I came across this article a little while ago and have been watching it with interest.
I am just wondering what the forums thoughts are on the subject. How would you feel if you knew that there was $30,000 to $50,000 commission being paid to your adviser included the property that you purchased "at market price"?
Would you buy a property knowing that it had this amount of commission in the price you were about to pay?
Would you consider it a scam ? http://www.hotspotting.com.au/article/2337-aussies-lose-1-4bil-to-scams
I know that Melanie Stott the Journo that wrote the initial article is looking to speak to people that have had an experience with this type of situation. This article prompted a fair bit of comment on the hotspotting facebook page
I would be interested in your views on this matter.
CheersTerrywParticipant@terrywJoin Date: 2001Post Count: 16,213
Without naming names – there are some Property Marketing Companies (PMC'S) doing deals with Developers at different levels via different entities. So a PMC enters into an Option agreement to buy a property from a developer at a Bulk rate price and loads anywhere from $20 to $50K into the price. The "retail price" is then put out to the public and the PMC markets the properties at the retail price also – So while the PMC claims it only receives standard real estate commissions, which is true (at one level) the PMC also pockets the difference between the option price and the retail price, on the sale .
Generally Its done to allow the developers to claim presales in order to obtain finance to fund the project and gives the PMC a bigger chunk of commission while they appear to be charging standard real estate fees.
It seems to me that its just a smoke and mirrors illusion for the public – Is it Legal ? I suppose so – Is it Ethical or Moral well I suppose that depends on the level of Ethics and Morals of the people behind the PMC's – what more can I say – people do interesting things to make money.
Would you buy a property knowing that there was actually $30,000 to $50,000 commission built into the deal for the Advisor ?TaylorChangParticipant@scha9799Join Date: 2009Post Count: 234TaylorChangParticipant@scha9799Join Date: 2009Post Count: 234
Thank you for sharing.
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people really need to carefully select a creditable adviser.
It's so easy to turn blind eye and get rip off by those unethical and disgusting BS artists out there !itsandrewParticipant@itsandrewJoin Date: 2007Post Count: 294
I don't know enough about the way new homes are sold to draw conclusions but is it the profits or transparency that people are objecting to. Everthing from lettuce to motor vehicles gets marked up from cost price and wholesale price for the public. Why not with property?
Go as far as you can see and you will see further.Nigel KibelParticipant@nigel-kibelJoin Date: 2005Post Count: 1,425
It comes down to doing your own due diligence. As an example if you buy a house and land package in an outer area of any of our major cities the built in commission is around $30,000. So the next time you are told that its a good investment because it has land think again. The only reason they are making this advise to save tax lol is for the $30,000itsandrew wrote:I don't know enough about the way new homes are sold to draw conclusions but is it the profits or transparency that people are objecting to. Everything from lettuce to motor vehicles gets marked up from cost price and wholesale price for the public. Why not with property?
Andrew its a number of things – Not so much Profit margins but Yes Transparency, Ethics and levels of Integrity plus the value of the service provided.
Scenario 1 – Commission Loaded on Top – this has been going on for the last 20 years and I can't believe its still happening with the knowledge of the Lenders. But its where a Property Marketing Company (PMC) just adds a commission on top of the developers asking price. I am aware of a Queensland company that did this back in 2010 while running a seminar for around 200 people they approached numerous builders in Sydney and asked to have $20K added to the Builders Price as commission which they then flogged at the seminar to a captive audience over 3 days under the guise of an "Educational" Experience. Its called 2 tier marketing. Typically its the one stop shop approach where they have the inhouse experts – Solicitor, Valuer, Financial Planner, Mortgage Broker and everyone is in on the deal. So if the investors had actually done some homework themselves they could have easily approached the same companies and bought the properties for at least $20K less. And in most cases there are double commissions paid as there is also a marketing agent or Builders Sales person that receives a commission on the sales.
Scenario 2 – The Loaded Commissions – This is what the article is referring to – its similar to the example above but on this occasion the Developer has actually loaded a High commission into the project for the PMC – typically $35,000 to $50,000 as opposed to a standard Real Estate Agents Commission of around 2% to 3% of Sales Price ($10 – $15K on a $500K property). The position here is that the "Advisors" are selling the property to the investors to receive the High commissions while portraying to be looking after the investor they are Not acting in the interests of the investors at all – essentially if the PMC's where not involved the property prices could be reduced by thousands of Dollars and in some cases they are not valuing at Purchase price but due to the One stop shop approach they are being sold and financed generally using equity from other properties. If the investors then need to sell these properties in a hurry they are not selling for what they paid – Once again its Buyer Beware – Get Educated.
To be continued laterNigel Kibel wrote:It comes down to doing your own due diligence. As an example if you buy a house and land package in an outer area of any of our major cities the built in commission is around $30,000. So the next time you are told that its a good investment because it has land think again. The only reason they are making this advise to save tax lol is for the $30,000
Nigel – well said and I think by your comment you have a very good idea as to who one of the Promoters is. And the Buy and Hold Strategy (currently Buy & Hope strategy) only works when there is Capital growth in the market and in some cases this will be a long time coming in some of the outlining suburbs being promoted. Buying just to reduce tax is not investing.
Actually rereading the article and speaking to an Investor for Townsville – I realised that its $30K commssion to the Advisor – he tells me that some Property Marketing Companies are paying that amount of commission – so it makes me wonder how much more is actually built into these deals
Anyway Buyer Beware – CheersScott No MatesParticipant@scott-no-matesJoin Date: 2005Post Count: 3,856
An advisor ‘should’ be impartial & paid on ‘fee for se
rvice’ not be recommending investment strategies based on them ‘flipping’ their own properties, in which case they should be declaring an agent’s interest in the properties being sold.Scott No Mates wrote:An advisor 'should' be impartial & paid on 'fee for service' not be recommending investment strategies based on them 'flipping' their own properties, in which case they should be declaring an agent's interest in the properties being sold.
I totally agree Scott – You would like to think most advisers are impartial or that they would declare an interest. It seems to me that transparency is one key in building good long term relationship with clients. A Real Estate Agent has to display the commissions he charges to Vendors and they must declare an Agents Interest if they own or have an Interest in the property they are selling as per the Act. So one would think that buyers dealing with R/E Agents are generally aware of the fees the agent will receive on a sale.
So why not get Property Advisors to disclose the same thing ?
The issue addressed in the article relates more to the large commissions being accepted by advisers in respect of them recommending certain investments – I suppose its like the issue of commission only financial planners over the years where some it seems only recommended managed investments that paid the high commissions .
And I was unable to read the link to your article as it was blocked by my Virus scan program as a reported attack page.
cheersPat007Member@pat007Join Date: 2012Post Count: 71
I think unltimately "caveat emptor" rules supreme.
however i do object to many of the hidden additional costs, commissions and kickbacks continually ramping up property prices in Australia while adding very little of value.
And since the practices are wide spread and agents generally price based on what others are selling for and charging. this leads to the whole market heading up and a lack of competition (alternatively priced housing for example) to this artificial inflationary pressure the bubble just keeps growing faster than wages are rising over time.
Not to mention the socio demographical snowball effect this has as rents rise vs property values.
Where will it end.. will it end ? there is a whole thread on that as it is a completely different rant