blog

The "In's and Out's" of Ethical Commissions

Fri, 28 May 2010 00:16:16 -0700

“Great…” - I can hear the sarcastic undertones already.

Another professional and/or politically correct term to bandy about – like impossible to regulate “green loans” (or just using a picture of a tree in labelling to sell something), the oxymoron “negative growth”, the entirely fabricated “potential win-win situation” whereby one side is an accepted compromise, the never-gonna-happen-while-a-man-runs-the-show “equal pay dispute”…

But I digress. Let me start from the beginning.

Commissions are an incentive based payment method, whereby the more one sells, the more one is remunerated. They’re generally worked on a percentage rate of total sales – ala your New Housing Consultant might get a 2% commission for every house they sell. However, they can also be a flat rate – ala some used car salesmen (no, I’m not PC, I refuse to use the term “carperson”) operating on a $2000 per car sold, etc.

Referred deals generally get a “spotter’s fee” – I’m sure you’ve all heard of this one. Find another bookkeeper for the company and there’s a $500 bonus for you, find me a block of land and there’s a $10,000 referral for you, anyone who can get 50 people to sign this petition gets a dinner for two voucher – all basic incentivised commissions…

… and there’s nothing wrong with this. Not at all. Not one bit. It’s called doing business. The cost of a company or person paying out the spotter’s fee or commission is a small price to pay across the broader financial picture.

Financial Planners were not required, at one point in time, to disclose the commissions that they would charge, or the commissions that a certain fund or institution was paying as incentive to get clients. It wasn’t until the first quarterly financial statement that people placed in these products and services found out they were paying a 3% commission to the Planner, plus a 1.5% entry fee on top of 0.75% of the remaining value in a one-off registration fee with a 4.0% exit fee – oh and by the way, the fund was down 15% over the quarter. Yes it happened – a lot. That’s why the Financial Planning system has been regulated by Federal Legislation to disclose all commissions payable, fees associated, break costs etc all outlined clearly and verbally explained to you at the point of transaction. It’s not just enough to provide a PDS in this industry in the hope you both read and understand what’s written.

And it’s not just FPs that wore the Legislation. Mortgage Brokers copped it as well as they, too, operate on a commission basis in a financial industry.

Before the legislation, this was an “Unethical Modus Operandi” in my opinion. Hiding what you’re charging until a rude shock at the end doesn’t win repeat clients.

So what’s an “Ethical Commission”…? I would say, any of the above accepted, lawful or entrenched values of payment. Or maybe there’s a better way?

Building Brokers are not currently required by legislation to disclose their commissions. That’s right; they refer a deal to a selected panel of builders for a best price scenario to be laid out in front of you – it’s exactly the same as a Mortgage Broker. You’ve just paid a sum of money upwards of $10,000 for your lot to be surveyed by a licensed Surveyor, have an Survey Strata Plan drawn up and lodged to the WAPC and Landgate (incl stat. fees), get some designs drawn by a local Designer or Architect and lodged to the council for a Development Application (incl. fees) and in most cases, you still don’t own the copyright to the plans over your lot.

Now let’s not tar them all with the same brush, either. I can think of four reputable BB firms off the top of my head, as I write, that give full disclosure. I can even name three that give you full copyright as well.

But, if you sign with a Building Broker, let’s be clear. Nineteen times out of twenty there’ll be a commission for the Broker, from the Builder, built into your contract. You won’t see it, because all Builders tend to give Fixed Price Contracts. Even if they give you an itemised break down, each cost may include a further small percentage of commission across it (a $90 oven upgrade plus the Broker’s 4% comm. is $93.60, rounded to $94, plus the tiles upgrade, plus the window treatments, plus …). Don't be shocked, as I mentioned earlier, it's standard industry practise.

My point? Ask. If they give you a square look and tell you outright, great! I would call that reputable and ethical. They’re not obliged to tell you anything; but they did when they were asked, as a courtesy to a valued client.

If you ask, and they squirm in their seat – well, I shouldn’t have to spell out your next course of action.

But, personally, I feel there’s a better system.

If I refer work to a builder, I generally don’t charge a basic commission. Sometimes I will, mainly with larger, one-off designs. Heck, I don’t even add margin for outsourced service like is accepted industry practice. I have an idea, and it goes a little something like this…..

If I can save you money, you give me 15% cut of what I saved you.

Let’s say you come to me with a $100,000 build price. I turn around and manage to present a $90,000 build price for the same product with the same specification. I’ve now saved you $10,000.

If you agree to this, then as a referral of business to the Builder (commission), I ask them to add $1500 (15% of $10,000) to each contract and you’ve still saved $8500 per contract. This is built into the base price of the house and is now an itemised cost. However, that $1500 commission is only a 2% commission across the total $90,000 value, just over half of the accepted building industry standard.

Let me know your thoughts on my proposed “Ethical Modus Operandi” – after all, it could be a “potential win-win situation” for everyone involved….

I look forward to your comments.

Copyright Infringement

Fri, 27 Nov 2009 09:30:00 -0800

I get asked a lot about copyright infringement, unfortunately more on “how do I avoid it” rather than “someone’s taken your plans and used them”.

I’m a Designer. I work in a city where everyone in my industry is less than 2 degrees of separation from someone else in the same industry. I have respect for other people’s work and the amazing range of ways to provide solutions for a client brief. I love what I do and I have no intention of changing my profession.

