All Topics / General Property / should agents commissions come down?

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  • Profile photo of crashycrashy
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    It occured to me that house price growth has been outperforming wage growth for quite a few years. The only industry benefiting from this is Real Estate agents. House prices have doubled in the last 5-6 yrs and average wage growth is around 10% over that period. Agent commissions are directly linked to house prices which means their wage growth is 10x everyone elses. They have been getting fat at our expense.

    Im using GoGecko to sell my current house, thats $6k vs $12k it would normally cost.

    Why isnt there more negotiation of commissions going on?

    Profile photo of Mikey PMikey P
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    G'Day
    I agree agents fees are way too high if they only sell the property for what it's worth. On the other hand if they sell it for a premium that more than covers their commission everyones on a win. I had this discussion with an agent a few years ago and that's what he said…it made sense to me. I'll pay good agents what they  want (within reason of course), and not so good ones I'll still pay without negioating but I'll never do business with them again. I would sooner not deal with an agent that does negioate their fees…cause I'm employing them to do a job for me. Agents with 5 years + experience who earn huge money are the one's I look for!!!! My opinion only as a reformed (ex) agent circa 1991.
    Mikey P

    Profile photo of Jon ChownJon Chown
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    An interesting comment which on the face of things would seem to make sense.   If only business were that simple, let me pose a few statistics which may change the simplistic view.

    Commission:
    In Queensland the rate set for commission is 5% of the first $18,000 plus 2.5% of the remainder of sale price plus 10% GST.
    Let's ignore the GST as we know who receives this fee.

    So for a $200,000 Property the standard commission would be $5450 of which most agents will receive (lets say) a half or $2725.

    Now for anyone to bother to take on a semi self imployed job on a commission only basis they would want to earn $100,000 at the very least (lets say).   This would mean that they would need to sell 36.6 properties per year (100,000/2725) or approx 3.5 properties per month (36.6/10.5months or 12 months minus 6weeks annual leave and public hollidays).

    So property has doubled and the same property is now worth $400,000 and commission has risen to $10450 or $5225 as the agents share.

    Now assuming everything has stayed the same and the agents annual commission is now $110,000 (10% increase) the agent will only have to sell 21 properties to be at the same level (110,000/5225).

    At the face of it, it would appear that Crashy is correct.   The agent only has to do half of the work. Perhaps they are overpaid.

    There is one other major factor that must be taken into consideration when we look at the viability of a business.  That is Supply and Demand.   Lack of Supply and excessive Demand are the two features that have been the major contributing factor to this huge increase in value and while I can not speak for every area in Australia, I can give accurate information for the area in which I run my business (West End, Brisbane).   The statistics are as follows:-

    In the year 2000 there were a total of 278 Unit sales in my sales area with 11 Agencies (37 sales people) all competing for the listings.   Thats 25.3 sales per office or 7.5 sales per sales agent. (someones not eating).

    In the year 2006 there were a total of 154 Unit sales in the same area – Thats 14 sales per Agency or 4.2 per sales agent.

    So even with commissions doubling, the ability to earn a living has actually become harder and far more competitive.   Lowering commissions without reducing some area of service is a recipe for failure.   If the degree of service is not altered then go for it, but remember the saying, 'Pay peanuts – get monkeys'.

    Jon

    Profile photo of crashycrashy
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    Hi Jon

    your post says to me that there are too many agents. I live on the Redcliffe peninsula in QLD, and there are about 40 agencies servicing a population of about 200,000. Thats one agency per 5000 people. average agents per agency about 5, so thats one agent per thousand people. Tell me thats not CRAZY saturation? Other parts of the country are probably no better.

    Profile photo of Jon ChownJon Chown
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    Hi Crashy,
    On this we agree, there are way too many agents but this is Free Enterprise and part of the reason that we love Australia.

    I can't remember the actual statistics but in Qld there are something like 6000 agents with an annual turnover of around half and an average wage of $30,000.   No wonder we are generally disliked by the Public.   I predict that  it won't be long before you have to have a University degree to be able to sell Property, or you will be required to do a Cadetship under a Licenced agent.

