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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.

Investing Discussion
Author: Investing Discussion

Founder of Investing Discussion Australia

4 thoughts on “How much is the commission of a Real Estate Agent and is it fair?”

  1. I am not aware of any buyers agent or real estate agent that think like that. For us, it is very important to not only sell those properties and get commissions (of course we want the money), but to also service our clients as best as possible. If we can get a higher price, we do, because this means good reviews and word of mouth. The math says that pushing more for $200 does not make sense. But, in reality, it is not about those $200. It is about the experience and servicing the seller as best as we can.

    Reply
    • Hi Alison! I agree, there is more to business success than the bottom line. Like we said in the article, it doesn’t mean anyone actually thinks or acts like that. This was a bit of an exercise in economics and incentives that can be brought across to other commission-based business interactions.

      Reply
  2. It’s always been like this , zero incentive , crunch the deal though while supposedly working for the vendor .
    Do your own homework you will see this happening constantly , when selling get the property looking really good if you are looking for a premium , really really good , set the price and tell them you are not accepting verbal offers , all offers over figure X are to be brought to you in writing only .
    Do not listen to comments from opens , often these people are not buyers , stick to your guns and hang in there , no payment without result .

    Reply

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