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Market Watch - Page 5:

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Agent Commission, The Low Down About Paying Up.

 

 

 

Turn back the clock a mere five or six years and you'd find only a handful of agents. Many of the accepted practices such as commission rates of 3 % were in place simply because that was what the other guys were doing, so everyone followed suit.

Fast forward to 2007 where the number of agents has multiplied, along with international affiliations, developments of every type and budget span the island, and a resale market now competes with new product. Commission structures have changed, the market has become more competitive and everyone is vying for the buyer's cold hard cash.

So what's changed and what rates are prevailing in the marketplace? Talk to many agents and 3 % is still widely used as the barometer of the local market. Speak to a wider selection of real estate brokers and developers and you will find many workingon initial rates of 4%, 5% or higher.

There are a number of projects where incentives on production (number of sales) are linked to higher rates, anywhere from 5 - 10% and often on a sliding scale.

Retail rates for commissions vary in developed markets like North Amerca as well. In a typical scenario 6% is the commission, with 3 % going to the buyer's agent and 3% for the seller's agent.

Agency splits are not widely used because both parties are using the same agent. New projects in today's market can expect to pay anywhere from 3% to 5% commission out of the gate. Individual home owners selling their houses are often quoted a higher rate of 5 % and up for lower value offers, though this is frequently lowered for high-value villas due to the larger transaction price. Many individuals and developers enter into separate deals with agents and rates vary from contract to contract.

Private individuals or companies associated with the property or tourism industry will often be able to provide customers for a development or individual houses. While these usually consist of delivering a prospective client, if the deal moves ahead, anywhere from 1-2% commission is paid. Introduction fees should always be

 

 

documented in advance and a clear understanding of when thecommission is due.

For those selling property the commission rates remain a commercial negotiation. Other cost elements in brokerage agreements include VAT or withhold tax, depending on the agency Taxation status. Tax rates are 3% for withholding tax or 7% VAT (value added tax), and one or the other apply.

Equally important is at what time in the transaction the commission is paid. This is mostly related to the actual payments made and not the closing of contracts.

With new projects with periodic payments this is usually due when the initial payment, which is at least 20-25% of the entire purchase price, is made.Agency exclusives or sole-agent agreements here were not widely used in the past but are starting to surface and will certainly be a trend in the future.

These are agreements wherein only one agency is used and there is absolute reliance on the single resource to sell the property.

Those considering such deals need to look at past performance or benchmarks on successful sell-outs of product along with the associated risk attached. Both pros and cons apply and this type of set-up exists in the wider global market with many landmark projects successfully sold on this basis.

The low down on commissions is fairly basic but all too often sellers cannot see the forest for the trees. Commissions are the heartbeat of a healthy capitalistic business venture where you only pay for what you get.

Performance is rewarded only on virtue of actual results, something sorely missing in today's business world. All too often the focus is not on what was achieved in terms of revenue from a sale but concentrating on what amount an agent received in commission.

Sellers pricing in commissions and incentives along with putting together clear brokerage agreements only have upside in today's market, with the old adage applying you can only take actual sales to the bank.

   

Bill Bamett is Managing Director of C9 Hotelworks a Phuket hotel and residential consulting firm With more 20 years experience in the region, he has played an active role in some of the island biggest develovments.

       
       
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Archived Articles: 2007 - 2008

 

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US Financial Crisis - Living The Sub-Prime Life

 

Rental Income - Investment Rent And Raves

 

Aesthetics - Out With The New, In With The Old

 

Hotel Branded Realestate, Battle Of The Brands

 

Local Communities - Cables Gone Wild

 

Rental Property - Plus & Minus, Buying A Hotel Unit

 

Aesthetics - Bold Designs Keep Boredom At Bay

 

Phuket - The Next Big Property Trend 2007

 

US Financial Crisis - Clouds The Property Horizon

 

Pre-plan your purchase, and prevent future pain

 

Vietnam, Too Fast Too Soon

 

Timeshare, High End Fractional Ownership Matures

 

How we should protect the property cash cow

 

Re-Inventing Patong

 

Budget Hotel Brands Shake Up The Scene

 

Property Developers - Number Crunching Pays Off

 

Bali, (property) Supply Surges Ahead

 

Aesthetics - Designing For Success

 

Phuket, Battle to preserve the beaches

 

Low Season - Cyclical Cynics

 

Phuket Luxury Villa Market Update Feb 2009

 

Khao Lak, Back To The Future

   
 

 

   
 
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