    Jon

    Profile photo of BaspetBaspet
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    crashy I agree with your reason for the post, but if we didn't need REA's they wouldn't be there.  They are a necessary evil the property market has to have to free up time for developers and investors. Sure their rates could be reviewed like anyone else's. I mean I'd like  $100,000p.a. six weeks holidays and public holidays as well, (at the very least). My problem is that for the amount of people that work on a construction site e.g. builders, plumbers, electrician, etc. The percentage of time spent on the project compared to the percentage of wage taken from the property, REA's come out on top. That's my opinion anyway coming from a construction point of view. This is debatable I'm sure on both sides so please don't send any PM's my way. At the end of the day if you can't beat'em join them, become a real estate agent. So to all those REA's out there, doing a great job.  I'll just go back and sit on this fence a bit longer.

    Profile photo of angiepangiep
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     I don't understand why one would use a real estate agent. Selling privately will save you a bundle. All necessary tools are available on the net. One thing I learned quickly was that you don't need to be particular educated to sell your property.

    Do some research on the selling price for your area and use the same strategy the real estate agent use.

    We use GoPrivate.com.au ($1500) and eCommLegal to finalise the settlement ($495)

    Real estate agent quoted us $14300 for the same thing.

    Profile photo of crashycrashy
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    goprivate doesnt seem to do much for you….I listed my property on domain.com.au for $295, the other sites they give you are crap.

    and why pay $495 for settlement when most conveyancers charge $290?

    Profile photo of BaspetBaspet
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    crashy maybe you should list afew steps for selling a property, if people want to try and do it themselves.

    Profile photo of holdencommodoreholdencommodore
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    Anjiep, I'd be interested to know the value of your home. For $14,300, at 2.5%+GST, thats over $520,000. Considering you need a conveyancer or solicitor anyway, let's leave that aside for a second; and lets take the $1,500 that you see as value off the agent's fees, leaving us at $12,800.
    I am yet to see a property worth around 1/2 a million dollars that I can't add over $12,800 worth of value to; whether it be through introducing another genuine competing buyer and letting the competition drive the price up, increased exposure as opposed to small websites only a fraction of the market have ever heard of, or a combination of other factors, including giving the vendor time to do what they do best, and letting us handle their home with inspections etc. There's also a feel from buyers that if you're skimping on selling and advertising costs to sell your most prized possession, what else have you skimped on when there were maintenance issues or other problems while you lived there.
    I don't mind, and selling privately is perfectly justifiable on some properties, but unless you're retired or time is not an issue for you, or your property doesn't have the capacity to potentially draw more than one serious buyer through a marketing campaign, then I certainly question your logic.
    If your house is worth anywhere near the $520k calculated above, then I would put it to you that you may not have interviewed the right agent for your home yet. They can make up their commission and more, which is better than penny-pinching, because it's more of a profit for you!

    Profile photo of okkamooieokkamooie
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    Hey All

    I personally hate paying the agents fee but see it as a necessary evil and if you get a good one as stated above then they should be able to get the fee back for you.

    To quote an example we had a property on the market.  We didn't have much interest for about 4 weeks and would be prepared to take a price 30k less than our list price (we were committed elsewhere).  Then one day we finally got an offer (it was 30k below our list price) and I said we'll take it.  The realestate agent suggested that there was more in the deal and asked if he could see if he could get them up a bit.  With some tooing and froing and about 10 phone calls, we got an extra 10k above what I would have taken, so in essence they paid for their fee.

    The key for me is that the realestage needs to have specific skills, they are the ability to negotiate, understand the buyers motivation and what ability they have to get the price higher, this is why I employ them.  I don't have these skills.  With this said I still ask for discount on commission on selling and have been successful on a number of occasions with this request.

    Don

    Profile photo of Jon ChownJon Chown
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    I wonder if any Agents are laughing (or crying) as many of them ponder the complete lack of commission due to the downturn in property sales.   Anyone still believe that Agents are overpaid?

