Re Practise Report

NATIONAL UNIVERSITY OF SINGAPORE DEPARTMENT OF REAL ESTATE

RE4180 REAL ESTATE PRACTICE AND RESEARCH

Group Project 1 – First Semester 2008/2009

Question: As a consequence of the growing competition within the real estate market, the real estate industry is constantly exploring ways on how to expand and develop its business opportunities. The product/market expansion grid provides four different strategies for business development emphasizing on either products or markets. In view of the unique nature of real estate products and services, examine whether it is better to focus on product development or market development in relation to one of the real estate professions below.

“Marketing Agents”

Group Members: Chua Hiong Hui (U054797Y) Chua Hwee Ching, Callie (U054794N) Chua Kang Hian, Desmond (U054795B) Tung Puay Ping (U054793A) Lecturer: Dr Grace Wong

1

Contents Executive Summary.............................................................................................................3 1. Introduction ......................................................................................................................4 2. Background ......................................................................................................................4 3. Products and Services of Marketing Agents................................................................4 a) Sales and Rental of Properties .....................................................................................4 b) Marketing of Local and Overseas Properties................................................................4 c) Property Management Services ....................................................................................4 d) Consultancy and Research Services ............................................................................4 e) Asset Management & Property Investment Services ...................................................5 f) Property Development Advisory Services......................................................................5 g) Super high-end Luxury Homes .....................................................................................5 h) En-bloc Sales.................................................................................................................5 i) Design and Build Services..............................................................................................5 j) Real Estate Project Management...................................................................................5 4. SWOT Analysis ................................................................................................................6 Strengths and Opportunities ..............................................................................................6 a) Lucrative Jobs................................................................................................................6 b) Low barriers of entry......................................................................................................6 c) High Demand for Marketing Agents ..............................................................................6 d) “Be your own Boss” in time management and entrepreneurship .................................7 Weaknesses and Threats ..................................................................................................7 a) Sales/income easily affected by gloomy property market ............................................7 b) Low barriers of entry......................................................................................................7 c) Unglamorous Job...........................................................................................................8 d) High turn-over rate of agents.........................................................................................8 5. Product Development......................................................................................................9 The Strategic Planning ......................................................................................................9 a) Comprehensive and intensive in-house courses ..........................................................9 b) Build up a strong clientele network ...............................................................................9 c) Create a useful net portal ..............................................................................................9 d) Value-added services ..................................................................................................10 e) Franchising own set of Sale/Lease agreements, training modules and services ......10 6. Potential Ethical Issues and Problems .......................................................................11 a) Misrepresentation ........................................................................................................11 b) Unethical agents working for their self-interests instead of the client’s’ .....................11 c)“Free-riders” problem....................................................................................................11 d) High costs incurred for conducting courses for agents...............................................11 7. Recommendations.........................................................................................................12 8. References......................................................................................................................13

2

Executive Summary Marketing agents are seemed to be professionals to help connect the buyer to the seller. A lot of home seekers and investors use the services of marketing agents not just for getting good deals but also to dispose off their property faster. Current services of marketing agents include managing sales and rental of properties, marketing of local and overseas properties, involving in property management services. Other value-added services include consultancy and research services, providing asset management & property investment services, property development advisory services, dealing with niche-market clients such as super high-end luxury homes, handle en-bloc sales, providing design and build services and last but not least, real estate project management. The strengths and opportunities are: - marketing agents are quite lucrative jobs as it is based on commissions, the more foreclosures made, the more earnings the agent will get. Due to low barriers of entry, employees could easily enter into the marketing agent line for a change of career even he/she is inexperienced. With its lucrative commissions and increasing labour demand every year, licensed agencies will be looking forward to employ enthusiastic recruits. Employees are not tight down by its rigid working hours, rather he/she can arrange time with his clients. As the agent meets people from all walks of life, he/she is able to assess into greater business network and to extensive resources. The weaknesses and threats are: - sales/income is easily affected by gloomy property market. Low barriers of entry into the industry have further incurred problems to the image of the occupation. With employees from all walks of life, education levels and different backgrounds, sometimes there could be some black sheep among the agents offering poor services or misrepresenting facts. Due to the above circumstances, they result a high turnover rate of agents. The optimal strategy will be product development where products/services could be further developed in the existing market. Other than improving and enhancing the existing services, the approach is also to bring in new services/ideas into the market, consisting of highly innovative marketing ideas, effective marketing tools, wide networking and creative & systematic training. Strategies include: - having a comprehensive and intensive in-house courses, building up a strong clientele network, creating a useful net portal, value-added services and franchising own set of sale/leasing agreements and training modules and services. The product development strategies would be likely meet up with some hiccups in the process due to its fragmented structure and existing and potential ethical issues and problems. But with recommendations of pushing for second-tier licensing, introducing new barriers of entry through Government intervention and subsidies for training and selfregulation from the big players, the image of a marketing agent will slowly change from unethical, unscrupulous to a professional, customer focused and knowledgeable occupation.

