So the current market all around you is active and home owners just like you have decided it’s time to sell your house. But you’ve taken a look at real estate agencies, maybe chatted to a few and found yourself confused by the the agent commissions and fees. How do they work? It’s not a decision to be taken lightly because you’re looking for a true partner in getting you to a big sale on your house.
Unless you’re going for sale by owner (FSBO), the way commissions work is pivotal to how effective your real estate agent will be. Every vendor wants to pay out as little as possible of course, but even the most skilled agent in the world won’t do much for you if they’re not getting rewarded well for it. Somewhere in the middle is a sweet spot that lands you a great net return on this choice. Once you’ve seen how it works, you can choose the best agent for you and work out a deal that suits you both. Now, let’s take a quick overview of the real estate agent commission landscape.
How real estate agent fees are structured
Real estate agents work mostly on commission, meaning most of what they are paid comes from a portion of the sale price of your home. For most of Australia, that means around two to three percent of the sale price goes to the agent on average, where figures above three percent are considered fairly high.
Other costs may come along however — mainly advertising costs — as getting prospective buyers to inquire about your house or attend an open home is no cheap task. More often than not, these costs will be separate from the agent commission but the exact details will vary from real estate company to company, and even from agent to agent.
The good thing is that you definitely have a say in how much to spend on advertising, and a good agent will be able to guide you through on how much you can expect to spend given your property value, property location, their knowledge of sold properties in the area, and other factors.
As a reference, a property listing on real estate websites like domain.com.au and realestate.com.au for just a couple of months can cost hundreds, but these are things every vendor will find essential for finding potential buyers, even those trying sale by owner.
But it’s important to be mindful of where these costs are laid in relation to your agent, so you know exactly how much you’re paying. Some ways agent commissions can be structured are:
- Higher commissions which include some or all advertising
- Guaranteeing the sale by not getting paid a cent unless your property sells
- 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
- Combinations of the above
Upfront costs in advertising are usually a bad deal for you — certainly you would have no qualms about paying an agent for a great sale, but the sale has to happen first! Otherwise, if advertising costs are built in to the rate, commissions can rise as high as five percent. For that reason, seeking out ‘no sale, no fee’ agreements are always worth checking out.
Be careful with flat fees. Even though you get to know exactly how much you’re paying, no matter how low or how high they are, they only motivate your real estate agent to make a sale, not necessarily the right sale. That means you can find them pushing for lowball offers because it doesn’t matter to them how much your property sells for. Remember, with a reasonable commission, no matter how much your agent gets paid, you get paid many times more.
Scale of commission, also known variously as ‘Sliding scale’ or ‘Tiered scale’ commissions, are a good option for those with highly sought after properties. These schemes include a higher bonus commission beyond a certain sale price, encouraging agents to seek high value offers. The way it works is this: Your agent might earn 3% on every dollar up to $1,000,000 and 7% on every dollar higher than $1,000,000. With a bonus like that any agent worth their salt would go the extra mile to find a sweet seven figure offer for you!
Commission levels in Sydney and NSW
Since the current market in Sydney is super hot, agent commissions are consistently some of the most competitive in Australia. You generally find that in areas with high property values and high demand, the more easily agents can find high value prospective buyers and thus the lower they’re willing to move on their commission rates.
We see this in Australia, where in early to mid-2017, NSW had the second lowest average commission of all the states and territories. Conversely, Tasmania finds itself the most expensive in terms of average commission at 3.26%. Have a look at the other states and territories’ average commission rates below:
- South Australia: 2.07%
- Victoria: 2.13%
- ACT: 2.18%
- Western Australia: 2.45%
- Queensland: 2.47%
- Northern Territory: 2.68%
However, just because the percentage commission is low, that doesn’t mean agents are making less money, especially in Sydney. As above, the high property values of the city lead to big numbers for real estate agents even working with low commission. At respective statewide average commissions and the median sale price in each capital, agents across Australia would make:
- 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
Simply put, it’s a great time to be a Sydney real estate agency.
But not all is the same across the state. Within NSW there’s a definite difference between the city and rural areas. While real estate companies don’t tend to like publicising their commission rates, some data suggests that out in the country, it’s very common to see average commission rates above 3%, and even pushing as high as 3.43%. Compare that to Sydney, which averages under 2.5%.
