New Reporter
05-05-23, 11:49
Can sales commissions of agents be squeezed to benefit consumers?
May 01, 2023
SELLING properties on behalf of customers can yield rich returns for the middleman. For 2022, Singapore’s largest real estate agency PropNex : OYY -0.92% posted revenue of S$1.03 billion and net profit of S$62.4 million, up 7.5 per cent and 3.9 per cent year on year respectively.
Singapore Exchange-listed PropNex’s return on equity (ROE) of nearly 50 per cent far exceeds the mid-single digit ROE of many developers. At end-2022, the group had S$139 million of cash and cash equivalents, as well as no borrowings.
A property agency need not incur large capital expenditure to build homes, but cashes in by taking a slice of revenue from sales and leasing transactions.
Commission rates can be 3 per cent or more for new homes sold by developers. In the housing resale market, sellers may pay commission of 2 per cent.
At the start of 2023, there were 34,427 property agents in Singapore, up 6.2 per cent from 32,414 in early 2021 and 13.3 per cent from 30,399 in early 2020, according to the Council of Estate Agents.
As at Jan 1, PropNex had 11,667 agents, followed by ERA Realty Network with 8,344 agents. Together with Huttons Asia and OrangeTee & Tie, the top four agencies had 28,046 agents, or over 81 per cent of the total number of agents. Could the large share of agents of the leading agencies be behind stickily high commission rates?
More people may aspire to be property agents, as the commission earned on selling and leasing homes tends to rise with higher home prices and rentals.
The agency business is drawing young talent despite a tight labour market. According to a report in The Business Times earlier this year, about 15 per cent of PropNex’s top 100 performing agents are below 35 years old. And almost one-third of the salesforce of ERA Realty is under the age of 35.
Some younger agents thrive because they can market effectively in social media platforms.
Many people fret over high home prices here. Maybe substantially reducing the frictional cost of agents’ commission in the transaction of homes can help lower housing costs.
Technological advances can lead to efficiency gains by eliminating the middleman. Today, many people who trade in listed equities do not use remisiers, and enjoy very low transaction costs using digital platforms.
Private homes
Commissions earned on new private home sales is a top revenue contributor for the leading property agencies.
Perhaps, a move away from relying on property agents can start with new private housing projects.
A project with around 300 suburban homes may have a gross development value of about S$600 million. If a developer pays commission of 3 per cent, the cost of sales commission is S$18 million.
As it stands, a developer already typically spends a fairly chunky sum on branding and marketing of a project. A project may have a sleek website with project details, a site plan and unit floor plans. Users can go on virtual tours of common areas as well as different unit types.
Also, a developer may spend on social media campaigns and advertisements, plus set up a costly show gallery with thoughtfully designed show-flats.
Maybe a developer that does not use property agents just needs to slightly raise the spending on marketing, branding and advertising to ensure there is strong product awareness, and invest more in online tools to handle queries and transaction-related matters.
If many homes are sold within a few weeks of a project’s launch, a developer may only need to ramp up the hiring of temporary manpower for several months to deal with the pre-marketing and launch of a project.
Resale homes
Possibly, some buyers and sellers will be uneasy about transacting homes without using property agents and relying heavily on digital platforms.
Doing away with agents could prove trickier in the resale market, as there are disparate vendors selling individual units.
Still, over time, more people are doing more tasks digitally and getting information from digital sources.
The user experience of digital marketing tools keeps improving. Also, digital tools are being used to help handle more customer interactions.
In the Housing and Development Board (HDB) resale market, perhaps an HDB-linked entity can offer a digital-led service to help sellers sell their flats for a lower transaction fee.
The above entity can have a website or app with listings of all HDB resale flats that are available for sale. Interested buyers can be made aware that they should use the said website or app to look for HDB resale units.
Potential buyers can specify the type of resale units they are keen on and their budget. Units that meet the specified criteria can be highlighted to interested parties.
Leveraging digital tools, the HDB linked-entity’s staff can handle queries from potential buyers. Viewings can be arranged for interested parties and reasonable deadlines set for offers to be made.
The above entity’s staff can then evaluate the offers received and share such feedback with the sellers. The said staff can negotiate with offerers, and work to close the deal for the best possible price.
An administrative fee can be charged on successful sales of resale homes. Various tiers of flat fees may apply to differing values of transactions.
Property agents, who are hungry for business, will argue that their drive and personal touch lead to better outcomes for vendors.
Still, any innovation that reduces frictional costs in home sales should be welcomed.
A saving of 2.5 per cent on a S$2 million new private home that goes to a buyer amounts to S$50,000, which can be spent on minor renovation works or furniture and fittings.
As technology advances and more people become digital natives, conditions appear right to put the squeeze on the commission that is paid to property agents.