3

1. Introduction Marketing agents are seemed to be professionals to help connect the buyer to the seller. They also handle the rental market wherein they connect tenants to landlords and even maintain the property on the behalf of the landlords. In Singapore, the marketing agents work by linking together the two interested parties and charging a commission for their services. Some co-broke, where the agent engages with another agent’s buyers and sellers. For sales, they charge commission only to the seller but for rentals (i.e. agent managed rentals) the commission is charged to both parties involved in the transaction. Agents generally calculate their fee as a percentage of the selling price (in case of sales) and as part of the rent (for rentals). 2. Background A lot of home seekers (including real estate investors) use the services of marketing agents not just for getting good deals but also to dispose off their property faster especially when they need to travel or in need of liquidity. Since marketing agents are probably most familiar with the market situation in their region of operation due to networking, it makes sense to approach them to get an idea of the going rate for properties in that region. 3. Products and Services of Marketing Agents a) Sales and Rental of Properties The most common services that marketing agents provide are connecting a buyer to a seller to form a property transaction. By closing this transaction, they earn a commission. Agents are also heavily involved in the property rental market earning commissions. Moving forward, IEA1 has removed IEA’s guidelines in September 2008 and paving the way for industry players and real estate agencies to set their own commission guidelines. b) Marketing of Local and Overseas Properties Some marketing agents (ERA, CBRE) in Singapore will work together with Real Estate Developers such as Capitaland, CDL. The developer usually signs an exclusive agreement with the marketing agency, allowing its pool of marketing agents with exclusive-rights to market their properties. This tends to encourage the agents to commit themselves fully and perform well during the marketing process. This is also a common practice in overseas, especially in regional areas where the developers engaged the local agents to do marketing, advertising for their new property launches. c) Property Management Services Quite a few agents provide such services in Singapore. Agents provide sales, rental and management services to client’s property. d) Consultancy and Research Services Apart from earning commissions from property transactions, some agents provide consultancy and research services to small and even big developers. This is because agents

1

Institute of Agents is a local body formed by the merger of 3 real estate bodies in Singapore, namely the Association of Singapore Realtors (ASR), Association of Singapore Real Estate Agents (ASREA) and the Society of Singapore Institute of Surveyors and Valuers Accredited Estate Agents (SOCREA), to promote and protect the interests of estate agents as well as to protect the interests of Members of the public who engage the services of estate agents.

4

are more aware of the market conditions and they can provide one-stop services for developers. e) Asset Management & Property Investment Services As some owners are always on the move, they do not have the time to stay in their countries looking after their assets. They tend to engage marketing agents to manage their assets and investments. f) Property Development Advisory Services Small developers or developers from overseas might not be familiar with local real estate market. Agents provide such services by advising them the kind of properties that best suit them. g) Super high-end Luxury Homes Super high-end luxury home seekers are usually super-rich clients whom required special attention and needs by professional marketing agents. Agents will provide very personal service for these super rich buyers, for example, helping them to find suitable interior design, furniture, lightings and even cleaners for the house. h) En-bloc Sales When an old development wants to go for a collective sale, they usually form a committee and engage lawyers and marketing agents to prepare the paperwork for the en-bloc process. Marketing agents provide such services by pulling all interested parties together, put up advertisements of the sale, gather enough votes from the majority and submit the necessary documents to Strata-Title Board (STB) for approvals. i) Design and Build Services After buying a piece of land, owner may not know how to build or renovate it. Thus, agents can assist owners by finding suitable contractors and architects to design and build for that particular piece of land with some networking. j) Real Estate Project Management Developers sometimes may need such services from agents to manage their real estate project. By engaging suitable architects, consultants and contractors, agents provide valueadded services for their clients.

