AGENTS’ COMMISSIONS

WHAT YOU SHOULD KNOW

by Neil Jenman

Reading time: Apx 7 minutes

One of the biggest concerns for home-sellers is knowing how much commission to pay an agent to sell their home. But that question can lead in a dangerous direction. The cheapest agents are rarely the best agents.

But neither are expensive agents.

If you hire a low-quality agent, you may as well pay a low commission.

Most agents are “low-quality”. Public distrust of agents is at its highest level since the Greenfields (my wife’s ancestors) arrived on the First Fleet in 1788. That’s when agents had their highest ever public trust rating – there weren’t any (agents, I mean).

Please be careful.

Everyone knows the saying, “pay peanuts get monkeys”. But not everyone knows – or realises – how monkeys can get paid a lot more than peanuts. If you pay a big commission to a poor agent, it hurts even more.

This article outlines ten points to help sellers navigate their way around real estate commissions and hopefully get the best deal for themselves.

Most agents won’t like this article. But it is written to benefit home-sellers. It is not written to benefit most agents – except maybe those who realise that doing what’s best for sellers is best for their business.

In 2021, most agents get paid far too much for doing far too little.

What’s worse, the “cost” of selling a home is often far more than the commission. By far, the biggest cost to sellers – especially in a boom market – is incompetence. If the agent is incompetent, your property is likely to be massively under-sold. Especially at public auctions.

[NOTE: It made my weekend when the owner of a multi-million-dollar property contacted me and, followed my suggestion to ‘CANCEL the AUCTION’. Consequently, he received a far better price. He understood the point about focusing on the buyers’ highest prices, not his lowest price. And not letting all buyers see how much other buyers are offering].

SHORTAGE OF LISTINGS

Most agents suffer from a chronic shortage of listings. Right now, this shortage is worse in most areas. This means, as a seller, you are in a powerful position. You can drive a hard bargain. You don’t have to rush to a decision. If you want the best possible price, take the time to find the best possible agent.

Never mind their tepid excuses, there are two main reasons agents are chronically short of listings: First, they are lazy. They rarely do what the legendary real estate trainer, Tom Hopkins once taught – GOYA, (“get off your armchair”).

If you see agents walking the streets introducing themselves to home-owners, don’t denigrate them. Admire them. Encourage them. These are the hard-workers. And hard-work is an admirable, albeit rare trait, these days (especially among agents).

The second reason agents are chronically short of listings is the shortage of care, consideration and service given by these agents in times past. If you are an agent having problems in business today – such as a shortage of listings – look at what you did yesterday.

Agents treating buyers and sellers badly, agents putting their own interests ahead of their clients’ interests and agents giving appalling service to clients is the main reason most agents are short of listings today.

AGENTS NEED TO BE TRULY DIFFERENT

So, agents: Flip your thinking. Stop looking in the mirror, start looking out windows. Stop focusing on what’s best for you. Stop finding new ways to milk sellers (such as that shameful VPA system and its evil twin, kickbacks) – and start focusing on what’s best for your clients. Okay, doing what’s best for clients doesn’t pay much, at least in the short-term. But as all great achievers in life discover: If your goal doesn’t scare you, it’s not much of a goal. Research Jim Collins and “BHAG” and you’ll discover a world you never knew. A world of successful companies, not just real estate agents.

Agents, stop copying other agents. Don’t toss your lot in with a profession that has never been more distrusted. Find successful companies – and by “success” that does not mean how much money they fleeced from sellers for VPA. It means admired by clients.

Make it your first goal to win the trust and admiration of home-owners. With trust, business is easy. But to win trust you must deserve it. For most agents, that means turning your back on what most agents do – and facing the clients and the prospective clients, those home-owners who control those listings you need.

One of the keys to success in business is to be different – to differentiate. Indeed, the legendary marketing expert Jack Trout wrote a best-selling book called ‘Differentiate or Die’. The title says it all – almost no need to read the book. Just ask home-sellers in most areas, and they’ll tell you about the local agents: All the same, at least when it comes to their sales pitch.

And those agents (in some areas) who meet in secret and agree to charge the same high fee, that’s not smart, that’s illegal. Sure, you can deny it, but when the average agent charges around two per cent but all agents in your area are charging 3 per cent (plus GST), how much longer will sellers swallow the ‘coincidence-excuse’? Sellers who suspect agents of forming price cartels, should contact the authorities.

So, let’s take a look at 10 points about commission. And let’s hope some help you.

JUSTIFY

The most important word when considering commission to pay an agent is ‘justify’. If the commission is likely to be, say, $20,000, does this feel like good value to you?

Can the agent sell your home for a higher price than if you had not hired this agent?

And finally, what is the agent doing that you are not capable of doing? Most agents only do three things: Put an ad on-line. Show buyers around your home for 30 minutes a week. And then get the details from the right buyer.

Now, if you feel those three activities are worth $20,000, go ahead and hire the agent.

