When you’re selling your home, arguably the biggest decision you’ll make is which real estate agent you’ll choose to work for you.
This is especially true for those selling property for the first time as you’re unfamiliar with the whole process. But while there are many factors you should consider to determine which agent is “right”, one of the biggest that most people stress over are their fees and commissions.
What makes everything even more complicated is that there is a huge variety of fee structures and plans across different real estate agencies in Australia. With all those differing ways of paying, it can get very difficult to determine what works best for you, especially if you’ve never seen the whole process end to end before. With that said, let’s take a quick overview of how real estate agent fees and commissions work and how you can compare quality agent proposals.
Types of fees
It’s common knowledge that real estate agents usually charge on commission--that’s a percentage of the sale price. In Australia, that’s usually in the range of two to three percent. Typically, this is the bare minimum of what you’ll pay, as other costs can be involved such as advertising costs. How expensive these will turn out to be depends on how you proceed with your agent. For example, a simple property listing on the major websites like domain.com.au and realestate.com.au and at the real estate company premises may run in the hundreds of dollars. Bigger marketing campaigns however can easily tread into the thousands in upfront costs.
As well as that, real estate agencies may propose different fees in all sorts of ways such as:
- Higher commissions which include some or all advertising
- Guaranteeing the sale by not getting paid a cent if there’s no sale
- Conversely, requiring signage and advertising costs even if the property doesn’t sell
- Flat fees
- Scale of commission on the sale price of more expensive real estate
- Any mix of the above balancing out commission and upfront costs on advertising and signage
As a general rule, it’s a bad idea to pay anything upfront. You pay a real estate agent to sell your house and until that happens, they haven’t done their job especially when some commissions can go as high as five percent. In this respect, agents who guarantee the sale by not requiring any payment until after the sale are an attractive option.
On paper, flat fees also look attractive if they aren’t paid until after the sale, particularly when the fee seems low. In reality however, if your agent’s pay isn’t tied at all to the sale price, this leaves a big incentive for agents to simply sell quickly, locking you out of a potential buyer with a bigger sale down the road. When all is said and done, you might have saved a few thousand on commission, but lost tens or even hundreds of thousands in a big sale.
If your property is well in demand and its property value is high, scale of commission schemes might get you the most bang for your buck. That means for every dollar up to a certain amount in the sale price, the agent gets a cut, and every dollar beyond that amount, they’ll get a bit more. For example, you might agree that they’ll earn 3% on every dollar up to $1,000,000, and 7% on every dollar beyond that. That means your agent will work their hardest to get the highest price possible.
As always though, you should be sure to negotiate a payment structure that suits your needs.
Commission levels by state
Across states and territories in Australia, average commission levels are mostly in the two to three percent range. The only exception is Tasmania which clocks in as the most expensive at 3.26%. Somewhat surprisingly given its current market reputation as a hot region, NSW boasts the second cheapest average commission levels at 2.11%. Though the market changes frequently, average commissions for the other states and territories from early to mid-2017 can be found below:
- South Australia: 2.07%
- Victoria: 2.13%
- ACT: 2.18%
- Western Australia: 2.45%
- Queensland: 2.47%
- Northern Territory: 2.68%
This doesn’t tell the whole story however, since property values in each state can vary wildly. If an agent were to sell the median dwelling price in each capital city at each state’s respective average commission level, they’d get paid:
- Adelaide: $8,642.25
- Hobart: $10,686.28
- Brisbane: $11,794.25
- Perth: $12,005
- Canberra: $12,240.70
- Melbourne: $12,460.50
- Darwin: $13,333
- Sydney: $16,275
Here it’s easy to tell that even though Sydney is in the state with the lowest agent commissions on average, the value of sold properties in the area more than make up for it.
Even within states and territories however, commissions can vary wildly. By some estimations, the difference in average commission rates between rural and metro areas can be as large as 1.9 percentage points. In broad strokes, fierce markets with lots of competition seem to lead to lower agent commissions, so if your property’s location is in a hotly contested area, you should see an easier time finding a great deal.
How to compare agents
Now that we know all this, how does a first time home seller compare agent proposals?
If they’re not going for sale by owner (FSBO), the traditional way is to visit real estate websites or google a few real estate agencies in the area and visit them one by one. Often the problem with this is that agents are experienced salespeople and once you’re in the door, it can get easy to be swept away in the excitement of starting your home selling journey. Up to 75% of vendors do it this way and end up going with the first agent they talk to. Then you can find you missed out on a better agent with a better proposal elsewhere.
