REIV Hypocrisy - Cut Stamp Duty While Commissions Increase

OPINION
by Peter Mericka B.A., LL.B
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd

The hypocrisy is astounding. Enzo Raimondo told the Herald Sun newspaper "If stamp duty rates are not reduced then anyone buying an average home will pay, as a percentage of the purchase price, a higher amount of stamp duty than they ever have before." What Enzo chooses to ignore is that real estate agent commissions have doubled, and none of the benefits of advances in technology have been passed on to consumers. Surely, after gorging itself on ever-increasing commissions, the real estate industry share its plate.

In the Melbourne Herald-Sun newspaper (Monday 12 April, 2010), CEO of the Real Estate Institute of Victoria (REIV), Enzo Raimondo, made these observations:

"In 1999, the median price was $270,000 and stamp duty $11,860, or 4.4 per cent." (At the same time, commission charged by a real estate agent on the sale is generally 3 per cent of the purchase price)

"The median house price across Melbourne is now $540,500 and the stamp duty is $24,400 - about 4.5 per cent of the purchase price."(Similarly, the commission charged by a real estate agent on the sale remains around 3 per cent of the purchase price)

"If the stamp duty rates are not reduced then anyone buying an average home now will pay, as a percentage of the purchase price, a higher amount of stamp duty than they ever have before."

According to report Matt Johnston, "The Real Estate Institute of Victoria wants the State Government to cut the tax level, as it did in 2006."

The response of the government is that the GFC has affected government revenue. "The global financial crisis wiped over $220 million worth of stamp duty from our revenue in the first six months of this year alone", said a spokesman for Treasurer John Lenders.

Commission as a tax charged by real estate agents

The commission charged by real estate agents on the sale of real estate is not related to the effort or overheads of the real estate agent. Commission is charged as a percentage of the sale/purchase price of the property. Effectively, commission is a tax, charged by real estate agents.

There is a difference, however, between the tax charged by the government on property sales, and the tax charged by real estate agents on property sales. One impost is channeled into the coffers of the government for the purposes of funding public works etc., while the other is channeled into the pockets of real estate agents.

Without getting into political arguments, it is fair to say that the tax charged by the government on property sales is more likely to filter down to the ultimate benefit of the community, and where possible (and politically expedient to do so), tax cuts may follow circumstances where the cost of providing government services are reduced, and/or the government's income is increased.

Real estate agents NEVER reduce commissions in boom times

When was the last time the Enzo Raimondo, REIV, or real estate agents generally proposed a slashing of commissions?

I cannot recall any time when real estate agents have acknowledged that they make too much money on real estate sales, or that booming property prices had increased their commissions to such an obscene level that they should be wound back.

While the amount of cash available to the government ebbs and flows with economic circumstances, the commissions charged by real estate agents operate under a ratchet, that ensures that they can only ever increase.

Reductions in overhead costs are NEVER passed on to consumers

Over the past few decades there have been amazing changes in the way real estate is sold, and overhead costs to real estate agents have been massively reduced.

Here are just a few examples:

• Computerised office management systems have reduced the number of man-hours required to run a real estate office.
• Digital telephone systems have contributed to the reduction in the cost of human resources.
• Digital photography, ordered over the internet, has further reduced costs and demand on agents' time.
• Mobile telephones have made communications more efficient through immediate contact, voicemail and SMS.
• Automation of document assembly, laser printers and faxes has made paperwork simple.
• Advertising is now taken care of by internet real estate portals, with direct contact to the real estate agent.
  

Remembering that the real estate agent does not take responsibility for the preparation of sale documents before the sale, and has no role in the conveyancing transaction after the sale, the real estate agent has never had that much to do, apart from placing advertising, receiving calls, and passing documents from the lawyers to the parties.

The small amount of work the real estate agent has done in relation to the sale of a property has been greatly reduced over the years, with a resulting reduction in the cost of running a real estate agency.

The gall of the REIV

The real estate industry is booming. Real estate agents have revenue pouring into their pockets, and the luxury car market appears to be benefiting as well (in the working class suburb of Croydon, Victoria, there are more Mercedes Benz saloons in the real estate agents' carparks than ever before). But still they're not satisfied. The REIV wants a further catalyst to boost its members' revenue, and so it calls on the government to reduce stamp duty in order to further stimulate the housing industry and increase the commission revenue its members collect.

Surely there comes a time when even the REIV must realise that enough is enough.

It's time for the the real estate industry to sit back and pat its tummy, announce that it's full, and pass the plate back to consumers.

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