But, if you have the slightest inkling that you could do the same – or better – than the agent, then maybe – just maybe – you might try on your own? If you succeed, you’ll be $20,000 in front. If you fail you, can then hire the agent. Nothing lost. Up to you.

Just think about it, that’s all.

CONSIDER ‘ADD-ONS’

Watch out for the ‘EXTRAS’. You’ll be amazed what some agents add-on nowadays. A whole raft of sneaky fees can be discreetly included in that “standard” selling agreement.

Fees such as “Administration fee – $250”. Now seriously, what is that for? Ask them to explain it. Or “copywriter fees”. Are agents so illiterate these days they must pay someone a couple of hundred dollars to write an ad? Maybe.

Or here’s one you’ll like: “Translation fee”. What? Yes, a fee to translate the ad into Chinese.

Here’s a rule: Don’t hire agents who insert strange looking-fees into their agreements.

ALL COMMISSION IS NEGOTIABLE

If only agents would fight as hard to get you a good price as they fight to get themselves a good fee. Well, some do. And yes, these may be the best agents. But, if that turns out not to be so, remember this: All commission is negotiable. Any agent who says otherwise is not to be trusted.

Here’s a great question to ask agents who say they don’t discount their commission: “Has your agency ever given any home-sellers a discount?”

The answer must be yes.

Or, when (not if) they ask you to reduce your price, say, “I will consider reducing my price if you reduce yours.”

One of the best ways to handle agents is to focus on your net price. When they bring you an acceptable offer, tell them you’ll accept provided it’s the net amount you get. Or as some sellers say: “Clean for my pocket.”

From then on, they are working for themselves. Studies (from America) show that agents work harder when they are working for their own money than your money. I know, I know, it’s hard to believe. But it’s true. Try it. But hold firm. Agents are great at detecting emotional weakness in sellers. For example, never say to an agent who brings you an offer from buyers: “Don’t lose them.”

Always negotiate commission once the agent has found a buyer. If you push them down too hard at the start, they won’t have as much incentive.

As just mentioned, for sure they will ask you to accept less, so that’s when you ask them to do the same. If they don’t ask you to lower your price, indeed, if they get you more than you expected and prove it’s the best price, maybe you have found an agent who deserves a high fee. Maybe.

DON’T PAY INTRODUCTION AGENTS

One of the sneakiest – and most absurd – clauses in those real estate sales agreements is the one that says an agent is entitled to be paid if they “introduce” a buyer.

WARNING: You are hiring a sales agent, not an introduction agent. This is not a lonely-hearts club. You pay an agent to SELL your home, not to fail to sell your home.

If you do not delete this ‘introduction’ clause, you could be forced to pay two commissions: One to the agent who sells your home to buyers “introduced” by a previous agent. If the previous agent failed to convince the buyers to buy your home, that agent deserves nothing. But many agents still expect to be paid for not selling your home.

Delete any clause that puts you at risk of paying double commission.

DON’T PUNISH EFFICIENCY

Many times, agents are already aware of a buyer who will buy your home. They can sell your home on the first day for the full price you dreamed of achieving.

But most don’t do.

Even if they can, they won’t sell your home fast – at least not too fast.

Even when they do have the buyer on-hand, many agents will drag out the process, massive amounts of open-houses, heaps of advertising (at your expense) and, finally, they will reveal the buyer they always knew about.

Why go through this charade?

Because if they sell your home fast, you will be outraged at paying a huge fee ($20,000 or more) for what seems an hour or two of work.

It happens all the time. Sellers say, “The agent sold my house in three days and charged me $25,000.”

Were they happy with the price?

That’s irrelevant say most sellers who can’t handle the thought of an agent earning a big fee for a little work.

But that’s efficiency. The agent may have been in contact with that buyer – and many others – for many months. This may have involved many hours working with that buyer, perhaps showing many properties.

The best agents have already got a buyer for your home. Don’t punish them for being efficient, especially if they get you a great price. Indeed, encourage them. Tell them you hope they sell it quickly.

In the old days – when the quality of agents was higher – the first thing that agents did when they listed a home was call buyers on their contact lists. Today, the first thing most agents do with a new listing is write an ad. Yes, to attract buyers already on their contact list.

Encourage the agent to be efficient. And never punish them for being efficient. If that happens, you’ll have to endure what most sellers go through – weeks of ‘conditioning’.

IF THEY GET LESS THAN THEY QUOTED?

To reduce the likelihood of an agent “buying” your business – which means deliberately giving you a false high quote – ask them this: “If you sell my home well below the price you are quoting us, I hope you’ll realise we will expect you to share in the disappointment as we will then be paying you less than you expected.”

You can even insert this clause into their agreement: “If the price achieved is less than $X, then the agent agrees to reduce their commission by X%.”

If the agent says no, they are probably lying with a false high quote. Don’t hire them.

An honest agent will gladly agree to such a condition.