    Profile photo of EphiphanyEphiphany
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    Has anyone ever heard the saying 'you attract who you are'?  I'm of the belief that most people have a negative attitude towards agents and so that is exactly what you get.  I'm not an agent but I have come across so many RE Agents that are actually fantastic (credible, professional and ethical). 
    Can I suggest that people focus on building professional / strategic relationships with agents in your area and take your focus away from meeting another dead head agent that you don't trust already and have summed up in 5 seconds based on public perception and what others say.  You are looking for poor agents so you will find them.  There are always a handful in an area but focus your effort on building helpful partnerships in your property investing – this will be a big key to your success.
    I have around 12+ agents I deal with monthly that are reliable, pass on good property to me and always treat me with respect.  I also respect them and what they do as I watch them deal with clients in a fair and ethical way. 
    Why do people focus so much time on talking about evil agents and how bad they all are.  If you have had bad experiences in the past – learn from that agent and move on to one that you know you need to deal with to get what you need.  This is one of the main reasons why I think people dont succeed in Real Estate Investing. 
    Here is a vote for speaking more positively about the good agents out there. 

    Profile photo of freya_1970freya_1970
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    i disagree irrespective of the property market, the agent must surely still incur the same fees themselves. consider the cost of advertising a property, time spent in valuations, client showings etc… economic downturn does not mean that an agent should reconsider their fees. does that then mean that the advertiser, printers and other companies the agent uses to help sell a property should be increased?freya

    Profile photo of Scott No MatesScott No Mates
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    To further your point Freya, the agent works harder in a downturn both to secure listings as well as in putting in extra yards to close a sale. Squeezing agents on price is not the way to go (see property market several years ago when offers of holidays,cars and other incentives were common place). Alternatively, consider providing vendor finance or rent guarantees.

    Profile photo of js2js2
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    I seen a flyer in the mail yesterday with a STAND-BY Commission rate of 1.1% and claiming they have dozens of buyers. Limited to just 7 qualifying home-sellers each month.

    So the langauge I interpret the add…the agent is struggling to find home-sellers and also buyers and resorting to try insentives to try intice a buyer & seller to try make a deal. 

    The word qualifying suggests to me that it will probably be selective 'higher' prices property's that are accepted to enjoy the lower commission rate.   

    So get in and negotiate your deal you have a mouth. 

    Profile photo of js2js2
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    I seen a flyer in the mail yesterday with a STAND-BY Commission rate of 1.1% and claiming they have dozens of buyers. Limited to just 7 qualifying home-sellers each month.

    So the langauge I interpret. The agent is struggling to find home-sellers and also buyers and resorting to try insentives to try intice a buyer & seller to try make a deal. 

    The word qualifying suggests to me that it will probably be selective 'higher' priced property's that are accepted to enjoy the lower commission rate.   

    So get in and negotiate your deal you have a mouth. 

    Profile photo of scott8aflscott8afl
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    CRASHY_
    It occured to me that house price growth has been outperforming wage growth for quite a few years. The only industry benefiting from this is Real Estate agents. House prices have doubled in the last 5-6 yrs and average wage growth is around 10% over that period. Agent commissions are directly linked to house prices which means their wage growth is 10x everyone elses. They have been getting fat at our expense.

    Im using GoGecko to sell my current house, thats $6k vs $12k it would normally cost.

    Why isnt there more negotiation of commissions going on?

    Hi all

    I have to tell you, I am a real estate agent in QLD with my own company.

    While you say that we are paid to much this is not the case. in actual fact the real estate industry has never had a "pay rise". so while you ask for a payrise we can not because we are governed by certain laws which prohibit this.

    If your boss came to you and said I want you to do the same work but im going to cut your pay by $10,000 per year would you do it?
    I think not.

    Also you have not thought about the reverse effect.

    House prices drop. your wage remains the same, ours doesnt.

    While you have the option to negotiate your commission that you pay. you have to remember that you get what you pay for.

    I have taken many proerties from GO GECKO simply because the house doesnt get sold because the agent has been lazy and not done their job properly. These atre the best clients to have for me because I know after ive done my job properly they will refer their friends and family to me.

    Profile photo of rukruk
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    I have been a " agent " actually it's sales person on and off for many years, the agent is the owner of the business.

    I agree commissions are too high, but remember it's not always booming, there were 14 years of hard times.

    Things always look greener on the other side of the fence, don't they.

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