Thursday 17 September 2015 was not a good day for Real Estate in New Zealand. In fact it was a very bad day.
The Commerce Commission (ComCom) announced they had filed charges against a number of real estate agencies, including Head Offices and local operations alleging price fixing and anticompetitive behaviour.
In this article we are going to look at the Background to the ComCom complaint, what the actual complaint is about, the implications to consumers, the companies under the gun and the industry itself.
The ComCom proceedings relate to issues from late 2014 and early to 2014.
In September 2013 TradeMe surprised its Agent customers by changing its pricing structure from an all-you-can-eat monthly office charge to a per listing fee. The net result was an average 400% price increase. We covered this at the time here.
Real Estate Agencies reacted, no surprise they were not happy. Listings were withdrawn and homeowners were told they were going to have to pay to have their properties advertised on TradeMe. TradeMe fanned the flames by acting aggressively toward the agents. See some of our coverage here. During this period TradeMe complained to ComCom about what some agencies were doing. Our comments at the time are here.
In July 2014 TradeMe threw in the towel, we called it a capitulation, and went back to a flat fee offering for agencies.
The headlines highlight price fixing and anticompetitive behaviour. But, it is not what most people immediately assume - commissions. The case is quite narrow.
ComCom alleges that various players in the industry colluded in planning their response to the TradeMe price changes and agreed that they would charge homeowners the full price of a TradeMe listing ($183) and not pass on any discounts they may receive or could negotiate.
The firms implicated are a who’s who of traditional real estate.
Reaction and Implications
What of the reaction and implications for various participants?
Best guess? A collective giant yawn.
Basically TradeMe (who earns heaps of money) massively upped prices for Real Estate Agents (who earn heaps of money). Agents objected and they fought TradeMe about it. There was no real impact on consumer’s pockets. Not interesting.
If you want Consumer attention go after real estate commissions. If the case gets momentum in the media and in the public’s mind expands beyond the current narrow boundaries watch out. Then you’ll get attention in spades.
Possibly, just maybe, regretting their original complaint. The TradeMe Property team that joined in the middle of the battle and put the July 2014 resolution together has worked hard over the last 18 months-two years to rebuild relations with the Real Estate industry. But, the industry doesn’t forgot those that cross them easily, anyone that does not see things their way will have it tough. Those under the spotlight will likely see it as TradeMe against them as will others in the industry - it will set back relations so the TradeMe team has their work cut out.
Despite the best efforts of the internal agent team the culture of TradeMe is still consumer based - they prefer to deal direct with their users, not through wholesalers like Agents. If it sets Agents in a bad light they will be ok with it. When the founder and Director slips up and publicly calls his Agent customers “turkeys” you know what the true feelings are.
The Agencies Being Charged
Being under the gun from ComCom has got to be pretty damn scary - some of these people and companies have been subject to 12-18 months of investigation and now a court case. Fighting this kind of case takes huge resources and massive time and defocus from core business activities.
Oh, and the penalties are significant!
Because of this my guess is most of the regional firms and smaller national firms will settle. Barfoot and Thompson and Harcourts probably being the only ones with the attitude and resources to fight this.
This is bad and has the potential to be a very, very bad look for the industry. The headline is that major players in the industry have been charged with price fixing and anti-competitive behaviour.
The Real Estate Institute (REINZ) used to be the governing body for Real Estate in NZ - that was removed in 2009 when the Real Estate Agents Act came into force. Politicians at the time screamed about the “old boys network” and ”backroom deals” that made the industry incapable of administering itself.
In some ways the ComCom case smells of the old clique doing a backroom deal to fight an external force trying to step into “their” territory. This time it seems they got caught (some have admitted it, others are just under the gun and it is not yet proven).
Will this change the way the industry operates?
The cynic would say, yes - they’ll not use email next time. That, in fact, is the issue - consumer perception of how the industry operates.
The industry has to change and this case has important implications for an organisation not actually implicated in it, the Real Estate Institute of New Zealand (REINZ). REINZ has not commented thus far on the case - our understanding is that they have taken extensive legal advice that they should not be commenting until the case against all parties implicated has been resolved. Fair enough from a legal perspective.
REINZ is in many respects the focal point for coordination in the industry. The old big guys own half of www.realestate.co.nz, the other half is owned by REINZ. The website is essentially under the wing of REINZ from a management perspective. The company that owns that 50% (the non-REINZ half) is implicated in the ComCom case. The Institute to be clear is not included in the lawsuit.
REINZ over the last several years has moved to improve its governance away from the old perception - the 9 member Board now has 3 independent Directors of prominence and good standing.
But, at what point do the www.realestate.co.nz Board meetings, the REINZ industry cocktail events, lunches, golf tournaments, fishing expeditions, bowls competitions, meetings/discussions/presentations become perceived to facilitate the old “nod, nod, wink, wink” of industry coordination? The industry of course will deny this - but it is consumer perception that matters.
The National Agencies implicated by ComCom are heavily involved with REINZ. The challenge for REINZ is to avoid being tarred by this and stay on its mission of advocating for the industry and helping the industry maintain and improve its operating standards. Does it need to increase its independence?
It Could Get Ugly
The industry is not trusted and there is universal complaint about big commissions. The immediate consumer reaction to “price fixing” is that it is about commissions. The ComCom case is narrow to be able to prove price fixing and collusion in their eyes. But the consumer perception I am sure is that it just proves what they have always “known” - the industry is not working to their benefit.
That is the huge risk and danger for the industry - is this case the tip of the iceberg that “proves” consumer perception that the entire industry is corrupt? Does it feed negative consumer perception? Does it spiral out of control?
Do regulators then have enough “evidence” to control and regulate the industry even more? Has TradeMe started a ball rolling that is going to smash through the protective fortress wall the industry has spent forever erecting?
If the case gains traction with consumers it could get very ugly indeed.