Within Sydney it’s a fairly even graduation as you head further west. Though agents in the CBD charge 2.48%, agents in almost every suburb moving further out keeps it under 2% until you hit the Parramatta area which rises slightly above.
One notable exception is between Riverwood, Turrella and Georges River, which charges in the range of 1.67%. Curiously another standout is Punchbowl, charging a full percentage above its surrounding suburbs.
Finally, the furthest reaches of western and south-western Sydney can go as high as 2.45%.
As a general rule for Sydney, rates rise the further west you go. However, the vast majority of the city charges very competitively compared to the rest of the country.
Finding your agent
With all this talk of commissions, it’s easy to forget that it’s just one factor to consider when choosing a licensed real estate agent. Not all agents are the same, even if their fees are. But researching everything you can about your local agents is a time consuming effort.
Moreover, talking to them individually leaves you open to the temptations their sales pitch and you might miss a better partner elsewhere. Up to 75% of vendors go with the first agent they talk to because of this!
Where can you go to just get the facts?
Agentselect.com.au is a great way of sorting through all the agents in your area who are dedicated to bringing you potential buyers. As a free service for home owners, it’s easy to check out thousands of agents across Australia and compare the details that matter.
Once on the site, you simply enter your property’s location and you’ll be treated to a quick overview of agents around you to explore, with a recommended list of the best agents based on property sales experience. Select a few agents you like and let the best of the best compete for your business. With their contact details like email address and phone number, you’ll be able to negotiate with each personally and come to agreement that suits you.
Think of it like your agent to finding an agent. Everything should be this simple. Find the best licensed real estate agents in your area at Agentselect.com.au
Getting the most from your agent
When you first look at the fees your agent might propose, it’s easy to see nothing but a number and fixate on it. But remember that many of these fees will be necessary, no matter the agent, or even for FSBO vendors.
For example, keeping a presence on property websites is a bare minimum for any vendor whether they’re going with an agent or not, or setting up for an auction or private sale. The major websites like domain.com.au and realestate.com.au are the first and sometimes only place of contact for property buyers using google to look up property online, and the prices are set for everyone.
As for other fees, it’s perfectly fine to interrogate what they’ll do for your sale. If you don’t understand something, ask. Any good agent will gladly explain each detail of your marketing campaign using their wealth of property sales experience. Depending how your agent assesses your property’s location and qualities, you might see:
- Sale signs
- Open house signs
- Property listings in newspapers
- More prominent listings on property websites
- More advertising in any of the above
One big point that should be addressed is the issue of going to auction or pursuing a private sale. This is because auctions tend to have bigger, more expensive marketing campaigns than private sellers would, though a marketing campaign for an auction will not tend to last as long. This means more property listings, more sale signs, more of everything to get a packed house of property buyers at open homes and at auction day.
Speaking of open homes, your agent may request you do further actions to maximise the sale potential of your home. You’ve probably lived in it for years and a bit of wear and tear is normal, but you still need it to look its very best once you put up the sale sign. Some of these things are:
- Decorations and furnishings
As always, you have the final say on whether you do them, but a good agent may be limited by what they have to work with.
Getting the best deal
There are a few things to remember to get a great deal that works for both you and your agent.
Remember that you’re after the best net result. A few percentage points in commission, or a handful of extra fees doesn’t mean a thing if your agent is able to bring in a huge offer. As an extreme example for illustrative purposes, an agent who can sell a one million dollar house for ten million would be very much worth a fifty percent commission!
Going the other way, your agent deserves to be paid reasonably for a good job. The lower you demand on commissions, the lower the priority of your sale will be. As a general rule of thumb, of the agreed commission rate, up to half of it goes to their agency with the rest going to the agent. So though you may think they’re getting big bucks based on what you’ve calculated, it may not necessarily be true.
Finally, the golden rule: Negotiate everything. New business is the lifeblood of real estate, and good agents are well versed in being competitive. Not only are they prepared for it, good agents want you to negotiate. For them, it’s much better to give in a little and win your business rather than have you walk away. So while keeping everything above in mind, remember that everything is on the table.
To make the whole process of finding your perfect agent easier, compare agents at Agentselect.com.au