ALL YOU NEED TO KNOW ABOUT THE REAL ESTATE AGENT’S COMMISSION

If you ever decide to sell your property some day, you will have to ask yourself questions like – how much will the house cost? How much will the real estate agent charge? And how will I pay? This helps you figure out if you’re going to make profit (or loss) when you list your home for sale in the open house market.

When you hire the services of a real estate agent to help you sell your home, they charge you a percentage of the selling price as commission. The rates differ from country to country, and even between cities. While some areas regulated, others aren’t.

So before buying or selling your home, here’s all you need to know about the real estate agent’s commission.

Can These Commission Rates be Negotiated?

Yes. In as much as some countries regulate and companies fix a particular commission rate, you can actually negotiate with an estate agent and reach an agreement before proceeding to hire their services. If their charges are higher than you can afford, you either consider other agents or you negotiate until you’re comfortable. Carry out your research and make sure you have an idea of how much you’re paying before signing any contract.

Does the Commission include Advertisement Costs?

While most contracts include listing and marketing, others are just about real estate agent finding you a buyer at their own pace. Whatever the case, negotiate with your agent and agree on what the commission covers. There’s no need to be paying high fees for advertising when you aren’t in a rush to close a deal. However, there are different types of commission, and it’s wise to know which fees to pay (or avoid).

The Types of Commission

There are two types of real estate agent commission: the Tiered commission and the Fixed Commission.

The Tiered commission is one that changes based on the selling price of the property. Most agents actually prefer this because the higher the amount to be paid for the property, the higher their commission. This also motivates them to search for potential buyers that are willing to pay a lot of money to own a house in that particular location. If your home is worth £300,000, for example, you and your real estate agent can agree on a 2% commission – and 6% if they sell above the price. This will prompt the agent to look for a buyer who will offer the best price. The downside to this is that it will take sometime, especially as buyers also research and try to save.

On the other hand, a flat percentage of a property’s selling price which is paid to the real estate agent is called a Fixed commission – and as the name stipulates, it doesn’t change. In most cases, this commission is set and regulated by a body. If your sellers from your locality pay real estate agents 6% of their home’s selling price, for instance, you will pay the same, whether your house is worth £100,000 or £500,000. It has a way of making sales faster, but some agents won’t be encouraged to find buyers because there’s no extra profit.

What Happens When there’s a Delay in Sale?

If nobody has an interest in buying your home, it tends to stay longer in the house market. If the cost of marketing is included in the commission you’re paying then you won’t be compelled to pay any extra for it, but if you want advertisement in a wider market, you can pay a fee for that. This helps attract more buyers for your property. In any case, be sure of what you’re paying for.

Real Estate Commissions of Different Countries

Real estate agents in some countries like the United States of America, Mexico, and Russia make a lot more than their counterparts in other parts of the world. There are places where start-up companies try to lower commission rates in order to make sales and help sellers, while the governments of other cities regulate and fix a percentage that cannot be exceeded. As of 2016, these were the commission percentages of some countries:

United States – 5.5%; United Kingdom – 1.5%; Argentina – 5%; Japan – 6%; Israel – 4%; Canada – 3%; Greece – 4%; France – 5%; Spain – 5%; Australia – 2%; Finland – 2%; China and Hong Kong – 2%; Sweden – 1.5%; Malaysia – 2%; Norway – 1.75%; Italy – 5%; Germany – 4%; Thailand – 4%; Brazil – 5%; Philippines – 4%; and so many others.

Most countries in Africa, parts of the Middle East, and Europe do not have fixed commission rates. While there are other countries with fixed rates, they may also include conveyancing costs, land registers, and stamp duty fees to the commission. France is one of these countries.

Generally, most countries fix commission rates based on demand and supply. This means that in areas where demand for property is high, real estate agents tend to get higher commission when compared with areas where demand and availability is low. In Australia, for example, the government has deregulated commission rates. Therefore, you can negotiate the percentage taken by the estate agent to a rate you both can agree on – especially if your property is likely to sell at a high price.

How Real Estate Agents Work For their Commission

In as much as it takes time and effort to sell your home, it must not always be a stressful process. There are sellers that even make massive profit from one transaction. But if you want to close a successful deal, you will need to really make up your mind to sell, understand the procedures, research, and get a real estate agent you’re comfortable with.

It isn’t mandatory for you to go through a real estate agent when you want to sell your home, but all in all, they may do it a lot faster and you’re likely to make more money than you would have if you decided to sell on your own. This is because they have more experience in the real estate market and can easily come up with property valuations that show the worth of your home. They are also good negotiators, they can deal with any liens on your property, and even save you from gazumping.

As for the commission you pay them for selling your home, it’s usually split between them, the buyer’s agent and the companies they represent. There are quite a number of factors that influence this – from market conditions, customs of the area where the home is located, and the selling price of properties in that location, to whether a seller even wants to deal with a buyer’s estate agent. It’s worth noting that some real estate agents are willing to forego a part of the percentage due to them if it starts taking too long for your home to get off the house market.

Generally, the buyer’s and seller’s real estate agents split the commission 50/50. That means if your home is to be sold for £200,000 and you’re paying 6% as real estate commission, both estate agents will get £6,000 each. Their companies may take some share for overheads and marketing costs, leaving the agent with about half of that as salary. In some cases, the estate agent might have been assisted by other experts in staging the house. If they get a portion of the pay, the estate agent will be left with just about 1% of the total selling price of that property. This is one of the reasons most real estate agents prefer the Tiered commission.

Who Really Pays the Real Estate Agents’ Commission?

Since the commission is part of the selling price of a property, it’s only right to say that the buyer pays the real estate agent. But another school of thought will argue that the money paid to the seller is where the commission is taken from, so the seller indirectly pays the estate agents. However, if the seller doesn’t sign an agreement to pay any commission or doesn’t wish to transact business with the buyer’s estate agent, the buyer either pays the commission to their real estate agent, or the selling price of the property will be lowered – in some cases. But keep in mind that most buyers get put off when a seller is unrepresented, because they try to avoid any likelihood of a scam or gazumping.

If you wish to get a discount, however, do not start a conversation with a real estate agent by putting that first. But if they offer you a discount regardless, carry out your research before jumping into their arms. Look around your locality and verify how much estate agents charge and if advertising fees are included.

Learn how to negotiate and interview all potential real estate agents you wish to hire till you find one you are comfortable with. Also be sure of the market value of your property before signing any contracts. If possible, also consult a real estate attorney to advise you on what to do and what not to do. Never be too desperate to sell or close a deal. With this breakdown of all you need to know about the real estate commission, you can broker good deals.

Published on 31st October 2017

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