As house prices cool, auctioneers try to keep home fires burning

WHAT happened yesterday at Pfizer in Cork, where hundreds of jobs were put at risk, is a stark reminder that not everything is rosy in the Irish economy.

Coming so soon after similar gloomy news from FCI in Fermoy and Motorola in Mahon, it proves nothing or no one is invulnerable, even in established and apparently secure employment.

Personal and local economic security can be jeopardised at the stroke of a pen wielded in some corporate HQ often thousands of miles away.

So, in a climate of uncertainty where nothing can be taken for granted, it seems ludicrous of Fintan McNamara, head of the Institute of Professional Auctioneers and Valuers (IPAV) to suggest that members’ commission rates could rise by as much as 33% this year.

Because, while manufacturing is especially volatile, and jobs may be exported to Asia, the property market is definitely going to slow down. It’s accepted both by the industry and economists that house construction and prices will begin to cool this year.

As a result, McNamara is worried that with the fall in house sales, prices are expected to follow suit by anything from 2% to 7%, which is good news if you are trying to buy a home.

Consequently, one would imagine that the IPAV and its 800 members would develop a strategy to protect their slice of a diminishing market. They did — it’s called upping the ante.

The reason why McNamara thinks fees should go up is very simple — if you happen to be a member of the IPAV.

The gravy-train is almost at the end of the line. It was easy to sell properties during the boom. In fact, houses practically sold themselves.

Now auctioneers are going to have to work harder when, as he says, “the market cools”.

McNamara said: “During the course of the boom it was very, very easy to sell properties — agents very often were just facilitators in the sale process. Now agents are going to have to use their marketing skills and there will be a lot more work involved.”

Welcome to the real world — and I hope they haven’t lost their marketing skills as a result of the boom lasting for so long.

“Commission levels are going to have to go up,” said the IPAV chief with an air of finality, as if to suggest his word was final. He justified this ridiculous rise because in a tougher property market, estate agents will have to work harder. So what? The jobs in Pfizer and Motorola didn’t just slow down — they are almost certain to disappear altogether. Workers in these industries are left to worry about money to feed and clothe their children, as well as mortgages. And it becomes really ominous if dual salaries are being drawn from the same employment.

They have nobody to whom they can pass on their problems. There was no suggestion during the property boom, when houses were selling as fast as the prices went up, that estate agents would lower their fees.

Now, when things are slowing down, Mr McNamara is talking about higher fees for the simple reason buyers might not be falling in the door.

At the moment, people have to pay on average 1.5%, which means an agent earns about €4,500 when he or she sells a house for €300,000.

That’s a lot of money for little effort especially in recent years.

Add the one third being recommended by McNamara and that fee becomes €6,000 — that’s €1,500 extra in the agent’s pocket and €1,500 less in the punter’s just because the agent may have to work a little harder to hang on to the lifestyle to which he or she has become accustomed during the good times.

A decade or so ago, auctioneers’ fees were of the order of 2% to 2.5%, but that was then — there was no buying frenzy and prices had not gone through the roof.

The average price paid for a house last year was €310,632 — an increase of almost €33,000 on 2005 prices, according to the annual review of Permanent TSB/ESRI. To put it another way, prices went from 9.3% to almost 12%, the first double-digit growth recorded in the past six years, or even less.

Last year 92,000 new houses were built, and because auctioneers are involved in about 92% of transactions it’s reasonable to assume they had an exceptionally good year. This year, it is anticipated the figure will be 87,000 completions, down by about 5,000.

What exactly did the ‘facilitators’ do for their money?

THERE is nothing in place specifically to regulate estate agents and auctioneers. Despite the fact that the Government made noises about a regulatory body a long time ago, nothing has happened.

At the end of last year there were rumblings that legislation to establish a new authority would be brought to cabinet for approval.

A few years back, Justice Minister Michael McDowell commissioned a report and established a working party which recommended that a regulatory authority be set up “as a matter of urgency”.

Who knows, the Government might get around to doing something about it sooner or later.

From the Government’s point of view, the great thing is it doesn’t have to accept any of the recommendations from the working party, which is merely advisory.

So far, the Government has done exactly that — nothing.

Although the recommendations which may become law some day refer to a whole list of things, including complaints from the public, one of the most important issues the working party was prevented from touching was the issue of ‘gazumping’.

This is where the seller agrees a price with the potential buyer, but then sells to a higher bidder.

Instead, the draft legislation is likely to include something like a promise from the seller that agreed prices will be honoured, which will prove about as useful as an auctioneer’s brochure.

At the moment the ‘system’ for keeping an eye on auctioneers is practically useless and totally irrelevant in current circumstances.

It largely depends on policing itself, and there are very few avenues for consumers to get satisfaction if they have a complaint — like gazumping.

It is remarkable that people with such a significant influence on a sector in which individuals or couples make probably the single biggest investment of their lives is largely unmonitored.

Nationally, the average price of second-hand homes increased last year by over €38,000, or 10.2%, to €349,213. That was the average throughout the country, as obviously prices differed from city to city and county to county.

According to the survey, the price of more than half of all houses is between €250,000 and €400,000, while 15% of houses are priced in excess of €400,000.

Whatever way you look at it, the value of the housing market, new and second-hand, runs to hundreds of billions of euro.

Vital to the cost of houses is the interest rate, and this could go as high as 4% in the first half of this year. This would mean two increases of 0.25% by the middle of this year.

In this context, it seems astonishing that auctioneers are seeking to maintain their profit margin by threatening to increase fees in what they admit is a somewhat diminished market.