Commentary

The Trend of Commission Cashback – Why It Happens And Why It Can Be Harmful

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Aidah

Aidah Omar is a marketing consultant and digital strategist for various SMEs in Singapore for the past 8 years. Over the last 5 years, she has worked with property agents from various agencies. She has a 2-year old daughter who is obsessed with dinosaurs and Peppa Pig.

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Marco
Marco
3 years ago

In my view, the trend of commission cashback is rooted in a matter of fact: nowadays the property agents NO LONGER add as much value to property transactions as before. We’re in a booming era of knowledge economy, especially in Singapore. The main force of buyers is formed by those young people who are well educated and savvy at information search. There are also abundant data about property market easy and cheap to be obtained. So many buyers don’t necessarily know less than property agents about the properties in which they are interested. As a result, a property agent’s effort and contribution to a property transaction is very likely limited to the arrangements of viewing and paper works related to a transaction. For an example, a buyer approached you for a purchase of a unit worth $2mio in a new launch project paying commission 3%. After viewing the show flat without asking you for much information, she told you she wanted to buy unit xx-xx. She got deposit ready as well as financing. In this scenario, should she agree that you are entitled to $60k commission given the effort you contributed?

In my opinion, instead of repeating that commission cashback is not legitimate or “harmful” to both sides in long term, I would suggest the property agencies to think of how to increase agents’ value in today’s property market. There are more than 30 thousand agents in Singapore. But to be honest, few of them deserve to earn the commission, especially the rate given by developers in new launch projects. This is also why we see many agents courting buyers to new launches by promising cashback.

P.Lee
P.Lee
2 years ago

I think it’s great that you have shone light on this unwanted practice, however you seem to have put the responsibility on buyers and agents to take the moral high ground and reject such practices. Perhaps you can consider if developers have to bear some of the blame too.

When developers have units that they cannot sell, more often than not it is because their asking price is too high. Given the liquidity in the housing market, it is not so much that the unit has traits that makes it un-marketable, it is more because the unit is un-marketable at the asking price. So in order to protect the ‘caveated’ price and give future buyers the optical illusion that their project is selling well and maintaining price levels, developers may choose to give agents a higher commission and then tell the agent that whatever cashback that they want to provide to the buyer is completely up to them. If the agent has an interested buyer on hand and the unit ticks all the buyer’s boxes except price, then there is an incentive for the agent to provide such forms of cashback – this practice can be avoided if the developer just lowered its price to what the market can accept instead of attempting to achieve sales in a roundabout and illegal manner.

I completely agree that this practice should not be condoned and I do hope that agents can receive the commissions that they deserve, i.e. commensurate with performance/effort and not tainted by unsavory market practice. Lastly, to Marco, there are run of the mill agents and there are good agents, I’m sorry you have not met a good one yet. P.S. I’m not an agent, just a home buyer/seller like most of the general population.

Stacked Homes
Admin
2 years ago
Reply to  P.Lee

Well said P. Lee. I think you bring a great perspective to the table! It’s also true that developers could possibly lower their price (and some do!), but perhaps maintaining their reputation would also be important as the first few buyers would really end up on the losing end if they actually sell for less. Moreover, if we assume a commission of 3% earned, and if the agent gives back 2%, that’s just a discount of 2% on the listing price. The developer would not be thinking that publicly dropping it by 2% will end up with a great sale. Yes some units may move, but then it’ll be stuck again. In fact based on experience, a lot of people who ask for kickbacks were already prepared to purchase at the asking price – the kickback is a result of greed or not wanting to miss out on it more than anything. These high commissions are usually awarded during a cool market anyway, so even reducing the prices may not result in much of a sale either. In a hot market, developers are known to give less than 1% commissions because the unit sells itself! So I think that the developer’s have given this some thought, and realised the best approach is just let the agents do the market, earn their commissions. What they do with it afterwards isn’t a concern for them

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