Some of Grand Cayman’s real estate companies have lowered their commission rates.
One is even rebating part of its reduced commission to the purchaser.
Under a new promotion started last month, Alpha Real Estate is rebating one per cent of its four per cent commission to purchasers buying real estate from the company.
Alpha’s owner Bernie Saalfeld said people love the reduced commission and rebate.
‘Basically, what we’re doing with Alpha Real Estate is keeping prices down,’ he said. ‘I get listings on a daily basis. People are fed up with high commissions.’
Last week Mr. Saalfeld presented Nicola Moore and Andros Gothar, who bought a two-bedroom condominium in Tropical Gardens, with a rebate cheque for $2,190.
‘We can use it for some extra furniture for the apartment,’ said Mr. Gothar.
Ms Moore said she was delighted to receive the cheque.
‘I think it’s a good marketing move,’ she said.
In addition to the rebate, Alpha Real Estates is selling all of its properties at a flat rate of four per cent, much lower than some of the commissions charged by companies that are members of the Cayman Islands Real Estate Brokers Association.
‘After I give one per cent back, in the end I’m really only looking at a three per cent window,’ Mr. Saalfeld. ‘For me, it’s still enough to make a profit. Alpha is a small company with its overhead controlled very strictly, so I can offer [the reduced commission rate].’
On a condominium that sells for $200,000, Mr. Saalfeld said a CIREBA member commission would be $14,000, and his commission is only $8,000.
Although he understands that CIREBA members often have higher overheads, he still believes the commissions are too high.
‘What really should happen is everyone in the business should figure out what his level of profitability is and deal according to that,’ he said.
Alpha Real Estate isn’t the only company offering reduced commission rates, or even the first to do it locally.
Gillian Allan, manager of Beacon Realty, said her company has been offering a 4.5 per cent commission rate on all if its listed properties for several years.
Beacon Realty was originally formed to only sell the properties of its owner-developer, but that eventually changed, Ms Allan said.
‘What happened was people were approaching us to see if we would take listings,’ she said, adding that the company didn’t necessarily want to become a member of CIREBA.
In the end, the company decided on offering to sell properties for a flat 4.5 per cent rate, something Ms Allan said had been a success for Beacon Realty.
‘We have proof in the pudding in the number of listings we’ve sold over the past few years,’ she said.
Beacon has been advertising the reduced rate recently.
‘We’ve made [the reduced rate] more prominent in the past two to three weeks because we’ve almost sold all of our listings and we’re down to just two or three,’ she said.
Like Alpha Realty, Beacon is a small company with lower overheads, enabling it to keep costs down. Ms Allan also pointed out Beacon doesn’t have to pay membership fees to CIREBA.
While not wanting to say the commissions charged by CIREBA members were too high, Ms Allan did say that she felt the 4.5 per cent commission charged by Beacon represented ‘adequate compensation’ for the services rendered.
Ms Allan said she believes the reduced rate is attractive to consumers.
‘We offer the same services as everyone else and it’s working,’ she said.
CIREBA President James Bovell believes the higher fees charged by member-firms are justified.
‘Some companies cut their fees so they can infiltrate the market,’ he said. ‘If they aren’t part of the CIREBA membership, they can basically do whatever they want to.
‘Our side is more about delivering a certain quality of service.’
Mr. Bovell conceded that CIREBA members have higher overheads.
‘The cost of marketing and advertising is not cheap at all,’ he said. ‘And having offices in more active areas is expensive.’
CIREBA members have to pay fees to the association. Part of the benefit they get for that is access to the multiple listing system, which allows any of the 30 member companies to sell a listing of another member company.
All of those factors add up to more exposure for properties listed with CIREBA.
‘I’m not sure non-CIREBA members would be able to get the kind of exposure we could give,’ Mr. Bovell said.
In addition to the higher overheads, because of the multiple listing system, CIREBA members often have to split commissions with other CIREBA members.
Many CIREBA realtors are also associated with franchise brands like ReMax, Century 21, Sotheby’s, and Coldwell Banker. These firms have to pay franchise fees, but Mr. Bovell said their presence here in the Cayman Islands makes foreign investors more comfortable investing here.
Mr. Bovell has heard complaints of CIREBA’s commissions being too high before.
‘Most people who find the fees large are from Europe, particularly England, where the standard fees are one and a half to two percent,’ he said. ‘But their services are nowhere as in depth as what we provide here, and they have to pay their own marketing costs in addition.’
In the United States, real estate commissions are a standard six to seven per cent, Mr. Bovell said.
‘In some cases, we’re actually cheaper because our commissions are based on the volume of the transaction,’ he said.
Now in its 20th year, CIREBA hasn’t raised its commission rates since its inception, Mr. Bovell said.
‘In truth, [commissions] have lowered because we’ve created new brackets for larger volumes.’
Another benefit for customers is CIREBA’s code of ethics which includes conduct, training and penalties for non-compliance, Mr. Bovell said.
CIREBA members also adhere to government-mandated due-diligence requirements. CIREBA hires independent contractors to audit members’ due diligence files and procedures to ensure proper compliance.
‘We have to pay for this as well,’ Mr. Bovell said.
In the end, CIREBA members charge more in commissions, but offer many additional layers of service.
‘Usually, you get what you pay for,’ Mr. Bovell said. ‘If saving dollars is the only concern, buy direct from the owner and don’t pay commission at all. But then there are all the problems that could come with that.’