Cost of incompetent performance hard to justify
Article originally published AUGUST 19, 2003 –Reviewed and approved.
By Neil Jenman
Real estate commissions are being cited as a major factor in the price of housing. Democrat Senator John Cherry says agents’ commissions have risen by more than ten times the rate of wages during the past five years. And that figure may well be conservative.
The Senator has written to Treasurer Peter Costello seeking an assurance that the Government’s inquiry into housing affordability will include the “general performance of real estate agents”.
If the government adopts the Senator’s recommendation, it could mean a breakthrough for consumers. As one industry observer noted, “When measured against the typical performance of most agents, today’s commission levels are obscene.” Thousands of incompetent agents are grossly overpaid for the service they provide.
For several years, especially since the boom, the real estate industry has blamed taxes, particularly stamp duty, for adding to the high cost of housing. However, Senator Cherry said, “Stamp duty costs paled in comparison to agents’ commissions.”
It seems politicians may be getting tired of being blamed by agents for rising house prices. “Agents are making a lot more money from the boom than any politician,” said one agent yesterday. “The real estate institutes have been poking their finger at the governments about stamp duty, when their agents are raking in millions, most for doing next to nothing,” he added. The agent, who declined to be named, said he is “disgusted” at how easily so many incompetent agents earn their money. “Agents should justify their commissions. If they can’t prove to the sellers that they are worth their fee, the sellers should pay them less. It’s not hard to get most agents to reduce their fees, but most sellers are just too timid to ask,” he said.
In May this year, the Herald Sun had a story exposing the huge commissions earned by agents. Its front-page headline screamed, Raking it in. The story exposed the hundreds of millions of dollars agents were earning in “windfall” commissions from the property boom.
One agent, James Tostevin, boasted that he earned $1.6 million a year. Tostevin, who is currently facing 14 charges in the Heidelberg Magistrates Court, also trained agents at Real Estate Institute seminars. One of his topics was, “How to increase your commission rates.”
The article told of another agent who had pocketed $300,000 in commission for selling a home for $15 million. Enzo Raimondo, from the Real Estate Institute of Victoria, said this was a commission of just half a per cent of the price. It was, in fact, two per cent, four times greater than his calculation. Astonishingly, Raimondo said agents’ commissions had “generally reduced”.
Raimondo, who is well-known among journalists for his bumbling responses when trying to defend the indefensible, accused the Herald Sun of having an “agenda to denigrate the real estate profession”. He was “appalled”. The article was “a beat up. Prejudiced. Unfounded. Offensive. Incorrect”. His two-page letter ended by saying the story was “the most unprofessional, unethical and irresponsible journalism I have seen in recent times.” Of course.
In Queensland last week, the President of the Real Estate Institute (REIQ), Mark Brimble, was struggling to divert attention from the looming commission issue. He said it was “inappropriate to look at commissions.”
Oh, why is that?
Well, as Brimble points out, commissions are paid by sellers, not buyers. Therefore, the focus should be on taxes not commissions. Understand?
Good, so let’s reduce taxes and charge more commission.
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