Move to ban ‘one agent for buyer and seller’ under study

Source : Straits Times – 13 Oct 2009

THE Government is contemplating a move to ban property agents from engaging in the widespread practice of representing both the seller and buyer of an HDB flat in the same transaction.

The idea is set to get the thumbs up from home buyers and sellers, but could leave some agents unhappy at a potential loss of commission income.

The proposal was released yesterday by the Ministry of National Development (MND) to raise industry standards. The move would ensure that agents are ‘not in a conflict-of-interest position’, it said.

Currently, many disputes arise because an agent represents both buyer and seller in the same HDB resale transaction.

The practice means the seller’s agent often gets a commission from the buyer as well and may refuse to sell to a certain buyer if no commission can be made.

In other words, the agent may not be trying his best to achieve the best price.

For example, suppose a seller’s agent gets an offer of $300,000 for an HDB flat from a direct buyer willing to pay a commission. He gets to collect 2 per cent in fees from the seller and 1 per cent from the buyer. All up: $9,000 in commission.

But suppose another buyer comes along with his own agent and offers $320,000. Although the price offered is higher, the seller’s agent might refuse to cooperate with the buyer’s agent as the potential commission is lower at $6,400 than if it was a direct buyer.

This practice presents a clear conflict of interest – sellers naturally want the highest price for their property, and buyers want to pay the lowest, MND said in a statement.

‘The same agent cannot possibly discharge his professional duties to both equally and represent both their interests fully.’

However, MND noted that flat buyers may need an agent’s administrative help, and proposes the seller’s agent be paid a fixed administrative fee to help buyers process the paperwork. Alternatively, buyers could engage their own agents or even handle the transactions themselves.

Agency bosses yesterday acknowledged that this move might be unpopular with property agents as it will hit their commission cheques.

‘This could be a big issue for agents since this practice has been adopted for many years now,’ said ERA associate director Eugene Lim. Still, ERA supports the move if it protects the consumer by preventing conflicts of interest, he said.

PropNex chief executive Mohamed Ismail said it is common for some agents to refuse to co-broke in order to earn larger commissions. Co-broking is where a seller has one agent and a buyer another.

‘In the longer term, agents will not lose out as it levels the playing field. All agents will have to co-broke, and everyone will get his rightful commission,’ he said.

Mrs Loh Jo Lyn, 28, is one home buyer who had a bad experience buying an HDB flat when her bid through her agent was rejected by another agent who wanted a direct buyer.

‘This is definitely moving in the right direction. The industry needs more regulation to protect sellers and buyers,’ she said.