Canberra has the highest real-estate-agent fees on a median-priced house of any capital city, according to the Prices Surveillance Authority.
The authority issued a preliminary report on the industry yesterday.
Canberra’s median house price was $145,000, it said. The commission was $5365. That was 58 per cent higher than in Melbourne where the price was $137,100. It was higher than in Sydney, even though the median price there was a much higher $180,400. See table.
The ACT was second highest when comparing a $150,000 in all states and territories. Only South Australia was higher. The commission in the ACT was $5500 compared with Victoria $3660 and NSW $4100. South Australian was $5940.
The authority said, “”The significant variation in maximum fee levels between states and territories is not easily explainable.”
The authority questioned many aspects of real-estate practice.
There was very little discounting from maximum fees.
The licensing system prevented new players in the market causing higher fees.
The system of commissions rising with the price of the house (ad valorem) was inefficient and led to higher fees. It was there for the convenience and income of agents, not house-sellers.
“”The authority has seen no justification for the structure of existing fee scales and considers these to be somewhat arbitrary,” it said.
It quoted a survey of ACT fees as saying that more than a quarter did not discount at all and 83 per cent discounted less than 10 per cent. Australia-wide there was little discounting.
“”Anecdotal evidence indicates that agents did not reduce their fees when demand for their services is low,” the authority said.
The general-manager of the Real Estate Institute of the ACT, Bruno Yvanovich, the ACT scale had been set in 1975 and since approved by the Trade Practices Commission. It made sense then, but the reasons for it “”were lost in the mists of time”. Perhaps the scale had out-lived its usefulness. He did not know why it was the highest among the capitals.
The ACT the recommended maximum scale is $5500 for the first $150,000 and 2.5% per cent thereafter.
The authority found that 97 per cent of home-sellers went through an agent. Transaction costs were eight per cent of a house price, between a third and a half going to estate agents.
Fees were paid by sellers, but inevitably passed on, it said. Therefore an efficient, competitive fee structure was important for the provision of cheaper housing and to enable people to transfer to more appropriate housing, such as old people moving to more manageable places.
The authority criticised a web of state regulation. It applauded the fact that the Trade Practices Commission is to review its authorisations of various multiple-listing arrangements. The chairman of the authority, Professor Allan Fels, is also chairman of the commission. The authority welcomed the inquiry of the Industries Commission into stamp duty.
The Real Estate Institute of Australia welcomed some of the authority’s recommendations. Its senior vice-president, Grahame Werrell, (correct) said it wanted an efficient and competitive industry. It would welcome change to maximum fee scales set by state governments and real-estate institute’s, but it disagreed with relaxing entry requirements to the industry because large sums of public money were involved and consumer protection required licensing controls.
Mr Yvanovich said that in the ACT there was no registration of employees, but agents had to be licensed. In recent years the whole thrust had been to increase the standard of ethics and education for consumer protection. He questioned the wisdom of lowering entry requirements.
The authority acknowledged that agents could provide sellers with better knowledge of the market, but wondered whether some agents were guilty of talking up the market to increase commissions.
It thought flat fee-for-service commissions and listing fees should be looked at. These would stop the present cross-subsidisation caused by no-sale, no-fee arrangements.
The public-interest rationale for setting maximum fees was to protect naive sellers from exploitation. But sellers were better education and most markets had a high number of agents. But it would be better if sellers were more aware of the negotiability of charges.
The authority attacked state legislation enshrining anti-competitive practices in the real-estate industry.
It sought easier entry for agents. Registration and certification was better than licensing. Simple certification would tell sellers what skills and experience the agent had, without having a uniform high entry standard. In some states this was an education qualification and/or two years continuous experience as an employee.
The authority’s final report will be issued on August 25 after more submissions and public hearings in Melbourne on Thursday and Friday.