Property fee guidelines must go, says watchdog

Aug 6, 2008
Property fee guidelines must go, says watchdog
Move could foster competition and a price war among real estate
agents
By Jessica Cheam

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.