Industry Insights

Is it fair that a real estate agent’s commission is based on property value?

I’m not the first Australian real estate agent to offer flat-fee commission to earn business, but I’m certainly one of a small (but growing) group of agents who do. And in regional towns such as Albury and Wodonga (on the New South Wales and Victoria border), how I generate and conduct business as an independent real estate agent has drawn attention. It’s unanimously popular with sellers and vendors; not so amongst my competitors, who’d prefer I stick to industry norms.

Despite the rhetoric, commission is negotiable across all general, sole and exclusive agency agreements, including auctions. Though few sellers and vendors exercise the option to negotiate with agents, there’s a growing movement to ask, even if it’s likely met with refusal. Australian real estate agent generally charge between 2 and 3 percent commission (plus GST). And if you’ve sold property previously, you’ll already be familiar with the added auction, advertising and marketing costs, just to name a few. It can add thousands to the agent’s final cost. In real money, that 2 percent easily and quickly becomes 4 percent.

In Australia, transactional matters such as buying and selling homes and investment properties are performed by licensed property professionals (agents, solicitors and conveyancers), however, unlike solicitors and conveyancers whose service fee structures are somewhat controlled by state-based regulators, real estate agents do not to follow any such criteria, and may charge whatever they feel their marketplace will bear.

My view will differ to that of most other real estate agents. As an agent, my sellers and vendors engage my skill and experience as a service, where my inherent value can be determined, or at least calculated, based on the campaign and property I intend to represent in the market.

Whether I’m preparing to list a $200,000 one-bedroom unit or an $800,000 four-bedroom home, my service delivery and performance expectations don’t vary. I appraise, market, list, manage, and negotiate deals between buyers and sellers to settlement.

Whether it’s a hot or cool market, I’ve decided to stick with flat-fee pricing as a more simple, fair and transparent way of doing real estate.

The question remains though. If an agent performs a service, but gets remunerated on a biased, valued-based criteria depending how a vendor invests in their property, how is that fair?

And what if the property fails to sell, and gets withdrawn from the market? Sellers and vendors still get a bill. Perhaps the agent misread the market or the demand (and price) for a particular property, or failed to correctly identify their buyer. Ultimately, wasn’t this their role; the reason their vendor engaged their service? How is this not a discussion about the agent’s performance, right?

As I wrote in my opening, commission, like all costs, are negotiable. So, if you’re paying more than your neighbour just because you’ve invested or acquired a property of higher value, then consider the alternative — a flat-fee agent. With no sale, no fee pricing, it’s also a no-brainer.