How Much Commission to Charge

Wednesday 11 Mar 2020

Real Estate Agent Commission – What To Charge?

Rather than receiving a flat fee for their time, most agents receive a commission based on the final selling price of the property. While an experienced agent has a good idea of what a realistic selling price will be for a home, the commission gives them an incentive to push the buyer as high as possible to get the best price. More money for the owners means more money for the real estate agent, so it works for everyone involved with selling the property.

Here’s how commission works, and how much home owners should expect to pay.

What is commission?

Most sales-based jobs use commission to keep their agents motivated to sell, as hard workers who are great at their job will be rewarded with a higher pay check. The amount of commission a real estate agent earns can be different depending on their skill, experience, location and the agency they work for.

The commission is charged as a percentage of the final sale price of the property. It can be a straight fee such as 2% of the final price, or other agents offer a sliding scale, with a base percentage for a sale price under a set amount and a higher percentage if the sale price goes above that set amount.

For example, an agent might charge 2% if the house sells for $400,000 or less, with an additional 5% for any amount over that. In this case, if the house sold for $400,000 the commission would be $8,000, while if it sold for $420,000 the commission would be $9,000. The agent has an extra incentive to push the sale price as high above $400,000 as possible, because it becomes even more financially rewarding for them.

Fixed Rate Agents

Commission is the typical way that real estate agents fees are calculated. However, some agencies advertise a flat fee instead. Home sellers have the advantage of knowing beforehand exactly how much they are going to pay, and the rate is often competitive when compared to what they would otherwise be charged.

However, it might not be the best option for everyone. Some sellers become concerned that a flat fee can encourage agents to sell a house as quickly as possible and not necessarily for the best price, as they have no monetary incentive to put the work in to achieve the highest price possible.

For an agent charging a flat fee, they will make the most money by selling as many houses as possible. For an agent that charges commission, their money will come from selling as many houses as possible for the highest possible price, which works in the owner’s favour as well.

Just because an agent charges a flat fee doesn’t mean they’re not a great agent with excellent work ethic. However, an agent charging commission has that extra push to make sure that the sale price is as high as possible.

Either way, choosing an agent because they’re cheap, without taking into consideration their skills and experience, probably won’t result in the highest possible sale price. Spending an extra few thousand could result in a much higher gain in the long run.

Average Commission

Selling a property is one of the most important sales a person will make, so it makes sense that a great agent is fairly compensated for their time. However, it’s important to know what the average rate is and to make sure an agent is offering services that are worth the amount they are asking.

But between states, from suburb to suburb, and even from agent to agent, there is plenty of variation. Agents in rural areas tend to charge more, because there are less homes to sell and they need the extra commission to compensate for fewer sales. The more densely populated the area, the more likely that competition between agents is high, which lowers prices. The commission will also depend on the kind of property being sold, the current real estate market, the skill and desirability of the agent, and many other factors.

Most agents ask for a commission ranging from 1%-5% of the purchase price of the house. The state averages for real estate agents differs depending on the area, ranging between the 2%-3% mark. The average fees from each state:

ACT - 2.23%

NSW - 2.02%

NT - 2.52%

QLD - 2.58%

SA - 2.00%

TAS - 2.84%

VIC - 2.04%

WA - 2.40%

On average, selling a house worth $400,000 in Queensland will cost $10,320, while the same house in South Australia would cost $8,000 in agent fees and in Tasmania, $11,360.

For top agents, expect to pay 3 – 3.3%. Sure this is higher than the average commission but you are engaging an above average agent who’ll get you an above average sale price.

Finding an Agent

When comparing agents, the commission percentage isn’t the only factor that you should compare. Here are some other factors that could influence the price you pay for an agent.

Commission and Fees. Commission and fees can be two different payments – for example, some agents include marketing in their commission rate, while others add it as an extra fee. Other fees that some might charge on top of commission are staging fees, auctioneer fees and more. Find out exactly what you’re paying for before you compare.

Skills and Experience. Selling a house requires a lot of specialised skills and local knowledge, most of which is gained through experience. Knowledge of the market and passion for the industry are also vital for achieving the highest possible price, along with excellent negotiation skills.

Marketing plan. Getting a property in front of possible buyers is the best way to sell it quickly and for the best price. A good agent will have a strong plan in place for marketing, which draws on local knowledge and knowledge of the current market.

Staging. Setting up the house in a way that makes it the most appealing to potential buyers is called staging. A good agent will be able to give you advice about staging, or arrange for it to be done for you. A property presented in the best way possible can add a significant amount to the final price.

Willingness to Negotiate. Most agents are open to negotiating their commission percentage, which can mean the seller pays less.

Conclusion

Commission rates are important, but far from the full picture when it comes to choosing an agent. Research and comparison are vital, and remember to consider what additional skills or fees could make an agent a more or less attractive choice.

A higher commission can be less inviting initially, but the right agent can end up adding thousands to the final sale price of a home. Getting a good picture of what each agent has to offer before comparing can help guide you towards an agent who earns every bit of their commission by making the sales process easier - and more profitable – for the seller.