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Thursday, May 4, 2017

Similarities between Medicine and Property

Q.
How can the estate agent protect the buyer when the vendor is paying him the commission? The similarity between medicine and property.

A.
Yes, it won't.

The market of real estate is fueled by the broker/agent representing the seller/vendor/developer, rather than the buyer.

Simply put, the buyer (although with money) would not likely pay for the fee to source for a good property.

Good property can mean two things. Firstly, a suitable property for own use and investment. Secondly, a below market value property.

Hence, the dilemma of this question - how would an estate agent protect the buyer when the seller/vendor/developer is paying his commission?

The general market scenario in real estate industry in Malaysia is seller pays the commission. Hence, buyers are bombarded by myriad of products and agents claiming how fantastic these products are.

An analogy of the scenario can be seen in medical industry.
  1. Developers produce products like pharmaceutical companies.
  2. Estate Agencies, valuers and consultants are like doctors and specialists.
  3. Banks and financial institutions are like pharmacies and laboratories.
  4. Buyers are like patients.

The below scenario could happen theoretically, however with the Poisons Act, 1952 most medicinal products are restricted to medically qualified and registered practitioners, like Doctors and Pharmacists. They are not allowed to be used by unlicensed practitioners, e.g. Chinese sinseh or bomoh.
  1. When a patient requires some healthcare attention, like management of obesity for example, she goes to see a doctor. Of course, she could also go to see a beautician, a chinese sinseh, or bomoh for alternative treatment.
  2. On the other hand, she can also see the pharmacist. Or just buy any obesity medication from chinese drug store (over the counter - OTC).
  3. Or even contact the manufacturer of the obesity medicine and buy directly from the factory (OTC).

In a nutshell, there are two critical considerations whether there is adequate safeguard.
  • First is the effectiveness or the efficacy of the treatment, and 
  • second is the risk and detrimental effect of the treatment.

If the medication has no effect, then the money is wasted and the disease is not treated. Or when side effect or overdosing happens, the detrimental effect could cost permanent damage to the patient. This is like when a buyer bought the wrong property, he has to succumb to this ill fate himself!

Therefore, the government steps in, kind of like a guardian. The government regulates the medical industry.

Why?

For the benefit and safeguard the rights of the public. It prevents the abuse of the system by certain quarters.

Now, look at real estate industry.

When a developer produce products like condominium and bungalows, they can sell them directly to the public. In medicine, it is not allowed when it contravenes Poisons Act, 1952.
  • These products can also be sold through a middle man - a registered estate agent, kind of like a doctor.
  • Or through a third party middle man - a consultant (unlicensed) agents by referral, kind of like a nutritionist.

As the producer (developer) pays for the commission, naturally the agent would side the developer rather than the purchaser, right? This is like when a doctor who charges a mark-up on the medicine, he is influenced by what is in stock in his clinic as this product has an expiry date!

A painkiller which the doctor stock up will be used, instead of the correct painkiller which is best for the patient.

And, the issue of price (value) of the property is a major determinant. The developer has a price for his product. However, is this price correct? This is like a pharmaceutical company selling its proprietary product at an exorbitant price! Of course, there is nothing without substitute in property compared to say life threatening disease like cancer. In fact, modern advancement in medicine had treatment of choice for some cancers. These medicines can keep the cancer in remission. But, they are of no substitutes, and they are very expensive! Patients can be deprived of treatment if they cannot afford these modern medicines. On the other hand, buyers of luxury lifestyle product in real estate can just walk away when they cannot afford the price (speculative or not).

In between, there would be lots of persuasive agents and salesperson of developers clouding the minds of the buyers. This is like a doctor trying to impress upon the patient how best to manage his illness. Naturally, no doctor will say he is no good, and advice the patient to look for another doctor, right?

Similarly, when a doctor were to give a medicine in stock, its 'appropriateness' to the disease is his own interpretation. It is like the price of the property when the developer wants to sell.

They all think for their own benefits.

However, when the buyer (patient) goes from the developer (doctor) to the bank/estate agent (pharmacy), the bank/estate agent (pharmacy) plays the role of check and balance. The bank will give a valuation which in a way will reflect the market value of the property. The estate agent would give the opinion of the area and its surroundings. Similarly, the pharmacy or valuer/estate agent will give counseling to the patient to provide a third party independent opinion on the medication he is dispensing. This could save the life of the patient if something truly wrong was discovered, for example allergy or misappropriation of the diagnosis and medication.

However, they must also be independent. In real life, they are not! They are taking the commission from the developer/owner!

In the context of property, the independent consultant, banker or estate agent can save the buyer a lot of headaches when correct assessment is being made on buying the property. It may be a wrong purchase at the wrong timing when the buyer is cash tight!

However, this comes with a fee. Bankers, Valuers and Estate Agents charge their fees and if they are taking the commission from the seller they are no more independent!

The pharmacy or bank charge a fee for the service. In bank valuation, the buyer has to pay. The patient also has to pay for the service of the pharmacist. The pharmacist is independent.

Similarly, if it is not medicine, but optometry or hearing aids, the respective professionals (optometrist and audiologist) would fill in the gap.

For property, these are the estate agents, valuers and the bankers. So, there are roles these professionals could add value to value chain of real estate transactions.

However, they cannot be providing their professional service free of charge if they are independent of the vendor/seller.

The independent consultants - Property Celebrities like Mr Faizal Ridzuan, etc are similar. They like nutritionists, who charge a fee for their invaluable advice. Some of these type of nutritional products can be very expensive too! Especially through multi-level marketing schemes, or direct selling. Hence, not everyone can afford it.

Are they really good? Well, it all depends how deep your pocket is.

For the system to establish a check and balance, regulator like Lembaga Penilai Penaksir dan Ejen Harta Tanah, need to enforce the law. In medicine, it is the Kementerian Kesihatan Malaysia.

Those who abuse the system, like bomoh, bogus practitioners, illegal drug dealers, or even some self-claimed Chinese sinseh, must be checked.

An unlicensed broker, who endangered the system of transaction - e.g. taking deposit and disappear in thin air, should be brought to justice.

A nutritionist who simply promote his dietary intervention should be told of over stepping the boundaries of dietetics. Dietetics is a discipline regulated to protect the interests of the patients.

A registered estate agent, who endangered the system of transaction - e.g. taking deposit and lost it, should be struck off from the register and punished with fine and even imprisonment when it becomes criminal in nature. This is professional negligence or even fraud.

The doctor who accidentally cut off the private part of a boy during circumcision should be reprimanded. This is a case of medical negligence!

However, the bigger question is how would an estate agent protect buyer's right when the seller is paying the commission? This is similar in the context of medicine, where the big pharma are paying the doctors.

Hence, compliance is the word. Much boils down to compliance. Self compliance is the way to go forward. That is compliance by self-regulated system of a professional body. I will write more on this in the future articles.

That means, the society has to weigh the value added service of the registered estate agents, and pay him a fee for safeguarding the best fit of property for the buyer.

Would buyers want to pay that fee? I wait for the day when Malaysian buyers would appoint their Registered Estate Agents to safeguard their rights in purchase of their properties.

For properties are no less than medicine, it can cure your wealth as well as kill your wealth!

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