Real estate agents in Dubai have opposed a private developer’s suggestion to link commission to “the life of the project”, claiming it is an indirect way to penalise them.
A private developer at the recently-held MENA Real Estate Society conference in Dubai told delegates that agent/broker commission needs to be linked to the “life of the project” and be paid only after a certain percentage of money has been received from the investor.
Emirates 24|7 spoke to some real estate agents who said the idea was “far stretched” and an indirect way to penalise brokers for investors’ default.
“Since the beginning of the infamous economic crisis, developers have been facing real difficulties in collecting their payments from buyers. This has put a lot of pressure on developers and their operations and hence they are trying to identify ways to reduce their risk and cost. Having said that, I don’t think developers should penalize brokers for such a situation,” said Mohanad Alwadiya, Managing Director, Harbor Real Estate.
He gives a few reasons for his argument. “The relationship between the buyer and seller (developers) is a legally binding one and protects both parties. Hence, the developers are able to pursue legal action against the defaulting buyers to obtain their payments. The legal framework supporting such situations is in place and has been optimised to address any issues that buyers and sellers may face during these tough conditions.”
Besides, developers should not attempt to get out of paying commissions or deferring them especially when it has been lawfully earned by a broker, he said, adding that sales is a very dynamic profession that is fuelled by motivation and reward.
“The proposed strategy is definitely demotivating and can result in discouraging brokers from working with developers and selling for him. The results, if this happened, can be catastrophic for the developer, who is very eager to sell or rent his properties during these tough economic conditions.”
Alwadiya said: “Keep in mind that the market might be facing an oversupply situation and many sellers are emerging every day. There are many sellers who are willing to pay lucratively to brokers that can deliver on their expectations.”
Faisal Baig, Director, PropSquare Real Estate, said commission payments, in the active periods, to real estate agents were dependent on at least two installments from the customer in the case of off-plan segment and upfront payment for a ready project.
“In today’s market where there are less sales on new projects, developers have to motivate agents even more to sell their stocks. The cost of promoting a new product in today’s market is high for an agency, given the fact that their revenues have lowered, and the market is more focused on completed projects.
“It would be negative to think developers would not need to associate with agents to sell a project, unless or if it’s a brilliantly-packaged project that suits every client requirement today,” he added.
Giving example of matured markets such as the UK, he said developers only launched a project two to six months prior to the completion, and payouts are done in the first installment and one after the completion.
Developers need the agents to create the hype, confidence, and reach their extended sales network to promote their products successfully, Baig stresses.
Alwadiya believes such a move will have a financial impact on brokerages.
“Well established and registered firms have very high running costs and they still share the commissions they earn with their brokers and if not for the high percentage, would not earn enough money to survive. We consult with professionals because they (hopefully) have relevant experience, knowledge and certification.”
Baig said that for any real estate brokerage business revenue is in terms of commission on sales, and they in turn have to incentivise their own agents to successfully sell.
“Firms have limited budgets today, and are more conservative to their marketing approach. ‘Anything and Everything’ don’t sell as it used to. Customers are more focused, so are the agents. If agents have to go out of their way today, they have to be supported and guided well. If it is a product where there is an opportunity to mass sales, yes, it makes business sense to have a long-term commission payment release. Otherwise, it is not viable,” he added.