Ideas for changing the Real Estate industry

[xris]

Over time there has been quite a lot of talk about the shortcomings of the current real estate industry in NZ. Complaints and gripes abound from vendors and buyers alike. People like Neil Jenman take advantage of this to make money. I have done more than my share of defending the industry, for what I sometimes wonder. The government is supposedly looking to 'overhaul' the industry, but from what I can see this will only be tinkering with the existing system.

Some ideas on how to change it sometimes crop up here now and again.

I thought it might be productive to collect these ideas in one thread and hopefully start a debate on the pros and cons of different methods.

To start off, here are a couple of ideas.

1/ Keep the same system but improve it in places, much like the govt is planning.

2/ Have a system where the buyer and seller both engage an agent and the commission comes equally from the buyer and the seller. This may be close to the American method which I am not too familiar with.

So, any ideas, comments? I expect that if done properly there will be a more productive debate with ideas here than anything provided to the govt by the RE industry big-wigs who, I believe, have failed noticeably in their dutes over recent years and have brought so much of this chagran on themselves.

xris

[Monid]

Thomas Pogge (A brilliant and worth reading political philosopher) argues in regards to pharmacuetical corporations that rules to penalise their unethical behaviours will not work. He is thinking of the sheer amount of money that is spent on research into curing baldness when money isn't put into diseases like malaria, what the WHO refers to as the 90/10 gap, that 90% of the worlds research funding is on the diseases that benefits 10% of the worlds population (the richest 10%).

His suggestion is that the only way to get these corporations to reform is to change their incentive structures. I think he is right and the same applies to real estate.

Something I note from the professional ethics training I did with property valuers is their code of ethics forbids any performance based pay. In other words real estate agents shouldn't make more money for selling more properties. They certainly shouldn't be in the situation where they have to sell properties to make any money. In this situation if behaving unethically will allow them to stay afloat or flourish what option do you think they will take?

Cheers
David

[SuperDad]

It is probably useful in this discussion to identify the problem or problems with the existing system that any change is supposed to address.

One major problem I can think of is the fact that vendors (and purchasers) are often amatuers, operating almost blindly in an arena populated by people with more knowledge and skills that they. Couple this with the fact that, for most people, the sale and purchase of real estate is the single largest financial transaction they will ever be party to, and the potential for abuse (of both vendors' and purchasers' interests) is ripe.

In order to right this power imbalance, measures ought to be put in place to protect the interests of vendors and purchasers. One idea is to require that vendors and purchasers each obtain a registered valuation on a property before entering a sales and purchase agreement.

I can see both advantages and problems with this idea, but I (obviously) believe that the advantages outweigh the problems. I won't list these here, although feel free to do so if you think my suggestion is worthy of comment.

Paul.

[Monid]

To add to SuperDad's suggestion I would also add another packet of information about the property such as the LIM and maybe a builder's report.

Cheers
David

[xris]

The idea of identifying the current problems is most defintely the place to start and Paul has identified one, that being that the buyers and sellers are often amateurs totally at the whim of the agent. That in itself may not be wrong though.

I believe that far and away the biggest problem is the money flow, the way the commission is used. This causes so many other problems, including the way the buyers and sellers feel used by an agent who appears to be, and frequently is, putting his own interests first. This is human nature of course.

So I would start by looking at how differently to divvie out the money in a way that would remove a lot of the greed, worry, high turn over rate and deceit that is too often a part of the current system. Once that is done then a lot of the other problems will vanish.

xris

[Monid]

Looks like some of the above is part of the new proposed system: http://www.nzherald.co.nz/section/8/...ectid=10449407

"The move to ensure that all individuals working in the real estate industry are employed on a fulltime basis as opposed to contract is ultimately anti-competitive and will mean higher fees for consumers," Slatin said.
Cosgrove said this was untrue. "The consultation paper proposes that the real estate industry be subject to the same employment laws as any other industry or business.
"In practical terms, this means real estate agents can choose whether to engage salespeople as independent contractors or to employ them. Such decisions will be subject to scrutiny from the courts as to whether a person is genuinely a salesperson or an independent contractor," Cosgrove said.

Cheers David