How much is the commission of a Real Estate Agent and is it fair?
So (hypothetically) you want to sell your home. Of course, you want the best price you can get. You’re going to do a few things. You might clean up your home, maybe add a lick of paint, get some nice photo’s and pay a couple of thousand for a marketing campaign.
You’re also probably going to want to hire a Real Estate agent to help get the best price for your home. And when you hire an agent, you’re going to be paying a commission based on the final sale price. What could be the problem with this? The more the agent can sell your home for, the higher their commission is. They’re going to do everything they can to get the highest price…right?
Well not necessarily, see it might not be worth it for the agent to push to get you that extra $10,000 – $20,000. I’ll explain.
How much is the commission of a Real Estate Agent?
Commissions vary throughout the country, however, the average commission for a Real Estate agent in the major Australian cities according to Local Agent Finder are:
- Brisbane – 2.51%
- Canberra – 2.25%
- Sydney – 1.84%
- Darwin – 2.42%
- Adelaide – 1.92%
- Hobart – 2.81%
- Melbourne – 1.96%
- Perth – 2.31%
This works out to an average commission of 2.25% for Real Estate Agents in Australia.
If the agent works for a larger agency, 50% will likely go back to the agency. So for simplicity, a selling agent might end up getting a commission of 1.12% in their pocket based on an average commission (if they don’t have to share with other agents).
We will use Brisbane as an example. Last year the median house price in Brisbane was estimated to be $552,000. So, if your home in Brisbane sells for $552,000 the total commission payable will be $13,855. The actual selling agent will likely see about $6,900 of that. Not bad money…when houses are selling.
Is commission fair? What do the numbers say?
What if you were to get an offer $15,000 less then what you want for your home. $15,000 is a lot of cash and you may be wondering if you held out for a couple of more weeks or had a couple more open homes, you may get the price your after. What if your agent is saying things like “the market is slowing down” “this is a good offer” “this is the best offer you will get”. Should you believe this?
When you break down the numbers, the agent is not incentivised to keep pushing for more offers. If an agent were to spend two more weeks marketing your home to get you an extra $15,000, the extra commission they will receive is only about $187.5 – before tax.
So in reality, it doesn’t make much commercial sense for a real estate agent to spend two more weeks on your home, holding more open homes and negotiating with more buyers for less than $200! They could be spending this time getting a new listing, or selling a property that doesn’t have any offers to try and get another full commission.
Now, this doesn’t mean that all, if any agents think like this. But it’s something to think about if you are selling your home. And it could be the reason that flat fee agents are on the rise.