Don’t lower fees. Don’t say fees are too high. Don’t negotiate fees. Don’t even mention fees.

I find this fee paranoia a bit of a joke. “Price” after all is one of the marketing “Four P’s” and deciding on where to pitch your price is a legitimate and essential element of any marketing plan.

In every other industry the price of goods and services will be an item on the agenda of just about every sales and marketing meeting. Naturally, every business is always trying to get the best possible price. But then every business opportunity will be evaluated on its merit and margins will often be shaved to close a deal. Sometimes a business will be submit a price lower than their competitors. Sometimes their competitors will be lower. It’s just competition and part of what business is all about.

But then in other industries everyone is constantly looking for ways to lower their costs.

So what is this thing about fees in real estate? Why is there no business incentive to look at costs? I’m not talking about buying cheap photocopier paper or having everyone bring their own toilet paper. That’s not going to make a difference. I’m talking about the biggest item in the profit and loss account, the cost of labour. Nobody has tackled that. But that’s where the real cost savings are.

Once this nut is cracked a company will be able to comfortably offer lower fees. But, hey, that’s not an honourable way to compete. Remember the unwritten rule. Remember the “f” word. Competing on fees is like using witchcraft and anyone who competes on fees is likely to get stoned by an angry mob. The swarm of protecting gnomes will be out pointing bony fingers at the perpetrators.

So nobody bothers. It’s too ugly and if they rationalise their decision, they can convince themselves there is no need.

Don’t get me wrong. I do understand why people prefer fees to remain high. Our business is commission based and cutting fees is cutting wages. But what I don’t understand is why everyone doesn’t face up to the real problem.

I’ve said it before and I’ll say it again. The real problem is that just about every office in the country is over-staffed. There is not enough work for everyone and there are too many mouths to feed.

Over-staffed means inefficient. Inefficient means high costs and a need to charge high prices.

The crazy thing about all of this is that the whole industry is inefficient. Everyone is the same. We have inefficient offices competing with equally inefficient offices. That’s why they band together when someone uses lower fees to compete. They see it as unfair or outside the unwritten code.

Of course the way the industry operates has been held together by the old Act, the REINZ and the big brands who have acted like a kind of cartel and done every thing possible to keep competition away from fees. You have to hand it to them, it worked. The big boys have sat back and issued as many franchises as they liked and encouraged those franchises to engage an army of salespeople to walk the streets promoting their brands and talking up fees.

But that’s the old world. Inefficiency and high costs. In the new world there will be serious opportunities to gain market share by reducing costs and passing the savings on in lower fees while preserving margin and profit. Thanks to a decade or more of this inefficiency the opportunity is now huge.

So I put it to you that the problem is not fees, but costs. Fees are set at a certain level because that’s what is required for all of the salespeople in the industry to make a decent living doing their handful of sales a year.

But instead of directing their anger at brands that offer lower fees, everyone should be pointing a finger at their bosses who keep employing new salespeople and appointing new franchises.

In the end there are just too many people sharing the same small pie.

Right now everyone should calm down and take a deep breath. It’s time to start dealing with the real problem.

Because the clock is ticking and time is running out.

I was asked the question; “After the changes, will independent property managers be able to charge letting fees?” 

It was a simple enough question and my immediate reaction was “yes”.  But after a confusing search back and forth through the various Acts, Bills and announcements it proved to be not that simple.

The answer is still “yes” but it comes with a proviso.  Any non-agent wanting to charge letting fees will have to bend the rules a bit.  But after November 17 we will have rules that are more flexible and the gap between agents and non-agents will close.

Join me in a romp through the legislation as I explain.

 
The Real Estate Agent’s Act (REA Act)

There are two REA Acts.  The REA Act 1976 and the REA Act 2008.  They are completely different pieces of legislation and it’s a pity they weren’t given different names to avoid confusion.  The 2008 model takes over from the 1976 version on November 17 this year.

As a result of the new REA Act, the changes for real estate agents are huge.  One of these changes specifically excludes the letting of residential land from within the defined role of a licensed real estate agent.

So the first point to establish is that under the REA Act 2008, residential letting will be no longer a licensed activity.  As far as this Act is concerned all property managers are equal and they can do whatever they like.

But there’s more.

The February 2009 Government review of the Property Management Industry

During the review of the REA Act, many submissions strongly opposed the exclusion of residential letting and property management from the scope of the new Act. 

As a result of these objections the Select Committee recommended an additional separate review of the property management industry.  Submissions were called for by the Ministry of Justice in February this year and the final decision made public just a couple of weeks ago. 

In his announcement Associate Minister of Justice, Hon Nathan Guy, declared that “additional regulation of property managers is not justified”. 

We can therefore accept that there will be no changes to the REA Act or any other legislation to include residential letting as a licensed activity.  On that basis, after November 17, anyone can be a property manager.

So that’s two down.  But there’s still one more to go.

The Residential Tenancies Act 1986 (RTA)

The good old RTA.  The bible for property managers.  Unfortunately the RTA has a mind of its own and doesn’t take much notice of the REA Act.
The RTA states that no person shall be required to pay “key money” except to real estate agents and lawyers.  Key money is another name for letting fees.

That is fairly plain english and doesn’t require any further explanation.

But wait there’s more.

The Residential Tenancies Amendment Bill

This bill is proposing a large number of changes to the RTA. 

