First published on Smart Property Investor Seriously – we get it. We get...
Why are Real Estate Agent Commissions So High?
If you are accessing this article from the buyMyplace website, no doubt real estate commissions are a substantial reason you are looking for alternative ways to sell your property, especially given the amount you pay an agent in commissions can be as high as 2.5-3 percent of your property price.
On a $600,000 property sale, that equates to as much as $18,000 of you money. Ouch!
But how do agents justify that amount? It the single biggest expense of selling a house!
Of course they will tell you that no-one can sell as well as them. They have a qualification. In truth the qualification can be obtained by almost anyone. There is no academic minimum to study professional real estate. It is an online course, and if you are diligent, it can be completed in a couple of days.
Agents will tell you they do a lot of work to secure the best sale price for you, and for some agents that may well be true, but a large percentage of agents rely on bulk listings for their income. But more on that later in the article.
Some agents will justify the commission, by saying the money is their incentive to get the best sale – the higher the sale price, the more they make.
However, many agents, especially those who don’t own the agency, don’t personally earn much commission at all. Some earn no commission with 100 percent of their “incentive” being paid to the real estate business rather than the agent themselves.
As a rule the bulk of the commission is paid to the owners of the real estate business. In other words, people who played no part in selling your property. The selling agent then earns a percentage or fixed amount from the commission. The listing agent (the person who originally got you to sign up to that agency) also gets a cut. If they weren’t the selling agent, they too are being paid money for nothing!
Selling agents on what is called a “commission-only” salary can be quite incentivised having negotiated a percentage. If they don’t sell, they don’t earn. There is no weekly wage from their employer for the leaner times.
Salaried real estate agents make a set amount per sale. In other words, the agency gives them an advance on their projected earnings, and if their sales don’t exceed their earnings, they can find themselves paying back their salary when they do make a sale. Some commissions are as low as $1,500 per sale, regardless of the final sales price.
To summarise the state of play so far, of the $18,000 commission on your hypothetical $600,000 home, the overwhelming majority lines the pockets of people who have played no part in your property sale.
So how do agents make money? It is a numbers game for most. The more listings they have the more potential for commissions – even if it is a small fixed amount. And the small fixed amounts can add up for them. That is why agents will offer free appraisals, property reports, market updates or anything to get your listing. Sometimes accepting these tools from agents can be very useful – especially when you are planning to sell your own property and may not want to spend a couple of hundred on a property report. But you can take the free report and not list with them. Don’t feel obligated.
Given most of your commission is going to lining the pockets of people who have not been involved in your sale at all, it seems ridiculous to consider an agent at all doesn’t it?
At buyMyplace you can sell you own property with as much or as little help as you need, for a low fixed amount ($695 to $4,995 depending on which package you choose), and you can be the one to pocket 100 percent of your commission to use on something lovely.
You could even be sensible and use the savings to pay stamp duty on your next property – even though we realise paying the tax man is probably almost as disheartening as paying real estate commissions. Sadly you can’t escape stamp duty, but you can avoid real estate commissions.