Commission offered to home buyers, for referring other buyers, is unethical

[] When a neighbourhood of people develops organically over time, the pay-off is quite high. However, when money is offered to residents making recommendations, you could land up in an artificially created neighbourhood

Diwakar Sharma bought an apartment in a Delhi-NCR project on the recommendation of his colleague. Prima facie, there has been nothing to suspect about a project where most of his colleagues have bought homes based on mutual references.

You are reading: Commission offered to home buyers, for referring other buyers, is unethical

However, he was soon exposed to the unexpected reality of the developer’s mechanism to create a chain of recommendation. The home buyers in the said project were paid an incentive for inviting more friends and family, to buy a flat in the same building.  “I did not know that I was being referred by my trusted colleague for a commission,” laments Diwakar. “He acted like a de facto broker. Instead of creating a social neighbourhood, it turned our relationship sour forever.”

Pranay Vakil, chairman of Praron Consultancy, agrees that creating an artificial neighbourhood should not be blindfolded home buying.

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“While it is alright to have some incentive for the loyal home buyer who recommends friends and family, exchange of a cash component, is not ethical as the referred home buyer will think that the amount should have actually been discounted with his home purchase,” explains Vakil.

[] Are referrals an effective strategy in real estate?

Word-of-mouth publicity and its by-product – referral marketing, may sound like the ideal methodology for the Indian real estate market. However, it could also be a double-edged sword. In cities, it’s quite preferable to live in a like-minded neighbourhood but it also brings into focus, the privacy concerns of home buyers. For developers, though it has the potential to be a great sales channel and brand driver, the same can also tarnish the brand’s reputation if the strategy is not executed well.

The concept of friends and family living together or nearby, is firmly rooted in Indian traditions and history. It is not just a small town phenomenon but even expat Indians coming to metro cities like Delhi, Mumbai or Bengaluru, are rebuilding communities by populating buildings and neighbourhoods with extended families. Settling in the same building and creating a social bond, seems to be a win-win situation for all. However, this artificial creation of a neighbourhood is today, more than a social need for the home buyers. It is, in fact, a business agenda for the Indian real estate market.

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Hence, the developers are leaving no stone unturned to make sure they create a social profile of their project, to attract buyers.

A friend’s endorsement goes a long way. “They are going to believe their friends before they believe the broker,” points out Mumbai-based broker, Rupesh Gore. “If their friend tells them it is a great project to live in and the social ambience is good, they are going to believe it.” However, like with any other relationship, this ‘artificial neighbourhood’ needs to be nurtured carefully. Failing this, if one gets tempted by the developer’s offer to invite others for a price, like in the unfortunate case of Diwakar Sharma, it leads to bad blood with neighbours in the future.

(The author is CEO, Track2Realty)

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Category: Lifestyle

Debora Berti

Università degli Studi di Firenze, IT

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