TO GET AN OFFER INCREASED, SUGGEST FORFEIT COMMISSION

Many times, agents will present offers to home-sellers with the words, “This is the most these buyers will pay. I have already got them to come up from their original offer. They won’t pay any more.”

Sometimes, agents will add the words: “I guarantee it.”

Here’s what I say: “Do you mind if I speak with the buyers?”

Agent replies: “Sure, but it won’t do you any good.”

Remember, of course, the agent is (supposedly) a crash-hot negotiator (as they all claim).

I then say: “Okay, thank you. But if I can persuade this buyer to pay more, will you agree to forfeit your commission.”

I have said this to agents many times. None agree.

Whereupon I tell them to go and get more. Almost all succeed.

NOTHING IN ADVANCE

By far, the most important rule with commissions or costs is this: You must not be liable for any costs until such time as your property is sold and you are happy with the price.

No matter what agents say, don’t pay any money in advance. And that also means don’t sign anything that commits you to pay any money if your property does not sell.

Believe it, Australia’s home-sellers are being financially abused by this VPA scheme which is unique to Australia. It stands for Vendor Paid Advertising.

Think about this: When people turn up to inspect your home, one of the first questions your agent (who is supposed to be selling your home) will ask them is: “Do you have a property you need to sell?”

Agents often find new sellers in this manner.

But why should you pay to fund what the agent is really doing –finding new leads? Unless, of course, the agent agrees to give you all commission from leads sourced from your money.

Agents earn enough commission. These add-ons – especially the advertising – is a scam.

No matter how much they pressure you, do not relent.

If you can’t find an agent who has the integrity, the intelligence and the ability to say, “I am good enough; pay me when the job is done and you are happy,” let us know. We will help you find such an agent.

NEVER ALLOW CAVEATS

Of all sneaky clauses, this is one of the most wicked. Here’s what can happen (and this is an exact case): A man in Sydney’s eastern suburbs interviewed an agent who claimed be “number one in Australia”. The agent said there was nothing to pay until the property was sold. The agent quoted the seller $2 million. The seller signed-up with the agent. The agent then brought him a series of low offers – closer to $1 million than $2 million. The owner refused. He had only signed-up because he was promised $2 million. He told the agent to remove his sign and get lost. A couple of weeks later he got a demand for six thousand dollars – for advertising costs. The owner, a lovely fellow, told the agent, again, to get lost.

“This is Australia mate; you can’t tell me I’d definitely get $2 million and then once I sign-up you never mention $2 million again. No, instead you want me to accept close to $1 million.” He threw the agent’s invoice in the rubbish. Then he got a letter from a law firm. The agent lodged a caveat on his home.

The “best agent in Australia”. Be sure you define what “best”. Best deceiver, perhaps.

And believe it – biggest and best – does not often mean for you. The “biggest” agents are often the worst.

WATCH THE BIG THREE

Never forget, most sellers have three costs when selling – two of which are unnecessary.  Commission should be your only cost – and it should only be payable once your property is sold; that’s how it’s done in the other 194 countries (although the unethical real estate virus is finding its way into New Zealand – a tragedy for our ‘cousins across the ditch’).

The other two costs are needless marketing costs and the amount by which a home is undersold. Most people never know the amount their homes have undersold – indeed, most never know it happens.

I spoke with a delightful switched-on retired man yesterday who bought a property at auction for $80,000 less than he was willing to pay.

“The sellers looked delighted,” he said, “But I was more delighted.”

When I asked him why he thought so many sellers fall into the auction trap, he blamed automatic “brainwashing”. We see others doing it and the ‘social proof’ makes us feel it must be okay. It’s not.

If an agent suggests you auction, ask this question: “If there are two buyers at an auction and one has a maximum price of $1.3 million and the other has a maximum price of $2 million, how do you, as my agent, make sure you get the $2 million?”

Most important of all, do not let agents intimidate you.

It’s your home, you’re the boss, you call the shots.

Another retired gentleman interviewed an agent – maybe retirees have more time for research – and said to the agent, “I will not be auctioning my home.”

The agent replied, “Don’t tell me how to do my job, I auction everything.”

And I just love this bit.

The seller put the agent’s business card through the shredder. In front of the agent.

Arrogant know-alls – the most expensive agents.

The best agent is the one who can prove they can get you the best price. Such agents are so confident and so honest, they will gladly accept being paid in full after they have done what they promised to do.

On the other side, however, as many dodgy agents admit among themselves: “We have to get sellers to pay up-front. That’s the only time they believe us.”

The best agents want what’s best for you. And they are prepared to prove it by not asking for any payment before the job is done.

There’s another word to describe such people: Integrity.

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Good luck. We hope you find the best agent and get the best price. If you need help, we’re always here for you – support@jenman.com.au.

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FOOTNOTE: We are often asked: “If an agent does a good job, what do you think is a fair commission to pay?” I will write about this important issue soon. If you have any thoughts, please let me know. Thank you.

Please note: We do not charge sellers for our support. Nor do we ever ask you to sign any agreements. Our entire focus is to protect your interests.

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