This would have been a good time to tie the RTA in with the REA Act and for the Government and officials to “get their Acts together”.  But letting fees don’t get a mention. 

Don’t expect any late changes because this Bill has been kicking around parliament since 2004 and as can be expected, there is now some determination to get it done and dusted.

So there you have it. Because of the RTA, anyone who is not a real estate agent or a lawyer, can’t charge letting fees and still won’t be able to after November 17.

Finding that loophole 

However, there is hope for any non-real estate agent prepared to be creative.

The solution is simply for any “independent” to become a “real estate agent”.  Then they will satisfy the requirements of the RTA.  Under the new REA Act, for a company to become a real estate agent, it will not be as difficult as it once was. 

There are three major changes to the REA Act that help.  The first has already been discussed and that is the exclusion of the letting of residential property from the role of a licensed agent.

The second change is that licensee agents will be able to own as many agencies as they like, be the principal of as many agencies as they like, be employed by as many employers as they like and if they feel that way inclined, they can do all of these things at the same time.

The third is that if a company wishes to become a licensed real estate agent, it merely needs to employ a qualified licensee as an “officer”.   The officer can be appointed in any capacity within the company but must be “responsible for the company’s real estate agency work” as defined under the REA Act.

But under the REA Act 2008, residential letting is not “real estate agency work”.  So providing the company doesn’t list and sell property, or get involved with commercial letting, the provisions of the REA Act don’t apply to its activities. 

As far as the REA Act 2008 is concerned, the company would effectively be a eunuch and the “officer” won’t have anything to do.  But because the company is a real estate agent, it satisfies the RTA and can charge letting fees.

So the answer is “yes”. 

While the explanation is complicated, the solution is simple.  After November 17, an “independent” can charge letting fees providing they find a friendly real estate agent, work out a suitable arrangement and obtain a license.

Thanks to the new REA Act, we are going to be living in a different world where we are not hamstrung by regulation and innovation is rewarded.

John Bradley is a licensed real estate agent and industry commentator.  He has written the eBook, “Fast Forward to November 17” which discusses the changes the new REA Act will bring.  It is available free from his website http://www.november17.co.nz/.  John’s biography is also published on the website.

We all witnessed the high profile failure of a property auction on Trade Me where the buyer wasn’t able to settle.  This has been heralded by some as evidence that online auctions for property don’t work. 

But the problems with this auction don’t prove that the concept itself is doomed.  All we really know is that property auctions don’t work very well on Trade Me. 

Actually, if we consider the interest from the wider community in this particular auction it has demonstrated that there is a lot of support for this type of sale. 

Why they don’t work on TM 

The reason why they don’t work on Trade Me is because Trade Me not a licensed agent – well not yet anyway (Under the new Act this will be an option for TM – read the eBook to find out how). Because they’re not a licensed agent, Trade Me can’t get involved.  They can’t help, they can’t advise and they can’t assist with completing the sale. 

With Trade Me, it’s a private sale and the sellers and buyers are on their own.  It’s the private selling that’s the problem, not the marketing method itself and if the auction included the services of a licensed real estate agent, the results could be very different.

Traditional auctions are not popular with sellers

Many agents argue that online will never replace traditional auctions.  They’re probably right.  There is a small segment of the community who are keen on traditional auctions and this is unlikely to change even after the introduction of online auctions.  But it does need to be acknowledged is that despite a decade of hard selling by agents, traditional auctions are not popular with sellers. 

In fact, it would be fair to say that the vast majority of the population avoid auctions like the plague.  There are no formal statistics available but a quick observation would suggest that less than 5% of properties are offered by traditional auction and that’s a poor result considering the effort that has gone into promoting them. 

The reason why most people hate auctions is the same reason some agents love them.  Auctions allow agent’s to exert control.  Buyers and sellers are “taken out of their comfort zone” and are pressured into making decisions they might not otherwise make if they had more time to think. 

But the population isn’t stupid.  They know that when they enter an auction room they are entering a shark tank – but nobody wants to be prey – so they stay out of the water.

Online auctions are an improvement

Online auctions will eliminate this fundamental barrier.  With online, people can make decisions in their own time, in the comfort and security of their own home.  They won’t have to put up with agents circling the room pressuring them to bid – or to accept a bid.  They will also avoid being under the public gaze.  For these reasons, online auctions could attract a new and much larger group. 

They could become hotter than hot.

Some problems to be resolved

Of course there are some problems that need to be resolved, like ensuring bidders are legitimate.  But these are relatively easy to overcome and with good programming, online auctions will make it easier to be consistent by “hard wiring” the rules allowing everyone to be confident with the process.

The big question

The big question is not online versus traditional.  This is a battle online can expect to win.  The big questions are around the public’s enthusiasm for property auctions in general. 

There are many people who have been so hurt by the auction process and terrified of the outcomes that they might be lost forever.  The real question is whether or not we can win them back – whether or not property auctions themselves will ever be popular at all.

When online auctions come they could give the whole category a boost.

If you needed any more evidence that that world is going online, here it is.

On Monday 15 June Virgin Music announced they are closing their last two retail CD stores in the US.   The next day they announce that they have launched a new online music download service.

There isn’t much more to be said.  Except that Richard Branson and Virgin don’t get it wrong very often.

If they’re investing a few million in a trend, it’s worth paying attention.