What you must know about paying real estate agents.
Selling a home is not cheap. The most apparent cost is the real estate agent commission – the fee you pay an agent to sell your home.
With the average home price in Australia now close to $1 million, the average real estate agent commission is close to $20,000.
In up-market areas, real estate agent commissions can average as much as $100,000 for a property.
It’s the same – or worse – in rural areas.
When Steven Garfield sold his family cattle station for $30 million, the real estate agents’ commission was $500,000. And Steven negotiated a $100,000 discount. Given that the buyer for the farm was the neighbour, Steven asked a question many sellers ask: “Was the real estate agent commission justified?”
Most home sellers pay too much commission for real estate agents. Their lack of experience makes them unaware of many important points about real estate agent fees and commission.
The real estate business is fiercely competitive, which means different agents charge different rates of commission.
Although the average real estate agent commission is two percent, overall rates range from one percent to four percent. But many agents offer lower rates of commission to attract sellers.
Here are eight words sellers must remember: Real estate agent commission is always negotiable. So, don’t be shy about asking for a discount or, at the very least, letting the agent know that you are shopping around to compare different real estate agent fees and commission rates.
It’s harsh but true: Naïve or inexperienced sellers, especially the elderly, usually pay the highest rate of real estate agent commission. Be strong. If you want a discount on the commission, ask for it. Just say, for example, “What’s the best commission rate you can offer?”
Often, real estate agents will also have lots of costs that you don’t expect. Most of which are a rip-off.
The biggest factor that influences the amount of commission paid to real estate agents is the forcefulness (the willingness to negotiate) of the sellers.
Other factors that may influence commission paid to real estate agents include:
The value:
The higher the value of a home the lower the percentage rate of commission. You see, it takes the same effort to sell a home for $500,000 as it does to sell a home for $5 million. Therefore, it makes no sense to be paying ten times as much commission for a high-priced home.
The location:
Be careful. Although collusion (aka price fixing) is illegal, there are many areas where the commission paid to real estate agents seems set for the area – often as high as three percent (plus GST). Don’t fall for it.
Market conditions:
Boom time is the best time to get a reduction in real estate commission. During booms, houses almost sell themselves.
Some agents are so desperate during booms that they will discount their commission rate below one percent.
Brand or independent.
Big brand agents pay a percentage of their real estate commission to their head office. Naturally, this makes it harder for them to offer a discount on their commission rate. You may have a better chance of getting a better discount if you approach an independent agency.
Make sure, of course, that the independent agency is likely to get you the same (or a better) price than the franchise agency. No point getting a discount in commission if you sell your home at a discount.
Some agents offer a flat fee for real estate commission. But this creates no incentive to obtain a high price. With flat fee commission rates, homes are more likely to be undersold.
Paying a percentage of the selling price is a better way of paying a real estate agent sale commission. However, this can still stifle the agent’s incentive to get an additional amount for your home.
Therefore, it’s often best to negotiate a tiny commission rate up to a certain price and then a larger commission rate if that price is exceeded.
For example, a seller might agree to pay a commission rate of half a percent on any amount below $2 million and then a bonus rate of 20 percent commission on any amount above $2 million. This gives the agent a strong incentive to try hard to get the extra $200,000 because their total real estate commission will then be $50,000. That’s an extra $40,000 in real estate commission for selling your home for an extra $200,000.
WARNING: If you are going to offer a Bonus Real Estate Commission rate, make sure the minimum price you require is equivalent to the true value of the home.
For more information or support, email [email protected].
Property owners need to be careful shopping for a real estate agent purely on their real estate agent commission. Of much more importance than commission is competency.
Paying a real estate commission of one percent is a false economy if the agent undersells your home.
If one agent can sell your home for 10 percent more than other agents, then perhaps that agent is worth an extra one or two percent in real estate commission.
The best tip, therefore, is to decide on the amount of real estate commission you will pay after you have tested the agent’s competency.
A high selling price may deserve a higher real estate commission. A lower selling price may only be worth a lower real estate commission.
Don’t get swept up with all the bells-and-whistles offers.
To justify their high rate of real estate commission many agents will lure you with all the so-called “benefits” with their agency. Most of these wonderful sounding benefits have little or no impact on the final selling price. Items such as massive advertising and free-for-all open homes can damage the value of your home.
There is only one major requirement you need in return for paying a real estate agent commission – and that’s an excellent selling price of your property.
For further information about real estate agent commission, you can contact Jenman Support on [email protected]. Our support is free to consumers. We can introduce you to agents across Australia who are likely to give you the most cost-effective rate of real estate commission. If you can’t find a competent agent, then, rather than paying commission to an incompetent agent, you should investigate selling without an agent. If you’d like a free copy of the book, Real Estate Without Agents, please click here.
Always be more concerned about your net sale price than the amount of commission.
It is possible to negotiate real estate agent commission below 1 percent; however, you need to be careful that cheap agents don’t sell your home for a cheap price. If agents can’t negotiate a decent commission for themselves, it’s unlikely that they will negotiate a decent price for your home.
Encourage agents by giving them an incentive – sell our home for a high price and we are okay to pay a high real estate commission.
But always understand – and even have it written into the real estate agent’s Listing Agreement – that the real estate agent commission is negotiable until the point of sale.
