How much do we exactly understand about the Property Agent’s Commision? There was an article released back in Feb 2021, titled “Spike in property agent commissions may draw greater scrutiny given its wider impact”. It sparked the interest of many, wondering how much do property agents really earn?
With that, let us find out what constitutes how property developers pay out the commissions to property agents.
From our understanding, the commissions that developers are willing to pay have been increasing over the years. Information regarding property agent’s commission is being shared internally among the agencies and developers. However, the data is not disclosed publicly to the general market, including buyers.
In the 1990s, the commission rate for new project launches was around 1% to 2%. Over the years, commission can potentially go as high as 5% and a typical project is averaging about 3% to 4%. We do understand that inflation happens over the years and property agents would need to be rewarded from their hard work.
However, what's the potential reason behind when developers increase the commission over the same project?
The acquisition of sites before 6 Jul 2018 by housing developers for the development of 5 or more units is subject to 30% ABSD, of which 25% may be remitted upfront subject to conditions.
The other 5% ABSD is non-remittable and remains payable within 14 days from the date of acquisition. If they are unable to meet the remission conditions, the remitted ABSD of 25% will be recovered with interest.
In other words, if a housing developer fails to sell all units in a development within 5 years from the acquisition date, they must pay an ABSD of 25% with interest to IRAS which can be a hefty amount.
As such, for developments which are far from being fully sold and are approaching the 4th / 5th year mark, property developers may offer higher commissions to incentivize agents to prioritize selling their properties.
Let’s look at how this would impact you as a Buyer.
For example, assuming a New Launch project and a Resale property are both selling at the same price point. The New Launch project would yield the Property Agent a 3% Commission, whereas the Resale Condo would yield the Property Agent a 2% Commission, or even 1% if it is a co-broke case.
It is only natural that most Property Agents would be more inclined to sell the New Launch project to the buyer. As a result, buyers might fall into the trap of purchasing a property that is not in their best interest.
Overtime, this practice would be unhealthy for the Real Estate Industry. Generally, there is a certain level of trust and expectations when buyers look for a property agent and seek property advice. However, all these may be eroded if the agent only recommends properties based on the highest commission receivable.
What can we do in this situation?
It is therefore important for regulators to review or monitor the current situation and implement new ruling measurements to level the playing field regarding the commissions paid by Property Developers for New Launch Developments.
Here are some ideas that could benefit the market:
- Fixed Commission Structure:
If the New Launch Commissions paid by developers is capped at 2% and the market rate for Commissions paid for Resale property is also at 2%. Agents would be more likely to be neutral and recommend property purchases based on the buyer’s interests and needs
- Transparency Approach:
Make it mandatory for property agents to disclose the amount of commission made for a property sale to their clients as well as the reasons for recommendation. These are important deciding factors that a buyer should understand before committing to any property purchase.