5

4. SWOT Analysis Strengths and Opportunities a) Lucrative Jobs Although IEA has removed the commission guidelines, marketing agents get to share as much as 30% of their commission income with the company by joining it. In return, they get to leverage on the company’s resources to source for property sellers and buyers. Take for example the sale of a five-room HDB flat in Bishan, which can fetch around $400,000 in today’s market. The agent who helps the property owner closes the sale can charge the owner a fee of 2% (through negotiation) of $400,000, or $8,000. An agent who helps a property buyer buy that HDB apartment can charge 1% of $400,000, or $4,000. A high-end condominium apartment in a prime location like District 10 can easily sell for a million dollars, if not a lot more. Bagging just one such sale could potentially make the agent 2% x $1,000,000, or $20,000. Of course, the lucrative income depends very much sometimes on the real estate market and the hard work the agent puts in. The more foreclosures made, the more earnings the agent will get. b) Low barriers of entry New real estate agents join a crowded field with many different people basically peddling the same service. One of the reasons is that the barriers to entry in the real estate field are relatively low. With the high turn-over of jobs in other industries, employees could easily enter the marketing agent line for a change of career even he/she is inexperienced. There have been successful stories of retrenched employees from other sectors working in real estate agent industry that saved their livelihood, especially with those short-term careers like air stewardess industry and odd-job labourers. With low barriers of entry and minimal 3 GCE O’ levels passes, the real estate agent industry provides an opportunity for those who needed a switch of a career and a livelihood. c) High Demand for Marketing Agents With its lucrative commissions and increasing labour demand (as shown below), every year, licensed agencies will be looking forward to employ enthusiastic recruits into the industry all year round with their profit sharing motives as well.

6

Figure 1: Job vacancies among services Source: Jobs in Demand 2007, Manpower Research and Statistics Department

Figure 2: Top 10 Occupations in 2007 Source: Jobs in Demand 2007, Manpower Research and Statistics Department

d) “Be your own Boss” in time management and entrepreneurship Unlike a 9-5 job, the work of a marketing agent depends very much on individual and its clients. Employees are not tight down by its rigid working hours, rather he/she can arrange time with his clients on house viewing. As the agent meets people from all walks of life, he/she is able to assess into greater business network and to extensive resources. Weaknesses and Threats a) Sales/income easily affected by gloomy property market Although the income could be lucrative based on the number of closures, property agents could be badly hit by the poor economy when the market is down. When properties prices are too high and sellers found harder to sell and buyers found too expensive to buy, foreclosures are extremely hard to come by each day. Solely based on the commissions, agents’ livelihood are likely to be affected. b) Low barriers of entry

7

Where low barriers of entry create opportunities, it acts as a double-edged sword and poses a problem as well. This also results too many agents in the industry where there is high competition, i.e. one property, many agents fighting for foreclosures, it turns out to be a throat-cutting business. c) Unglamorous Job Low barriers of entry into the industry have further incurred problems to the image of the occupation. With employees from all walks of life, education level and different backgrounds, sometimes there could be some black sheep among the agents offering poor services or misrepresenting facts. When one thinks of a marketing agent, he/she would be stereotyped to be “unprofessional”, “unremorseful liar”, and having local names like, “Ah Beng/Ah Lian Agent”. Such terms turned marketing agent to become a pretty unglamorous job which is occurring not only in Singapore but in a lot of regional areas. d) High turn-over rate of agents With a saturation of too many property agents in the market, many could quit the industry or even forced to leave especially during market downturn where everyone’s fighting for a bowl of rice. Although it is not a 9-5 job, some agents find it unfavourable as they have to “burn” their weekends working in the show flats and bringing their clients for house viewing and resulted spending very little time with their family. Most agents quit the job due to family commitments. During the transition period where new players came in, there could be not enough professional agents to “hold the fort” due to high turn-over rate.

