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The Lowdown on Paying Up

Category: , Posted:07 Apr 2007 | 12:00 pm

Turn back the clock a short five or six years and you'd find only a handful of property agents in Phuket. 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 property 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 working on 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 market like North America 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 in Phuket because both parties are frequently using the same agent.

New projects in today's market can expect to pay anywhere from 3-5% commission out of the gate. Individual homeowners selling their houses are often quoted a higher rate of 5% and up for lower value property, 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 the commission is due.

For those selling property the commission rates remain a commercial negotiation. Other cost elements in brokerage agreements include VAT or withholding 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 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 sellouts of product along with the associated risk attached. Both pros and cons apply and these type of set-ups exist in the wider global market with many landmark projects successfully sold on this basis.

The lowdown 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.

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