
by Neil Jenman
Reading time: Apx 5 mins
“You’ve got it all wrong!”
That’s the statement that applies to most home sellers who search for a good real estate agent who’ll charge them a fair rate of commission.
Everyone wants a good deal. And there are few deals more important in our lives than the sale of our biggest financial asset – the family home.
So, without getting too long-winded or complicated, let’s focus on the seven most important factors when it comes to real estate commission.
All real estate commission is negotiable. Every agent discounts their commission at times. Often, it’s the tough sellers who get the cheapest commission. So don’t be soft. Stand firm. And remember this, if an agent says that they “never discount” their commission, ask them: “Have you ever discounted your commission?”
One of the most common mistakes made by home sellers is choosing the agents who instantly offer the cheapest commission rates. Cheap agents often mean that your home gets sold for a cheap price. It’s vitally important that you focus on the net price you receive. Worry about what goes into your pocket before you worry too much about what goes into the agent’s pocket. Focus on the net price you get.
You can negotiate commission until the point of sale. When the agent has found a buyer and you work out the net price you’ll be getting, that’s the best time to negotiate the commission. If the agent has done a great job and you are getting a great price, then you might be happy to pay their standard commission.
But if the agent wants you to drop your price, you should simply say, “If you expect us to drop our price, then we expect you to drop your commission.”
So, don’t worry too much about what’s written on the Listing Agreement at the time you list your home, worry about the commission at the point of sale.
If it makes you feel better, you can write these words on the agent’s Listing Agreement: “The agent agrees that commission will be negotiable until the point of unconditional sale.”
Commission rates vary from 0.5 percent to about 5 percent. For an average home in an average suburb, a fair rate of commission (if you are happy with the net price you receive) should be between 1.5 percent and 2.5 percent.
The more expensive your home, the lower the rate of commission you should expect to pay. If you have a home worth $10 million, then paying an agent $250,000 for selling the home to one buyer is likely too steep.
Indeed, at upper levels, commission rates often start at 1 percent and go down from there. But again, try not to get too alarmed at the huge commission agents want. Focus first and foremost on the net amount you want.
If the agent gets you an extra million dollars for your home, then an extra hundred thousand dollars may be reasonable.
If most of the agents in your area seem to be asking for the same rate of commission – especially if it’s on the high side, say, 3 percent or more, you may be dealing with cartel conduct. This is where competing agents collude to not reduce their commission below a certain threshold.
In Christchurch, the New Zealand Commerce Commission has just launched an investigation in several Harcourts offices for alleged cartel activity. It’s not common, but it does exist, especially in coastal and country regions. If you suspect cartel activity, please report it to the ACCC (Australian Competition and Consumer Commission).
Australia has become about the most expensive place in the world to sell a home.
There are two reasons for this: First, the greed of the major real estate websites and second, the innocence of the home sellers.
Please know this: You do NOT have to pay thousands of dollars on top of commission for advertising costs.
It does not matter what the agents tell you, it does not matter how many millions of people go to the online websites, you do not need to spend thousands of dollars.
Most real estate advertising is a complete rip-off.
If you agree to pay advertising costs – regardless of whether your home is sold or not –you are being played for a sucker.
There are some ethical agents (not many) who will agree not to rip you off with needless advertising costs.
Imagine if you sign up with an agent and then your neighbour wants to buy your home. You then have to pay the agent tens of thousands of dollars. For what? For doing nothing, that’s what.
Imagine your best mate wants to buy your home. Or maybe a close family member. Same thing.
Does any agent deserve to be paid tens of thousands of dollars for doing no work? If you find the buyer, shouldn’t you, at the very least, be entitled to pay no – or less – commission.
The way to solve this common problem is to refuse to sign an Exclusive Selling Agency Agreement. Just remember that the word ‘exclusive’ means ‘excluded’. You are excluded from selling your own home no matter what the circumstances. Therefore you should sign what’s called a ‘Sole Agency’ agreement. This should give you the right to sell your own home without being obligated to pay an agent who’s done little or no work.
This is not to suggest that you cut-out the agent.
But it does suggest that you make sure you are treated fairly and that an agent is only paid if they deserve to be paid.
If you have any more questions or concerns about real estate commission rates or if you would like help to find a competent and ethical agent, please feel welcome to contact Jenman Support on [email protected].
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