20180904 Under-cut each other

20180904 (Tue)

I heard it is rampant that people undercut each other in real estate industry? How true is it?

Firstly, what does it mean by undercut?

It is bypassing the listing agent to offer a better deal to the principal. In estate agency, usually a seller appoints an agent to sell or let his property. As sellers are tempted to sell with lower cost (commission), a third party broker can undercut the listing agent to get the same deal done. Sometimes, it is selling to the same buyer!

It is like giving a better discount or bonus when retailer undercut each other to sell to the customer. In a nutshell, Imagine you get a better discount when to go to shop B after you surveyed A’s price! The end purchase is the same product, but shop A (listing agent) lost the deal!

Is that wrong? Well, it is wrong to the listing agent, but it is right to the undercut broker. He who has benefit would maintain that it is right!

So, in such case how to minimize this undercutting? The answer lies with the seller. The seller has to honour his promise to the listing agent. It is like a product brand has to maintain a stable retail pI heard it is rampant that people undercut each other in estate agency practice? How true is it?

Firstly, what does it mean by undercut?

It is bypassing the listing agent to offer a better deal to the principal. In estate agency, usually a seller appoints an agent to sell or let his property. As sellers are tempted to sell with lower cost (commission), a third party broker can undercut the listing agent to get the same deal done. At times, it is selling to the same buyer!

It is like giving a better discount or bonus when retailer undercut each other to sell to the customer. In a nutshell, Imagine you get a better discount when to go to shop B after you surveyed A’s price! The end purchase is the same product, but shop A (listing agent) lost the deal!

Is that wrong? Well, it is wrong to the listing agent, but it is right to the undercut broker. He who has benefit would maintain he is right!

So, in such case how to minimize this undercutting? The answer lies with the seller. The seller has to honour his promise to the listing agent. It is like a product brand has to maintain a stable retail price for the retailer to display this product for sale. Or else, the retailer would not want even to display it!

This is the advantage of Exclusive Appointment. MEAS 2014 has the below definition:

3.3.3 Exclusive Agency

This refers to the instructions from a client to a single firm to act on his behalf. The client may make introductions and will leave the closing of the transaction to the firm. The client must pay the appointed estate agency firm the agreed fee even if the firm was not the effective cause of the transaction.

In real estate this is hard. Why? Because a seller is only selling for probably once or twice in a lifetime. Therefore, he wants to get his best deal, and when the deal is good (a saving of 1% of a million is RM10,000! – from 3% commission down to 2%), he would dishonour his promise to his listing agent and take the offer from the undercut broker – just to keep his RM10,000. Bad faith would not affect him much as he probably will NOT see this listing agent in his life again!

Ref:

Standard 3 Types of Estate Agency, MEAS 2014.

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