Response to Competition Commission press release



In recent months, the question of estate agencies' commission rates has come to the fore, chiefly as a result of the Competition Commission's investigations into fee tariffs which operate in various professions and industries. The Institute of Estate Agents which used to issue a tariff of recommended fees as a guideline to the estate agency industry, has been the subject of such an investigation and its tariff has now been abolished. Where does this leave the industry, and the consumer? "The Institute's tariff of recommended fees and commissions is history," says IEA president Bill Rawson. "We last published it in 2002. Six months ago, in April 2004, after discovering that there might be a problem with the Competition Act, we resolved not to publish it again. "The Competition Commission has subsequently determined that we did indeed contravene the Act – unwittingly, we must add – by publishing the tariff in the past, and we must therefore pay a fine, which we will be doing over the next few months. That is now water under the bridge. The question now is: what is the way forward?" Commissions are negotiable Rawson points out that estate agency commissions have, for decades, been flexible and entirely negotiable. The Institute is a private organisation without any powers of enforcement, and its old tariff book merely offered a guideline, which people could follow or not as they chose. "Just because the Institute recommended a particular figure did not mean that it was carved in stone," says Rawson. "In many areas, the going rate has long been one or two percent lower than the figure which the Institute used to recommend. There are firms which advertise commissions as low as only one percent. "On the other side of the coin, it is probably also true that some estate agencies charge more than the figure which we used to recommend, and they are perfectly entitled to do so. It's a free market and any business can price its services as it sees fit. If the consumer thinks it's too expensive, he can either negotiate a lower price or take his business elsewhere." Consumer awareness Some people have argued that many consumers may be unaware that they have a choice, and that they are under the impression that the commission rate is fixed. "That may well be so," says Rawson, "especially given the generally poor state of consumer information in this country. However, since 1993 it has been an offence, punishable by a fine, for any estate agency in South Africa to make out that its fees are fixed or regulated or prescribed in any way. The Estate Agency Affairs Board in Johannesburg is the authority which enforces this code, and anyone who feels that they have been misled by an estate agency can ask the Board to take action. "The message to consumers is to do their homework before they commit themselves to appointing an estate agent to sell or rent or manage their properties for them. They should shop around for prices, just as they ought to do before making any big purchase or commitment. Unfortunately, how long it is going to take to get this message through to all consumers is another matter." Fee structure to change? Rawson says that the existing system of fees may well change within the next year or two. "The norm for many years has been that the commission for selling property is a percentage of the selling price, and the commission for renting out property is a percentage of monies collected. There are also time-based fees for various other services. "The Competition Commission has told us that it would like our industry to change to a cost-based system, which would be more directly related to the cost of providing services than to the value of the property or the amount of the tenant's rent. At this stage, we have no details of exactly what the Commission wants, but no doubt we will hear more in due course, and we have agreed to help the industry to make whatever transition is necessary. "So, estate agency fee structures are likely to be a hot topic in the industry and the media for quite some time to come." END