Disrupting the property agency business may lead to many agents leaving the business. However, there is a silver lining – many parts of the economy can productively use the services of displaced agents.
https://www.businesstimes.com.sg/opinion-features/can-sales-commissions-agents-be-squeezed-benefit-consumers
May 01, 2023
SELLING properties on behalf of customers can yield rich returns for the middleman. For 2022, Singapore’s largest real estate agency PropNex : OYY -0.92% posted revenue of S$1.03 billion and net profit of S$62.4 million, up 7.5 per cent and 3.9 per cent year on year respectively.
Singapore Exchange-listed PropNex’s return on equity (ROE) of nearly 50 per cent far exceeds the mid-single digit ROE of many developers. At end-2022, the group had S$139 million of cash and cash equivalents, as well as no borrowings.
A property agency need not incur large capital expenditure to build homes, but cashes in by taking a slice of revenue from sales and leasing transactions.
Commission rates can be 3 per cent or more for new homes sold by developers. In the housing resale market, sellers may pay commission of 2 per cent.
At the start of 2023, there were 34,427 property agents in Singapore, up 6.2 per cent from 32,414 in early 2021 and 13.3 per cent from 30,399 in early 2020, according to the Council of Estate Agents.
As at Jan 1, PropNex had 11,667 agents, followed by ERA Realty Network with 8,344 agents. Together with Huttons Asia and OrangeTee & Tie, the top four agencies had 28,046 agents, or over 81 per cent of the total number of agents. Could the large share of agents of the leading agencies be behind stickily high commission rates?
More people may aspire to be property agents, as the commission earned on selling and leasing homes tends to rise with higher home prices and rentals.
The agency business is drawing young talent despite a tight labour market. According to a report in The Business Times earlier this year, about 15 per cent of PropNex’s top 100 performing agents are below 35 years old. And almost one-third of the salesforce of ERA Realty is under the age of 35.
Some younger agents thrive because they can market effectively in social media platforms.
Many people fret over high home prices here. Maybe substantially reducing the frictional cost of agents’ commission in the transaction of homes can help lower housing costs.
Technological advances can lead to efficiency gains by eliminating the middleman. Today, many people who trade in listed equities do not use remisiers, and enjoy very low transaction costs using digital platforms.
Private homes
Commissions earned on new private home sales is a top revenue contributor for the leading property agencies.
Perhaps, a move away from relying on property agents can start with new private housing projects.
A project with around 300 suburban homes may have a gross development value of about S$600 million. If a developer pays commission of 3 per cent, the cost of sales commission is S$18 million.
As it stands, a developer already typically spends a fairly chunky sum on branding and marketing of a project. A project may have a sleek website with project details, a site plan and unit floor plans. Users can go on virtual tours of common areas as well as different unit types.
Also, a developer may spend on social media campaigns and advertisements, plus set up a costly show gallery with thoughtfully designed show-flats.
Maybe a developer that does not use property agents just needs to slightly raise the spending on marketing, branding and advertising to ensure there is strong product awareness, and invest more in online tools to handle queries and transaction-related matters.
If many homes are sold within a few weeks of a project’s launch, a developer may only need to ramp up the hiring of temporary manpower for several months to deal with the pre-marketing and launch of a project.
Resale homes
Possibly, some buyers and sellers will be uneasy about transacting homes without using property agents and relying heavily on digital platforms.
Doing away with agents could prove trickier in the resale market, as there are disparate vendors selling individual units.
Still, over time, more people are doing more tasks digitally and getting information from digital sources.
The user experience of digital marketing tools keeps improving. Also, digital tools are being used to help handle more customer interactions.
In the Housing and Development Board (HDB) resale market, perhaps an HDB-linked entity can offer a digital-led service to help sellers sell their flats for a lower transaction fee.
The above entity can have a website or app with listings of all HDB resale flats that are available for sale. Interested buyers can be made aware that they should use the said website or app to look for HDB resale units.
Potential buyers can specify the type of resale units they are keen on and their budget. Units that meet the specified criteria can be highlighted to interested parties.
Leveraging digital tools, the HDB linked-entity’s staff can handle queries from potential buyers. Viewings can be arranged for interested parties and reasonable deadlines set for offers to be made.
The above entity’s staff can then evaluate the offers received and share such feedback with the sellers. The said staff can negotiate with offerers, and work to close the deal for the best possible price.
An administrative fee can be charged on successful sales of resale homes. Various tiers of flat fees may apply to differing values of transactions.
Property agents, who are hungry for business, will argue that their drive and personal touch lead to better outcomes for vendors.
Still, any innovation that reduces frictional costs in home sales should be welcomed.
A saving of 2.5 per cent on a S$2 million new private home that goes to a buyer amounts to S$50,000, which can be spent on minor renovation works or furniture and fittings.
As technology advances and more people become digital natives, conditions appear right to put the squeeze on the commission that is paid to property agents.
Disrupting the property agency business may lead to many agents leaving the business. However, there is a silver lining – many parts of the economy can productively use the services of displaced agents.
https://www.businesstimes.com.sg/opinion-features/can-sales-commissions-agents-be-squeezed-benefit-consumers