That better proposal may mean you miss out on tens or even hundreds of thousands of dollars.
Another problem is that sometimes you may not be talking to a licensed real estate agent at all, since some agencies employ dedicated salespeople to help gather clients to pass to the agents.
There’s are better ways, however.
One better way is through Agentselect.com.au, a free service where agents come to you and compete for your business. There are tens of thousands of licensed real estate agents across Australia who you can choose from. There, you can pick from the real estate companies and agents most experienced in property sales around your property’s location.
Once you have a handpicked selection of agents you’d like to explore, they submit proposals to you, which the service makes easy to compare in a side by side quick overview. That way you can consider all the facts before you make a decision. Further, get provided with the agents’ contact details like phone number and email address and everything from agent commissions to marketing campaigns are up for negotiation.
Remember, your choice of agent determines how you approach the entire selling process until keys change hands, so it’s one of the most important decisions you’ll make. To get the best deals with the best agent, go to Agentselect.com.au.
What do you get for your money?
One way or another, you will be paying for all the costs involved in selling your house. Whether they’re included in a higher commission or separated as their own fees with a lower commission, home owners should be aware of not only what you’re getting, but also how it will bring prospective buyers to you.
Advertising costs can include things like:
- Sale signs
- Open house signs
- Property listings in newspapers
- Listings on property websites (realestate.com.au, domain.com.au, etc.)
- More advertising in any of the above
All of these do add up and it’s quite standard to have at least a few of these in your marketing campaign, even for home owners going for sale by owner. The vast majority of property buyers begin their search by looking up property online on real estate website, so having a presence there is crucial.
If you and your agent decide to sell by auction, there may be extra costs involved which, again, you will foot the bill for in some form. These include things like:
- Extra marketing for the auction
- An auctioneer
- Extra help on auction day
Because everything depends on a great turnout at open home times and auction day itself, you’ll typically find much more intense and expensive marketing campaigns in the lead up to the day, with more signage on the day itself. There will also be the costs of an auctioneer, which can vary in cost, and your agent may bring in extra help from their real estate agency to work the crowd of potential buyers and drum up bids.
On the other hand, if you and your agent decide that going by private sale is the best route, you won’t have to deal with these costs at all. But there are different costs involved for private sellers. While the advertising won’t tend to be as intensive as for auction, getting to the sale tends to take a bit longer so you may find yourself paying less, but over a longer period of time. Sale signs can and do get damaged and may need to be replaced, and multiple open homes require signage too.
Also worth noting is that your agent may recommend paid services to make your house more attractive once the sale sign goes up. While these may not be paid to your agent, they are costs to you all the same. These might be:
- Decorations and furnishings
For all of these, you should discuss with your agent in detail how much you might be able to do yourself, and for the things you can’t, how much value they add to your house.
The first and most important thing to remember is that everything is up for negotiation. If a proposal doesn’t suit you and the agent won’t budge, you can always walk away and seek another.
The second is that it’s important to be realistic about your expectations. Remember that licensed real estate agents are professionals who do an important job for a living, and they should be paid a fair amount for the value they provide to you. Understand how much they’re actually being paid. Unless you’re talking to the owner of the real estate company, agents will usually personally receive between fifty and seventy percent of the agreed commission, with the rest going to their agency.
Also, note that a lower commission doesn’t always mean good things for you. Much of the time you get what you pay for. Score a lower commission and your agent may not treat your property as a priority. Even worse, you may find that your agent is willing to to give you a bargain because they aren’t very skilled to begin with. Missing out on a big sale isn’t usually worth a few decimal points of a percent in agent commission.
Do your own research. Get a general idea of what your house is worth based on your property’s location and the current market. Your agent’s valuation should be in the general range of other sold properties in your area, so beware of agent’s overpromising a big sale to get you to sign on.
Finally, look at the value they provide more than the commission itself. Agents in a given area will tend to charge roughly the same commission, and even across Australian capital cities, average commissions tend to stay within a percentage point of each other. But while they might cost roughly the same, there is enormous variation in the skill and effort levels among agents. What does an extra half percent mean to you if the right agent can net tens of thousands of dollars above your reserve price?
Want to compare agents easily? Visit Agentselect.com.au