thirdly, since this 1 per cent fee is 'market practice', it is up to independent buyers to declare upfront they do not wish to pay it. If the buyer seals a deal without bringing up the matter, he would be tacitly agreeing a fee is payable.

But in the absence of a written commission agreement between an independent buyer and the seller's agent, these arguments hold little weight, say lawyers. Under Singapore law, commission deals can be verbal, so refusing to sign a form does not solve the problem. The bigger question is whether both sides are aware of the commission and agree that it should be paid at all.

Drew & Napier director Hri Kumar says that while the courts will take note of the prevailing 'market practice', an agent will find it difficult to prove that the buyer was aware of this 'practice' if the buyer is a layman.

Ramdas & Wong consultant Ellen Lee says the agents - deemed the 'experts' in this scenario - are obliged to inform the buyer upfront that they are levying a fee. 'If someone doesn't know (about the fee), he doesn't even know that he should say he is not paying it.'

But the buyer who is informed of such a fee and does not intend to pay has to object to it at the earliest possible instance. If he does not, he can be said to have agreed implicitly to pay, says Mr Freddi Lim, a partner at Trinity Law Corporation.

Awareness aside, what kind of acts can be considered 'services' that sellers' agents render buyers? The lawyers found it unlikely that introducing a buyer to a seller could be considered a service. Ms Lee points out that the seller's agent places a property ad and makes contact with potential buyers because he is duty-bound to market the home on behalf of his client. His role as a liaison does not give him an inherent right to claim a fee from the buyer. However, if that potential buyer subsequently asks the agent to, say, recommend suitable properties, he may be said to be soliciting the agent's services.

The question of whether handling paperwork constitutes a service to buyers is less clear-cut. This is because only one set of sale and purchase documents needs to be submitted to the Housing Board for the resale of a flat. Although the HDB does not stipulate which party should submit the form, the design of its online application system - through which most applications are made - places the burden of submission on the seller's agent if the buyer is not represented by an agent. This often means that sellers' agents fill up the form and submit the applications for both parties.

Assuming that the independent buyer has done his own checks to make sure he qualifies to buy the particular apartment, it is questionable whether a fee can be levied for such paperwork. Infinitus Law Corporation director Leo Cheng Suan, for example, feels such paperwork is simply part and parcel of the steps needed to complete a deal.

The HDB says: 'The submission mode should not be misused by housing agents as a basis for charging commissions (which), like payment for all types of services, are subject to negotiation.'

A large part of the validity of housing agents' claims hinges on what the agents disclose and when they do so in the dealings leading up to a sale. Unfortunately, many agents today produce commission payment slips only after a purchase is sealed. As Ms Wee says after settling her lawsuit with PropNex: 'Agents should state clearly the services they are providing to justify the fee they are charging.'

Until that happens, the industry will continue to be dogged by doubts over the ethics of its rank and file.