Insight into real estate agent’s commissions

Commissions which real estate agents charge have been on the rise even though the role of the traditional real estate agent has changed dramatically in the last 10 years as less work is needed to sell real estate in Australia. This change means selling and leasing real estate is now easier than ever. A result which is due to two distinct factors;

• The first is the push to internet based marketing away from the traditional means including newspaper, magazine, brochures, letter box flyers, and cold calling.
• The second is because of the inbalance between demand and supply for real estate which has resulted in record sales and increased rental returns over the past few years.

In the same time period the percentage of a properties sale price that agents charge as a commission has increased on average from around 1.5% to 2.5%.

To further compound this increase in commissions, property values have increased substantially over this time period meaning the dollar amounts of the percentage of the sale price have increased by the same rate as property values. To illustrate this point further let’s look at an example.

Bondi median property price at the end of 1997 was $315,000 (estimated commission charged 1.5%)

Bondi median property price at the end of 2007 was $585,000 (estimated commission charged 2.5%)

1997 commission $4,725
2007 commission $14,625
Extra $9,900 in commission (or 210% higher)

What does this mean? It is a lot easier for real estate agents to sell property in 2007 than in 1997 but agents are charging much greater commissions to sell property in 2007!

If properties are sold and leased quicker and real estate agents are performing less work to sell and lease properties than 10 years ago, then why has the commission and fees they charged not decreased over the same period time?

The reason is that real estate agents have had it too good for too long and a lack of alternatives in the industry means property owners have no choice but to use real estate agents. Some real estate agents realise that property owners have had enough of exorbitant commissions and have decided to move away from percentage commission based model to a fixed fee commission model. I have seen some agents advertise a fixed fee of $5,999 or $4,999 to sell your property, which is quite a discount on the usual $15,000 commission on a $500,000 property. Other agents have taken it a step further and are now offering agent assisted sales where in conjunction with help from the property owner both parties are working together to sell the property, meaning commission to the agent is dramatically reduced.

Further good news for property owners is that complimenting the increased use of the internet to sell property has seen the emergence of many For Sale by Owner (FSBO) and Do it Yourself (DIY) property sales websites. Some are Mickey Mouse operations while others have some merit to their business structure and how they operate.