Has the Queensland Government Contract changes protected the buyers from buying overpriced property or was it a white wash?
I sat with the Minister for Fair Trading and I had 2 Representatives on the working party representing the marketing industry that made the suggestions and looked at what was happening so the laws can be changed, I put forward my suggestion, here it is, the legislation was enacted to stop Investors from being ripped off in Queensland. A lot of other states have no maximum commission that can be charged by Real Estate Agents and none of them make the Agents Disclose there Advertising and marketing fees. Why is it that Queensland makes agents disclose these fees and how does it stop people from buying an overpriced property, I do not believe it helps at all, you be the judge!
My Solution was to force Vendors, who sell developments or Vendors selling more than 3 Properties a year to get Valuations for Mortgagee Purposes within 8% of selling prices, which is not easy as GST is now 10% on new properties and not second hand properties. The 10% just gets added on and is just an extra cost which nobody wanted and was unfair to developers and purchasers as it raised the selling price by 10% overnight.
Getting a Valuation may seem extreme but about 95% of properties end up getting valued and this would ensure that people knew what a property was worth before they go through the trouble of going to contratc and applying for finance. A developer would only have to get a valuation for a type, for example he may have 50 3 Bedroom townhouses that are basically the same, a valuer could list them all at the same price. So the cost of doing the Valuation would only be $20-$100 per townhouse.
It would also make the developers ensure they are devoloping saleable properties and ensure the Valuers are responsible for there Valuations as they could be Sued if they were way out on their estimations. It would also force developers and or marketers to bring the price down to keep within the tolerance, that could be from profits or from costs, but it would have to be brought down. I suggested this to 2 Minister's of Fair Trading, both Judy Spence and Merri Rose but they chose a different approach, lets look at it.
The Government's solution was to put mandatory pages in the contracts forcing the real estate agents to disclose their Agents Fees and all advertising, consultancy and marketing charges.
Here are some questions I beleive they should answer, I do not beleif that the disclosing of fees protects a purchaser where a Mortgagee Valuation would.
1. How and why does the fees charged by Agents ensure the property is worth what it is being sold for? It is either worth the money or it is not, advertising or marketing does not affect the value of a property, if it does please explain how? You could spend $100,000 on marketing and still sell it under value, or you could spend nothing and sell it $100,000 over the valuation. Please explain how this clause ensures the purchaser is getting a property worth what it is being sold for and how the purchaser is being protected?
2. If a developer who sells his own properties and spends $100,000 of his selling price on expensive marketing techniques, why doesn't he have to disclose it and would it ensure the property is worth what it is being sold for even if he did?
3. A developer can contract a newspaper and or tele-marketing companies and spend a fortune on marketing and the selling, the developer does not have to disclose it were an agent does. A developer could also do ths for a Marketer and the Marketer would not know what the costs were and therefore does not have to disclose it. Why is it so important that the agent selling it discloses their fees? Again how does the disclosure of marketing fees establish that a purchaser is not getting ripped off?
4. If a marketer formed a Joint Venture with a developer and owned 20% of the development and therefore received 20% of the sale price, why does this not have to be disclosed? Even if it was disclosed how can this ensure that a purchaser is not getting ripped off?
5. If a developer on average spends 3% on agents fees and 7% on marketing and advertising and a further 5% on holding costs and 20% on financing costs over 2 years. Why can't they spend 15% on marketing alone to a specialist marketing company who can sell the property in 3 months? This would save them 20% on all costs and should bring the price down, and how does this affect the value? Yet under the the legislation people may think they are being ripped off because the marketing fees were high, yet it is a lower cost than the other method.
Anyway I could show you many ways on how to beat this legislation and I can show you many developers and Gurus who get around this legislation and sell over priced properties still. There are developers out there that we never sold for because we could not get a valuation anywhere near the selling price, and therefore would not sell it to our clients even though we could have been paid a lot more. This is still happening from the same developer and I have no idea how they keep doing it. The point is that this does not protect consumers and it does not ensure value so why did they do it rather than forcing developers to get valuations like I suggested?
Most clients are happy to sign the contracts and the disclosure because they realise that there is advertising and marketing fees as well as agents fees. Most people also realise that the advertising is very expensive with an average of 7% of the purchase price being spent on advertising and marketing expenses plus 2.5% to the selling agent. On a $300,000+ property that is at least $30,000.
We would work with a developer from the start, with the design and show them how to save a further $5,000-$10,000 on their construction, we would ask for the advertising money and the Real Estate Commission as well as part of the holding and financing cost as we would sell the properties in under 3 months rather than 2 years like the Real Estate Agents at the time. If the properties we sold were selling for $170,000 for example, the advertising and commision was about 10% which was $17,000, the holding and financing costs were about $25,000 over 2 years, there profit would have been about $20,000+ per unit and we saved them $5,000+ on construction. We paid for all of the marketing and real estate costs and ran all of the risks that we could spend all the money and get no sales, we averaged about $25,000 in total for all of our efforts and only got paid on results. Offer a Real Estate Agent $25,000 per property on the basis that they have to sell all properties and pay all of the advertising, and keep paying it until all properties are sold and there was no way they would or could do it because they would have had to pay the developer for the priviledge of selling their properties.
Most developers found us a lot cheaper than paying the Real Estate Agents, the advertising, the extra construction costs, the onsite agents costs, the holding costs and the financing costs over a 2 year period, we were significantly cheaper than the alternatives.
If developers use the same or similiar telemarketing methods, TV advertising and Newspaper Advertising methods that I did they could do exactly what I did and not have to disclose anything under the current legislation and many do.
