There are many ways estate agents can charge to sell your home, however agent fees are being disrupted now more than ever before!
I guess it’s time to bring you up to date with what’s been happening!
Did you know that there are 3 main ways estate agents can charge you to sell your home? Most real estate agents don’t want you to know about the third option… but it’s your lucky day today, because I’m going to unpack it all for you!
“Thanks Joe! “
The Traditional Commission + Marketing approach
But before we get into that, let’s unpack the traditional way estate agents charge (as this is still the most common fee structure in real estate).
Traditionally, real estate agents in Sydney have charged a commission rate on the final sales price. The typical commission rate in Sydney will hover around 2.2% (including GST).
They charge marketing costs on top of their commission, which includes photos, video, online ads and other extras. So marketing costs will be on top of the commission amount.
Average commission rates change by Suburb!
According to the blog at Open Agent, the average commission in Glebe for example is 2.15%, whereas in Surry Hills it’s 1.97% and 1.95% in Woollahra.
Comparing commissions to different states
This table from listing portal realestate.com.au suggests that across the country:
- Commission rates range from 1.5%-3.5%.
- Conveyancing ranges from $800-$2000
- Separate marketing charges typically range from $1,000-$10,000.
We should point out that there is a big difference between 1.5% and 3.5%! On a $1.5 million property, that’s $22,500 compared to $52,500! A difference of exactly $30,000…
Auctions are perceived to be very expensive but this is a little bit of a myth in real estate – even in Sydney. My own father, who is a developer and has worked in property for almost 30 years thought auctions cost way more than private sales!
The table from REA above is actually pretty accurate as a guide: an auction only an costs up to $1,000 more than a private treaty campaign. This may be interesting for you as there are a lot of advantages to selling by auction if the market conditions are right.
It’s Not Regulated, and there are alternatives
We should point out that the way agents charge is not regulated, as you’ve seen from the range of commission rates. Now more than ever, there are different options to get a home sold.
Tiered splits are sometimes negotiated by sellers and agents. This is where the commission rate itself will actually change depending on the final sales price achieved.
For example, the base rate might be 2.2% if the agent achieves $1.5 million or lower. But this climbs to 3.5% for any amount above $1.5 million. The 3.5% applies to the difference between the higher and lower price.
For example, on a $1.7 million sale, the commission would be 2.2% of 1.5million + 3.5% of $200,000 (which is the difference between 1.7 million and 1.5 million).
This is $33,000 + $7,000, making a total tiered commission of $40,000.
This structure makes sense if you believe that a higher commission for the agent creates greater incentive and ability for them to achieve a higher price. Some in the industry find this controversial, suggesting that the agent shouldn’t need any more motivation to get a higher price.
I wonder what you think?
Low, fixed, flat fee model which includes marketing
On the complete other end of the spectrum is the fixed, flat fee model made famous by Purple Bricks.
A fee that is low, flat and fixed will be kept the same independent of the final sales price or area. It will include marketing rather than give you additional expenses to the selling fee. (Remember in Australia, the norm is to charge 2.2% commission and then add marketing costs on top of that).
So if the fee is fixed at $9,999 for example, then it doesn’t matter if the property sells for $600,000, $1.5 million or $15 million. All that will be charged to the seller is $9,999.
Whilst Purple Bricks has been bashed in the media for ‘failing’ in Australia, the business made a large impact in the UK and USA.
Not only that, but following their entry into a poor property market in Australia in circa 2017, they are still estimated to have sold 7,700 properties in around 2 years. Not bad for a ‘failure’. This shows there is big demand for no-commission and low fee alternatives amongst Aussie sellers.
The Thinking behind low fee
The low, fixed fee structure supports the idea that commission doesn’t actually motivate an agent to get a better price. As Sydney Listings currently uses a low, flat, fixed fee, this is obviously what our agency believes at the moment.
Obviously this debate will continue for some time but for now I want to make the following points:
- Not all fixed-fee agencies are created equal. For example, there are very few similarities between Purple Bricks and Sydney Listings as you can see here if you need.
- We can measure these results. For example, on this sale in North Kellyville Andy Diaz achieved a ridiculous $1.41 million for a sale on a low fee model in 2019.
- I believe that commission will motivate some agents more than others. Some agents are motivated to get the price for the client and won’t be as concerned by commission as others.
Where did the commission model come from?
I think it’s always healthy to mount a challenge to the way we do things. How else do we make industries like real estate better and fairer over time? My process for testing whether something is still needed is to look back as to why it was created in the first place.
This agent select article suggests that the hot market in Sydney and its desperate buyers creates a certain demand. This demand puts agents in a position where they don’t feel downward pressure on their commission.
The reality is that the commission model was started at a time where real estate processes were more manual, and when property prices were lower. Thus, the fees had to be higher to make working as an agent feasible.
From our perspective, the commission charging business model is out of date and needs a refresh. It should not cost tens of thousands of dollars to sell a home anymore.