JULY / AUGUST 2013
and a developer we can certainly see it from both sides of the coin. Fundamentally, however, as a developer we would never pay a set up fee to an agent as it increases the chance of the agent not having enough of a vested financial interest to push sales.”
Garrett Kenny, CEO of developer Feltrim International (www.
feltriminternational.com), broadly agreed, “I’ve been working in Florida for 16 years and I’ve never yet been asked for a set up fee. I supply all the marketing information, sales
Agents incur costs with no guarantee of commission
flyers and brochures – I certainly wouldn’t pay a set up fee on top of the good commissions we currently pay our agents.”
What kind of money are we looking at here? A set up fee will vary a lot depending on the development, explained Mr Field. If the real estate is in a well- established market, the marketing costs are likely to be lower – while trying to make a relatively unknown area of a country desirable will inevitably be more expensive. As paying a set up fee is so far from the norm, why are agents starting to take up the practice? “Remember, the selling agent incurs a lot of costs with no guarantee that they get a commission,” said Mr Field. “I think it is good practice for the developer and agent to make a binding contract, laying out the parameters of what they both need to achieve.”
Mr Gavin expanded, “One of the main reasons could be the fact that the agent is giving away proprietary advice and experience to assist the developer to achieve effective sales – and therefore feels that they should be paid almost in a ‘consultancy role’ for this experience and advice. Other reasons could be that the agent is concerned that it may be difficult or time-consuming to get sales
in, or to get the commission from the developer once the sales are generated – or that the agent would not be exclusive and therefore its advice and hard work on a project would benefit a competitor.” It seems that agents want to minimize potential loss and put more of a price on the expertise they provide to a developer. But, clearly, there are certain risks involved from the developer’s perspective if set up fees are introduced. What if the agent never sells the property? It seems that the lessened financial risk from the agent’s perspective would mean heightened danger for the developer. Mr Gavin agreed and added, “What if the developer were to use multiple agents? Would they then have to pay multiple set up fees?” Obviously, this could all get very expensive.
A mitigating factor could lie in reducing commission in the case of charging set up fees. Would this be sensible? Mr Field thinks so: “I think to ask for a goodwill payment to allow marketing work to begin is fair – then this is deducted from sales. If you base it on a small salary for a month you should not go far wrong, as this allows an agent to divert manpower to a new project.” Mr Kenny answered,
“Hypothetically, I would reduce the commission, yes – but I’d still worry about potentially paying a set up fee to an agent who has no intention of selling. A very dubious agent could just be pulling in money by asking various developers for set up fees. What a nice business to be in…” As it so often does in business, the matter comes down to trust – and worries about being ripped off. Mr Field recounted past experiences, “Over the years, developers have told agents that they can make X amount from selling their development... then, when agents bring along clients, some developers argue that the client was already an interested party or brought in by another agent! Obviously, this is not good for the trust between developer and selling agent.”
Dissatisfaction also stems from the other side, as Mr Kenny told us: “I’m tired of being asked for loads of information only to have an agent not perform. What frustrates me the most is agents who take questions from their clients and then send them to me to answer! What am I paying for in this case?” Forming a partnership based on transparency and trust would, as ever, appear to be the most effective way to solve the majority of these worries. “This is why I would suggest a proper contract between the agent and developer, stating the method of selling to clients and what restrictions the developer has for clients (i.e. sharing data),” said Mr Field. While the developers will probably never be swayed on the matter, our three interviewees all agreed on the vital importance of trust and good business practice. “Is there a solution to curbing this trend from a developer’s perspective? Certainly,” said Mr Gavin. “It comes down to ensuring that you mitigate the risk of the agent in their time and effort. That mainly involves putting together a thorough, detailed due diligence
I suggest a proper contract between agent & developer
pack along with brochure and sales support documents so that they can hit the ground running and dramatically reduce the set up time and effort that they need to take on your project.”
Mr Kenny summed up: “I don’t mind paying a good agent the proper fees – but I want effective, trustworthy partners who learn about our product and offer good advice to their clients first time around and secure repeat business and positive word of mouth. After all, that’s beneficial to us both.” So, will set up fees become more common? Any agents introducing the practice should be prepared to meet a lot of resistance.
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