[+] The Secret Art of Agency Channel Commissions

Agency channel commissions rake in untold billions a year, paving the way for a quicker closure for off-the-plan projects and giving developers access to a greater pool of potential buyers. But this approach to selling a development isn’t well understood in the broader property market. And that’s exactly the way many want it to stay. “This is commercially sensitive for our business and clients, and not something I’d like to discuss,” came the response from one reluctant key player. The PR firm for a major residential developer told The Urban Developer that the boss was on a family holiday, and that no one else in the business was available to comment during Melbourne’s most recent lockdown. We weren’t buying it. A secret art Agency channel commissions are a cut and thrust world that trades on reputation. And developers that can’t bring a project to completion are avoided at all costs. One channel agent says: “What you don’t want is to work with a developer that makes you wait for your commission, or that the development doesn’t even get off the ground.” Meanwhile, a high-profile developer admitted that while channel agents are supposed to have their buyer’s best interests at heart, the legal framework and the actual legal and financial structure suggests the vehicle favours the developer. Commissions vary between projects, builders, locations and buyer demand. Higher commissions are paid by developers for off-the-plan apartment projects that require a minimum to be sold before qualifying for finance. Jon Ellis is CEO of the world’s largest channel agency marketplace, Investorist. In 2020, the Melburnian had more than $25-billion worth of Australian properties on its books, closing more than 4000 sales. ▲ Jon Ellis says developers don&#x27;t want the end purchaser to realise how much has been paid to get the deal across the line. Inside the vault While most consumers in the current market understand that there are commissions paid behind the scenes, agencies don’t want the end purchaser to know how much they’re being paid to sell a property, he says. The reason developers speak in hushed tones about channel commissions is that no one wants the end purchaser to realise how much has been paid to get the deal across the line, he says. “There’s certainly some nervousness from many channel agents that if their end consumer was aware of the commissions that they were being paid, that they might question the integrity of their advice,” Ellis says. “However, channel agents are doing all the heavy lifting when it comes to the marketing, advertising and the promotions. So, it’s fair that they get paid a good commission, given they take all the risks.” The Melbourne, Brisbane, Gold Coast and Canberra markets favour channel partners. Fees vary between 3 and 7 per cent depending on the developer and the project. Cash bonuses for multiple sales of around $10,000 are also common. In Melbourne, as developers hold off on big projects amid rolling border closures and with less stock on the market, the national standard 5 per cent commission rates are doing the job. This 5 per cent fee has remained steady across the country for the past five years or so, Ellis says. “Sometimes you get an extra per cent or two in certain stages of the development. Or extra bonuses for the first few sales to build momentum are common,” he says. “There’s often another incentive around financial close or just after to try and get a few more contracts, because that tends to lower the cost of finance.” In Victoria, commissions for apartments are typically 5 per cent of the sale price. “Plus there might be incentives or bonuses that are offered, which agents would typically use to rebate or discount for consumers,” Ellis says. ▲ Developer Sekisui House offered a cash-reward referral program and full stamp duty exemptions to nab buyers. Those rebates could range anywhere from $5000 up to $20,000 on some product. “For townhouses, because they tend to be sold more locally, and often, townhouses are in more premium locations, so typically, we don’t see five per cent commission on those; we might see 4 per cent commission,” he says. Market flux Commissions ebb and flow with the market. When developers are more desperate for sales in slower markets, the sweeteners are rolled out. These can include luxury cars, rental guarantees, complete furniture packages, and even free stamp duty. One insider says these sweeteners even extended to BMW vehicles a few years ago as developers pushed for new ways to drum up sales. But these perks have largely dried up given the strong real estate boom we’re currently experiencing. Buyer incentives dangled in front of agencies are also common, such as a blinds package or an AV package, usually worth around $5000 to help push the sale through. In the past, exclusivity with clientele was crucial for agency partners, The Agency Project co-founder Steven Chen says. But during the past 10 years, smaller real estate agencies that didn’t have the strength to list, manage and execute a project in its entirety have brought buyers to the table that the master agent wouldn’t have come across otherwise. Sometimes, this has resulted in projects closing sooner, he says. For example, The Agency worked as one of multiple channel agency partners for Melbourne developer Gurner in 2019-20 on the $540-million Saint Moritz development, which transformed the iconic former Novotel St Kilda site into a luxury residential precinct. The Agency was paid between 3 and 5 per cent per sale, depending on the price of each apartment. Reinvigorating projects Incentives and high commissions have the power to reinvigorate a project, Joshua Baruch, residential channel manager for CBRE says. “However, offering exceptional marketing collateral, sales support and a really sellable project is still the best way to achieve sales with referrals.” He’s noticing that local channels are generally gravitating towards projects that offer stamp duty concessions, 5 per cent deposit offers and furniture packages. Going the extra mile helps, too. ▲ Buyers have been attracted to off-the-plan projects, lured by government incentives and stamp duty savings. Image: Landream&#x27;s The Brighton, Melbourne. “We have found that because we assist our referrals with their client inspections, we achieve more sales,” Baruch says. “CBRE is also seeing more activity from projects that offer first home buyers great incentives. “This market has been a focus for channels. Five per cent deposits, stamp duty concessions, covering five year body corporate levies are all really effective ways to grab referral agents’ attention.” Meanwhile, offshore channels are motivated by higher commissions or bonuses on reaching sales targets. “It’s about providing the referral agency the tools to offer their clients value, while also rewarding the referral agency for actively pushing the project and making sales,” Baruch says. Demonstrating value Developers should view channel agent commissions as a way to reduce their marketing spend, with the potential to shorten their project life cycle to reach financial close faster, Ellis says. Usual sales and marketing costs sit at around 10 per cent of your project. Commissions are around 5 per cent, plus incentives. “With sales, there are two factors at play—time and cost. If you had all the time in the world, like a land developer, because you’ve structured your project in such a way that the longer you hold, the more money you make. Then commissions become something you don’t want to pay.” On the other hand, apartment developers who need to make a set number of sales to financially close who have already forked out $3 million in marketing collateral could see channel agency commissions as a bargain, Ellis says. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] The Secret Art of Agency Channel Commissions

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