Agents can be forgiven for holding suspicions about the proposed deregulation of commissions and “reconsideration” of new industry regulation that was slated to begin this month.

The delay of the anticipated start date of the Property Agents Bill – which will eventually split PAMDA by creating a separate Act to regulate the real estate industry, impose re-numbering of approved forms and require replacement of pro forma notices – to 1 July 2012, could be in response to the industry’s call for a moratorium on further ill-considered regulation. Or equally, there may be more mischievous plans afoot.

The PAB has in fact been belatedly referred to a parliamentary committee which this week opened for public submissions and which will hold public hearings in August.

Given the entire real estate industry is already drowning from the weight of regulation, stakeholder consultation on yet more change – amid whispers that government is re-considering and may even dump in total the proposal to split PAMDA – has to be a good thing. But be warned: the committee process could result in more changes than just splitting or not splitting PAMDA.

The delay coincides with the June 15 ministerial statement that commission on residential sales will soon be deregulated.

So deregulation is on the way. What are the implications and what should we be concerned about?

The current maximum commission rate will be entirely abolished and I think you can assume that, in a very short time, it is likely to be only a memory.

It is also safe to say that industry bodies will be prohibited from publishing recommended commission scales. And any ‘arrangement’ or ‘understanding’ among agents about keeping rates at a particular level will be illegal and will have serious punitive consequences.

How then will agents set commissions?

Deregulation may put downward pressure on commission rates on regular sales as seems to have occurred in NSW. Most likely, rates will vary from franchise to franchise. Just like banks advertising interest rates, agency groups will periodically set and promote their selling fees. They will also vary from deal to deal. For so long the elephant in the meeting room, commission rates will no longer be the common dominator among competitors.

But according to George Hadgelias, principal of Ray White Paddington & Ashgrove, “Agents are already pretty well deregulated. Sellers are already very aware of fees and want to discuss marketing costs. I don’t think it will make a big change.”

Deregulation may bring some benefits for consumers but – in the way that the minister has touted it will operate – the change will impose yet more unjustifiable overheads on already drowning real estate offices.

First, at the heart, deregulation will be another level of ‘strong disclosure’. What? Isn’t the current form 22a enough? Do we need yet another form, warning statement or notice to confuse and confound consumers and overwhelm hard-working agents?

According to Alan Liddle of real estate form supplier ADL Forms, “the poor agent has more work to do for no extra incentive”.

Second – in a challenge to the law of contracts – commission agreements will be open to challenge even after a sale has been concluded: “QCAT will be given the jurisdiction to deal with situations where it is alleged by a seller that a commission is harsh and unconscionable”.

These two things transpose all the worst features of the absurd ‘ugly’ PAMDA type contract process, as yet another layer on top of already onerous paperwork. They will surely add to transaction costs and create a fertile field for the sowing of time-consuming and costly commission disputes. Agents may need to hold a reserve fund to meet QCAT ordered refunds.

The huge disputation and transaction costs of several millions each month – like we are familiar from the PAMDA debacle – will affect not only agents but also those sellers that become embroiled in disputation.

Third and yet further cause for alarm, is the requirement that commission rates must be “fair” and “take into account the circumstances such as the saleability of a property or the amount of effort required for it ultimately to be sold”.

Does this mean that a “fair” commission for a home that sells immediately after listing should be a fraction of what is now considered standard? Without guidelines or recommended rates, how will the market know what’s “fair” and how will agents be able to set them?

Which begs the further question of whether agents’ remuneration will eventually become time-based, rather than linked to performance?

Government proposes a period of consultation before implementing deregulation. Let’s hope it also has some answers.

Déjà vu all over again?


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