8

5. Product Development The Strategic Planning The products/services could be further developed in the existing market. Other than improving and enhancing the existing services in the current market, the approach is also to bring in new services/ideas into the market consisting of highly innovative marketing ideas, effective marketing tools, wide networking and creative & systematic training. a) Comprehensive and intensive in-house courses With the phrase from John Donne, “No Man is an Island”, marketing agencies should make their employees stay cohesively together as a team by making our employees (agents) as consumers of their products/services as well as going through a comprehensive learning process. Marketing agencies should conduct in-house real estate courses for the new agents which includes compulsory examinations and certification (accredited by SISV2), attire grooming and toastmasters. While improving the agents’ proficiency in English speaking and writing, the Toastmasters will give agents the skills & confidence they need to effectively express themselves in any situation which have proved to be the most efficient, enjoyable & affordable way of gaining great communication skills. The agents should also be taught on handling customers’ complaints from attending National Skill Recognition System (NSRS) courses. Further training in negotiation skills and legal knowledge will be on the advanced level for agents who had stayed for 1 year and with improving performance. Such trainings will prepare them for a higher level when dealing clients who are more demanding. IT-courses will also be conducted on agents in creating their own websites, presentations etc. b) Build up a strong clientele network Existing Markets of agencies like ERA, Dennis Wee, PropNex, Orange Tee, etc are focusing on buying/selling/leasing of the public and private housing on the existing development. For the private housing on new development, developers will either invite a few marketing agencies to help market their properties or give sole agency rights to one marketing agent to do the marketing. Therefore, marketing agents should expand their networking with the developers so that they could get the sole-agency rights to market the whole housing development. In order to expand their networking with the developers, agencies need to build up their reputation in the property market industries so that developers will have confidence to give the sole agency rights to the marketing agency to market their properties. Other than building a strong clientele, market agents should also keep in contact with past clients and update them of any news of new property launches while getting to know new clients. c) Create a useful net portal As customers are becoming more IT savvy, they are likely to search for properties online more often. With a net portal featuring all services available online as well, marketing agents could put up their advertisements for a small fee, exchange ideas and communicate through personal messaging (PM) services in forums.

2

Singapore Institute of Surveyors and Valuers represents local land surveyors, quantity surveyors, valuers, property managers, property consultants and real estate agents at the professional level.

9

The net portal also provides one-stop services for the clients, achieved by putting up information of data and research on all banks loan available in the markets, the price range of lawyers’ fees and transacted prices of past sales and rentals. The agency can also put up market research quarterly reports in the website (with disclaimers), with buyers guide to properties and residential property reviews. User-friendly online tools such as loan calculator, portrays ball-park figure to the mortgage payment, allows interested buyers or first-timers to know more about property before investing in their first home. Interesting articles can be put up to showcase the hottest properties and updated launches in the market informed buyers of the latest trends in properties. d) Value-added services The marketing agents could offer marketing consulting services for its big clients like developers, especially in new property launches. They can help to come up with marketing proposals in promoting and perceiving buyers’ behaviour in the product by working together with the builder in the show flat, advertisements, brochures and special promotions. The agency should also cultivate the agents to be customer-focused, provide value-added services like sending our clients back home after viewing. Most importantly, marketing agents should also help the seller to “screen” potential buyers who are really genuine buyers so no time is wasted especially when buyers want to sell their property fast. e) Franchising own set of Sale/Lease agreements, training modules and services When all the above in place, the marketing agency could set up its own franchise on its agreements, courses and services patented and establish its philosophy of business in the trade. Protected by the patent, this business will be sustainable and continue to incur revenue for the firm where other agencies even from the regional areas will have to pay a royalty to the franchise and carry out the same practices.

