Seeking to inject competition on commissions into Cayman’s real estate market amid price-fixing concerns, a group of independent realtors is forming a new industry association.
The Cayman Islands Realtors Organisation, with a founding membership of 10 agencies, will collaborate on ethics, training and a multi-listing sales system, but not on price.
As US courts move to clamp down on anti-competitive practices in that country’s industry, fresh focus has been placed on how the market operates in Cayman.
The Cayman Islands Real Estate Brokers Association locks members into a fixed commissions structure – an arrangement that would likely fall foul of fair competition laws designed to protect consumers under UK law.
CIREBA – which represents 230 agents across 36 businesses and is understood to account for at least 60% of the market in Cayman – has defended its membership rules, indicating that consumers have the choice in Cayman to use realtors that aren’t members of the association.
But the Cayman Islands Court of Appeal has described the association as seeking to operate like a ‘cartel’ in the way it deals with non-members.
Now, realtors who operate outside of CIREBA are forming their own association, which they say intends to offer the clout of an industry association without stifling competition.
Roger Southam, managing director of MyRealtor, one of the founding members of the new association, said the aim is to work together on training and standards, but to allow members to set their own price structure.
CIREBA compels its members to charge sellers according to a sliding scale of fixed commission fees, ranging from 4% for properties of $9.95 million or more, to 10% for properties of less than $95,000. Most homes on the market fall within the 5-7% range.
COMMISSIONS SCHEDULE – CIREBA
- Priced $9,995,000 and over – 4%
- Priced $995,000 to $9,994,999 – 5%
- Priced $495,000 to $994,999 – 6%
- Priced $95,000 to $494,999 – 7%
- Priced $94,999 or under – 10%
CIREBA has argued that its association is about more than just price collaboration, that it is the industry standard setter and provides a guarantee to consumers of ethical treatment and fair standards.
There is currently no law in Cayman comparable to US anti-trust legislation or the UK Competitions Act, which outlaws agreements on pricing between two or more businesses, and there is no suggestion that CIREBA is doing anything improper or illegal under the territory’s legislation.
CIREBA has said it spends significant funds for ongoing mandatory training of its member agents – including on new know-your-customer and anti-money laundering rules.
Members also sign up to rules and regulations which go over and above the laws of the land and make them accountable for their actions, according to the association.
“The result is that, over the years, CIREBA has provided the public with a safe and trusted option for pursuing Real Estate business in the Cayman Islands. The public largely takes it for granted that when they do business with a CIREBA member they are able to count on fair and ethical service,” it said.
Southam argues that the two issues of standards and price should not be linked.
“This is not something against CIREBA,” he said. “I just don’t happen to agree with being told what documents to use and what fees I have to charge.”
Collaboration with competition
Southam said the new association, which has been incorporated as a non-profit under the Companies Act, would give realtors in Cayman another option.
Paul Lankford, of Elite Realty, one of the founding members, said it was important for agents outside of CIREBA to be able to work together in some ways.
One of the big draws of joining CIREBA is access to the multiple listing system, where all member properties are advertised.
Lankford said the Cayman Islands Realtors Organisation would be launching its own system.
“As an individual brokerage, you don’t have the same power and same accessibility to the market. Because, if you’re looking for a piece of property, you don’t want to search our 10 or 11 websites. You want to find a centralised location to be able to search,” he said.
Valentino Salvi, of Utopia Realty, another of the founders of the new organisation, said realtors that operated outside of CIREBA had the ability to be more flexible, particularly on price, but also in how they structure their agencies.
One of the key differences is that they can more directly represent buyers.
One of the quirks of the current system, in both Cayman and the US, is that agents who bring a buyer to the table are automatically guaranteed a 50% split of the commission with the seller’s agent. That creates a perverse incentive, says Southam, for the agent representing the buyer to close the deal at the highest price possible.
He said independent agents were free to innovate on price and put together packages that incentivise them to work in the interests of the buyer.
Southam added that bringing together the independent realtors in one umbrella agency helped put them on an “equal footing” with CIREBA realtors when it came to public perceptions around standards.
“There was always this fiction, that outside of CIREBA you couldn’t be professional,” he said. “That is patently untrue because you’ve got firms that are very capable, very competent and very diligent in what they’re doing. This is just giving that a home and a focus and [for consumers] knowing the standards, and knowing you have some recourse.”
The organisation will also focus on training and providing Caymanian realtors with a qualification that is recognised beyond the island, said Kiara McLaughlin, one of the founders of the organisation and an agent with MyRealtor.
She said the aim is to bring more Caymanians into the industry and provide opportunities to get an accredited international real estate qualification that would be accepted overseas.
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This would have been a more useful article if it had named all 10 agencies involved.