UAE- Reform wage structure of real estate brokers

(MENAFN- Khaleej Times) Synonymous with a high pressure sales caricature, the pushy real estate broker presents philosophical, moral and ethical problems. When motivated to "sell for survival", client-orientated selling can become a sequence of contrived, painful-to-watch cavalcades.

Remarkably, the dilemma real estate brokers face is not becoming aware of these biases alone, rather it's the ensuing dissonance experienced when the "inner moral compass" conflicts with the necessity to put bread on the table.

The real estate industry, especially in Dubai, tends to lure an assortment of high risk taking dissidents and charlatans who find the seductive promise of easy money simply irresistible. However, the problem is not exclusively a deficit in moral code or earnest character; if we go deeper, the problem exists with incentive and remuneration structures standardising the industry.

Traditionally, in Dubai, remuneration consists of a large share of the gross 'agency fee' revenue - usually 50 per cent - with progressive incentive tiers linked to target performance. The agency will normally provide visas, medical insurance and annual flights to complete the package.

Ben Wadilove, from McDonald & Co, said: "Real estate agents mostly operate on a commission-only basis and that's how they're fundamentally driven. Established companies attract talent with qualifications or from a structured background, rather than car salesmen or financial advisors in sales. This reflects in salaries."

Mis-selling
In the absence of appropriate qualifications, coupled with limited product knowledge, brokers are ill-equipped to give consumers a holistic understanding of best options available, resulting in asymmetry of information and mis-selling - and over selling - of product linked to the highest short-term reward for the broker.

Real estate brokers aren't alone in facing criticism of miss-selling. The financial services sector, in particular the insurance industry, have come under fire in Europe, leading to a complete ban of commission-based incentives in the UK, Denmark, Finland and the Netherlands.

In a 2012 study by Reifner on Remuneration Structures of Financial Intermediaries and Conflicts of Interest, the authors found that 73 per cent of the EU member states reported remuneration models were prone to cause consumer problems and the logic of commission leads to miss-selling of insurance products.

But can fee-based advice compete as a reliable substitute for commission-led selling?

Without any base salary, brokers are under extreme pressure and temptation to sell unscrupulously, resulting in many using persuasive sales tactics.

In a survey of 67 Investment Advisors in Hamburg, Germany, 37 per cent of respondents declared they knowingly sold inappropriate products to clients that did not suit their goals, 95 per cent indicated they felt pressure of short term sales success vs long term client advantage.

Mass cheating
Dan Ariely, the author of 'The Truth About Dishonesty', said: "Except for a few outliers at the top and bottom, the behaviour of almost everyone is driven by two opposing motivations. On the one hand, we want to benefit from cheating and get as much money and glory as possible; on the other hand, we want to view ourselves as honest, honourable people. Sadly, it is this kind of small-scale mass cheating, not the high-profile cases, that is most corrosive to society."

Our responses to, and behaviour towards, (real estate) brokers are conditioned by perceived expectations, reactively shaping behaviour to align with those expectations.

So, what do consumers want? We submit they require honesty, above all else.

An essential ingredient in acquiring client trust is avoiding disingenuous attempts to camouflage introspective motivations, at the same time ensuring the appropriate amount of guidance is delivered using personal experience, explaining potential risks and being realistic about potential gains.

We suggest local regulator intervention, imposing tighter competition legislation controlling the licensing and qualification of brokers. Preventing the saturation of an already overcrowded market coupled with industry reform of remuneration and incentive structures will reduce the number of unskilled brokers and moderate the environment.

Opinions towards brokers are polarised from morally repugnant to mildly tolerable. However, we advocate a kinder, gentler approach between consumer and intermediary.

To the broker: understand consumers may be concerned their best interests are respected, become aware of the inherent bias to mis-sell and know your fiduciary obligations. To the consumer: your broker deserves the right to be judged on their actions. So, resist the impulse to conclude your broker has pernicious intentions.

The writer is the director of the DMCC office of Core, the UAE associate of Savills. Views expressed are his own and do not reflect the newspaper's policies.