10

6. Potential Ethical Issues and Problems a) Misrepresentation The most common complaints against housing agents are about poor service or misrepresenting facts. In Singapore properties markets, the property agents do not need to be certified to becoming an agent. They used the company license to practice as a property agent. Therefore, agencies recruited a lot of new staffs by providing short courses of about 2 to 4 weeks. Thus, property agent industry flops with a lot of agents with very little knowledge in the property market. As a result, these non-skilled agents might either misled or provide misrepresented information to their clients which caused a lot of unhappiness to the clients and in turn tarnish the agency reputation. b) Unethical agents working for their self-interests instead of the client’s’ As the income based a lot on commissions, agents who want to pocket both the seller's commission and the buyer's fee may refuse to co-broke. This greatly reduces the number of viewings that a seller may get for his flat. A recent case would be, Mr X could have received $7,000 more from a higher offer for his HDB flat, but ended up getting $438,000 because his agent did not tell him about an offer that came from another agent. As a result, Mr X lodged a complain to the Consumers Association of Singapore (CASE) or IEA about the unethical agent who had not managed to get him a better deal because he does not want to share his commission in the co-broking and resulted Mr X not getting the better offer for his flat. The unethical agent has obviously worked on his own interests instead of his client’s. Cases like this are getting more common, with CASE receiving 57 complaints from January to July this year, up 32 from the same period last year. Experts believe some agents are rushing to seal deals and cutting corners. Tenants are not spared either where expatriates working in Sngapore have also failed to get a rental home thrice because agents upped the price even after he/she had signed letters of intent or handed over cheques for the rental deposit. Although not all agents behaved unethically, a few bad examples is enough to sink the entire ship, giving people the impression that agents are unscrupulous, not customer-focused, get all means by hook or by crook to lure clients to commit sales. Currently there is no regulatory body to enforce accreditation of property agents, although the Singapore Accredited Estate Agencies (SAEA) aims to have all agents accredited by 2009. c)“Free-riders” problem The group who stayed with the agency for more than 1 year and without closing any deals are seem to be the riskiest for consumers as they may not be as updated on industry changes. There is also possibility that this group may not be declaring their transactions, which poses a problem when consumers consult the agency and find that there are no records of the deal. Consumers are not protected in terms of professional standards provided by the agent therefore there is a lot of concern and a call for industry to be regulated. d) High costs incurred for conducting courses for agents Due to no educational barrier to entry, anyone can join the industry. Typically, training is only provided if the agent joins a relatively big company where there is some structure in place. Courses may be very costly. Employees may not have the starting income to attend the courses held. This resulted some of them to give up in the midst of training.

11

7. Recommendations Currently, only agencies are licensed The Institute of Estate Agents (IEA) has also been pushing for second-tier licensing, but to no avail. Entry barriers are strongly needed where Government should intervene by setting rules that all the property agents should either have a certificate in Common Examination for House Agents (CEHA) or a diploma/degree in real estate. With the certificate, it aims to raise the standard of professional services by qualified, trained and knowledgeable real estate agents. Like the ISO 9000, the agencies should have audited their staffs to ensure they are qualified and equipped with current property knowledge. In this way, the information provided will be accurate and prevent any unnecessary misrepresentations. A lack of direct and stiff regulation for housing agents has allowed the existence of what some industry players call "cowboy" agents, who profit by flouting rules, and leaving customers and their agencies to deal with lapses. Thus it is important to set up regulations and heavily penalize these unethical agents through black-listing, giving awareness to clientele and trash out these “cowboy” agents. Net portal created could also be avenues to give redress to consumers who have problems with their agents and also could showcase good, ethical property agents, through rewards, news articles etc. Some big players in the industry have self-regulated in terms of conduct and responsibility while waiting for Government to intervene. For example, instead of firing those nonperforming agents who stayed with the agency but without closing any deals, this group were first given a choice to remain as Prop Nex agents by signing up for Professional Indemnity Insurance as well as a refresher course. Professional Indemnity Insurance should be imposed on every deployed marketing agent. If all other professionals such as lawyers and doctors are subjected to Professional Indemnity, it is only right that marketing agents are covered as well to protect the interests of consumers. To lessen the unhappiness of customers engaged with unprofessional and unaccredited agents, IEA has removed its commission guidelines in September 2008 and paved the way for industry players and real estate agencies to set their own commission guidelines. This has further intrigued customers is to do their own due diligence when engaging their next real estate agent and has strongly encouraged them to choose a professional real estate agent and is also a member of IEA. Government should come up with a ranking system on all marketing agencies based on their portfolios and auditing results. With ranking, agencies will upgrade their agents with the property market knowledge and provide more excellent service to the clients. Developers will also benefit by selecting reputable agency to market their development. With the high costs incurred for training, Government could give subsidies to these employees in attending courses in the agency. With all these recommendations and with Government’s intervention, the image of marketing agent will slowly change from unethical, unscrupulous to a professional, customer focused and knowledgeable occupation. Although it will not happen overnight, with its bold and courageous overhaul of its current situation, the changes will eventually change our consumers’ negative perception on marketing agents to a positive one.

12

8. References Institute of Estate Agents website http://www.iea.org.sg/ Dennis Wee Group http://www.denniswee.com/ PropNex http://www.propnex.com/

13