I ask any potential client that asks me to “just change this bit, it’ll be enough” whether they think it would be okay for me to ruin my reputation if I got caught and if they have the other person/company's profit they just stole sitting in an account somewhere for when they get caught. I am happy to take your brief and come up with something that will fit your needs, but I cannot copy a plan and, say, rearrange the en-suite and the kitchen … then call it my own.

“But we won’t get caught, it’s not illegal, we’re changing more than 10%. Plus, I can pay cash.”

This is about the time where I ask them to leave, and try the builder they stole the plan from.

Let me say this upfront. You cannot “steal” someone’s potential profit from them. By taking their plan and building it without them, you have done just this. It is illegal. It is COPYRIGHT INFRINGEMENT.

Changing more than 10% of a plan does not make you immune to prosecution – that’s an old wives’ tale. We can attempt to copy elevations, design features, kitchens, en-suites etc into our OWN plan - sometimes one or two items at a time, even. Most builders don’t have a problem with this – after all, imitation is the greatest form of flattery. How many Architects have attempted to replicate a Prairie House? Or artists take a painting style similar to Dali or Monet…?

So how do we avoid copyright infringement?

You start with your own plan and add a bit of someone else’s. Not the other way around.

I’m not going to get into the appendices of the Copyright Acts – but the basics of it is this; if you’re taken to court over an infringement complaint, you must be able to PROVE that you started from scratch and ended up with something similar. Big ask – especially if all you have is a few newspaper clippings in your scrapbook and a cash transaction between yourself and your Architect and/or Draftsman.

Don’t laugh – I hear of this every day. The best one is where the client takes a hand-traced copy of another builder’s plan into a Designer/Architect/Draftsman and says “Here – it’s my plan, please draw”. Chances are, the person you just engaged to draw “your” plan, now has a copy of this plan and the request from you hidden in an email string – and can present this to indemnify themselves against any complaint.

This leaves you exposed and open to litigation, with the loaded barrel for recourse pointing straight back at you.

And there’ll be no sympathy from this corner, because you reap what you sow.

Development Application Approvals - worth their weight in gold?

Mon, 09 Nov 2009 08:30:00 -0800

Development Applications - or DA's - are a process by which a request is made of your Local Authority to assess a parcel of land for an increase in density, change in approved use or both. The approvals process must give due regard to the current Structure Plan, Detailed Area Plan (DAP), Town Planning Scheme (TPS), Residential Design Codes (R-Codes) and relevant Australian Standards for vehicle manoeuvering.

Basically - the consulting procedure, as listed above, is in order from macro to micro - however each is just as important as the next as you can't secure an approval without meeting all five criteria. The Structure Plan outlines what's acceptable in your neighbourhood and is available from the WAPC at no charge - this is a very macro view.

Next in line is the DAP - which is sometimes availabel from the WAPC but more often than not is sourced directly from your Local Authority's "Planning Publications" - or similar - section on their website. The DAP will outline what can and can't be done on a street by street, or block by block, basis. For example, you may find you have a 129BA (restriction of movement) covenant registered on your title, across one boundary of your lot from this document. This would have a big impact on a proposed subdivision layout or yield plan.

The Town Planning Scheme is next in line. The TPS outlines what policies your Local Authority can .... sorry - will have that are "extra-over" requirements of the R Codes. Every Local Authority has a TPS - again, available from their website.

For example, the City of Belmont have a policy where an R40 coded lot may only be developed to R40 if - a) the existing house is demolished and - b) the new houses are two storey. Then - and only then - can you take advantage of the R40 coding in the City of Belmont.

For example, the City of Canning require a 6.2m reversing area where Australia Standards require 6.0m

For example, all new residentail development in the City of Armadale must utilise a 25º roof pitch or greater, with no white or reflective materials to be used on any art of the dwelling.

Now we've established development guidelines for your local area, we now look at the R-Codes. The Residential Design Codes provide setback information, open space requirements, (the opposite of "plot ratio"), parking requirements, orientation requirements, built-form requirements, allowable fill and excavation information, courtyard sizes....etc. The R Codes should be a staple part of every drawing office in Western Australia. Mine is torn and ragged and dog-eared, covered in highlighter, red pen and reference notes across to WAPC Development Controls - and I wouldn't swap it for a new one.

Australian Standards for vehicle manoeuvering are to do with reversing areas and car parking spaces. The accepted sizes in the R Codes is 5.4m deep by 2.4m wide per bay, plus 0.3m for any obstruction. That would make a garage's minimum internal size 5.4m x 5.4m between piers. Some Local Authorities ask for 5.5m deep and 5.7m wide internally - they count the width of the door behind the front pier line and each car as an obstruction themselves - so it is always best to check. Reversing areas are generally 6.0m plus 0.5m landscaping for vehicle overhangs - total 6.5m. However, as stated previously, some Authorities require more; again, best to check before designing.

We could also move into Development Control Policy with the WAPC - but I think i'll save that for another time. With all this information to add up and get right, you can see why getting the right architect, designer, town planner or draftsman is essential for a smooth, streamlined planning process.

Come to think of it, with an average DA approval's weight in paper coming in at around 150 grams - and gold at AUD$1000oz, you can see why a DA approval, in place at the time of sale, is very literally worth it's weight in gold !!!!