If you’re gearing up to sell your home, you’ll likely want to enlist the expertise of a real estate agent or real estate agency. They can assist you as a homeowner in putting your property on the market, getting it noticed, and helping to negotiate the selling price with your eventual buyer.
If this is your first time selling a house, you might be wondering how much assistance from a real estate agent might cost you. We’re here to help you better understand what to expect and guide you through the different types of real estate commissions and fees. Don’t worry, we’ll keep everything “simples”!
There are three main different commission structures within which real estate agents usually operate: fixed percentage commission, tiered/sliding scale commission and flat fee.
Most agents will generally opt for a commission-based remuneration structure over a flat fee; however, if a flat fee is your desired arrangement, you’ll typically not have too much trouble finding a suitable real estate agent.
Let’s look at the differences between these three commission structures to help you decide which one is best for you.
Under a fixed percentage commission arrangement, your real estate agent will receive an agreed-on percentage of your property’s final sale price, payable once the transaction has been settled. These commissions are usually only a few percentage points, typically around 1% to 5% of the property sale price. Agents don’t always opt for a nice round whole number, though. You might see an agent charging 2.5% or 4.2% – you won’t know until you ask!
Fixed percentage rates will vary among the agents who use them based on a number of factors, including their real estate experience, marketing prowess, negotiating skills and sales record. If the property doesn’t sell, the agent generally doesn’t get paid, so choosing to charge a commission means the agent is confident in their ability to find a buyer.
With a tiered or sliding scale commission, your real estate agent receives a larger or smaller percentage of the final sale price, depending on how much the property sells for.
For example, they may charge 2.3% to sell your property for $525,001 to $550,000, 2.4% for sales at $550,001 to $575,000, 2.5% for sales between $575,001 and $600,000 and so on.
Some agents will use a slightly modified version of this arrangement, in which a fixed commission is attached to a target sale price, and then a second rate is applied to the amount over the target price. For example, an agent might charge 2.6% on homes up to $550,000 and then 4% of every dollar past that figure.
As with fixed percentage commissions, agents using a tiered commission structure typically don’t get paid unless they sell the house.
A flat fee structure is very different to real estate commission rates. A flat fee is a fixed dollar amount that you must pay regardless of what your home sells for. Some agents may ask for this flat fee upfront, even if the house doesn’t sell, or charge it at the end once the sale is settled.
For example, rather than charge, a 4% commission on a property’s sale price, an agent charging a flat fee might ask for $30,000 after the property has sold.
This flat fee will typically be based on the target sale price for the property and decided upon after discussion between you and the agent, based on factors including current property prices and market conditions.
Real estate agents may charge additional advertising costs beyond their sale commission based on the selection of marketing services they provide. These can be charged separately upfront at settlement or can be included as part of the agreed-upon commission rate and paid for when the sale is complete.
An agent’s marketing services could include newspaper and/or online listings, professional photography, home staging/styling, creating a floor plan, display boards and more.
The total cost of your property marketing fees (and subsequently your total property selling costs) will depend on the agent you’re working with and how much marketing you’d like them to do on your behalf.
You can typically negotiate commissions with the real estate agent regardless of what type of fee they charge. You should also be involved in any additional marketing budget decisions and only choose what you want, as that can affect the real estate commission fee you pay and how much interest is ultimately generated in your property.
The simple answer is that real estate agents help you sell your house –hopefully for a good price. There’s a lot of work involved in selling a home, such as:
You can find real estate agents by searching online or visiting them in person, but it can take time to decide whom you want to hire to sell your home. An agent with a cheap commission could save you money but might not necessarily get you a good deal. Depending on what they charge, you’ll typically have to pay a more experienced and skilled agent a higher commission fee .
Consider the following when looking for an agent:
It’s a good idea to contact multiple agents for quotes, the same as you would if you were hiring a tradie. Ask them questions about their sales strategy and how they communicate with potential buyers and try to get a feel for the quality of their work before you decide to hire them.
As real estate agents provide a service, their commissions incur Goods and Services Tax (GST), which must be disclosed on any quote provided to a potential customer. Real estate agents cannot charge you separately for the GST component of their commission/fees.
You will usually have to pay an auctioneer fee if you want to sell via an auction. The auctioneer can be the real estate agent you’ve hired, provided they have an auctioneer licence on top of their real estate licence. Alternatively, you can hire an auctioneer separately for the big day.
Auction fees will vary based on the auctioneer. If the real estate agent is also the auctioneer, they may include the auction fee in their final commission. These fees will again vary depending on the individuals you’re working with and their respective experience and skill levels.
While you might have to pay your marketing costs upfront, you’ll typically only pay your real estate agent’s commission at settlement. If your agent works on a flat fee basis, you’ll likely have to pay upfront regardless of whether the house sells or not.
If your real estate agent’s commission is unconditional, it must be paid once the contract for the sale is entered or exchanged. This sounds innocuous, but it could be risky, as if the sale falls through before settlement, you’ll still have to pay the agent’s commission.
This could leave you out of pocket and subsequently set back your plans to sell your current property. For this reason, you may want to do your research on unconditional real estate agent commissions and make your own decision as to whether you’re comfortable taking that risk or not.
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