what are the types of real estate agent fees

A Guide to Real Estate Agent Fees and Commissions

Real Estate Agent Fees and What You Need to Know

When considering whether to enlist the services of a real estate agent to help them sell their property, many home sellers are concerned about the fees that might come along with this decision.

Many home sellers may be under the impression that they will be giving away a lot of the profit they make on their property in the form of real estate agents’ commission, and opt for selling their property on their own, not knowing that this decision, too, may come with financial consequences that could ultimately exceed the commission they might have paid to a real estate agent.

The services rendered by real estate agents are, ultimately, worth every cent, though. This is what you should know about real estate agent fees.

What are The Different Types of Real Estate Agent Fees?

Real estate agents chiefly charge commission on the sale of a property after that property has been sold, but their fees may also include things like additional marketing fees charged by the agency they are employed by.

Marketing costs charged by a real estate agency might include things like professional photographers who take pictures of your property for listings online and in the print media, sign boards, floor plans and brochures.

Remember to confirm whether any additional marketing costs apply on top of an agent’s commission when interviewing potential candidates to help you sell your property.

Commission

Real estate agents primarily make a living by charging commission on every property they sell. Although many home sellers may consider this an expense, they might do well to rather think of it as an investment of sorts. Real estate agents are seasoned masters of the real estate realm, and spend years gaining the qualifications, expertise and experience that make them the real estate experts that they are.

Paying commission to a real estate agent sets you up to take advantage of their comprehensive knowledge of the property market they do business in, as well as the advice they will have about improvements to a property that might help it to fetch a higher price when the property is sold. Real estate agents will take control of all paperwork and administration on your behalf, while also being an objective party when potential buyers want to negotiate about the price you are asking.

Depending on the agency they work for, real estate agents will charge commission, based on two different commission structures. Defined as a group of sales commission rules that lay out how agents will be compensated for their sales efforts, commission is only paid after a property has been sold, based on the price the home sells for.

Tiered Commission 

Sometimes also called negotiated commissions, tiered commission structures function as an incentive for real estate agents to fetch the highest possible price on the sale of a home. Tiered commission rates escalate according to the price a home fetches, and a real estate agent will earn more commission on the sale according to a sliding scale, which is decided upon during the initial negotiations between the property seller and the real estate agent.

Put simply, tiered commission is the real estate industry’s answer to a “bonus” system, functioning as extra motivation for the real estate agent that is in charge of selling your home. Here is an example.

A real estate agent recommends a selling range of between $830,000 and $880,000 to a seller, charging a commission rate of 1.9%. However, the home seller decides to incentivise the real estate agent by suggesting a tiered commission scale, where commission of 1.75% is paid for a sale price of below $830,000, 1.9% is paid if the sale price is between $830,000 and $860,000, 1.9% commission if the sale price is between $860,000 and $880,000, with 1.9% up to $860,000 and an additional 2.5% commission on anything over $860,000, and 1.9% commission for a sale price of between $880,000 and $900,000, with 1.9% up to $860,000 and an extra 5% on a price that is higher than $860,000.

If the property sells for $890,000, the home seller and the real estate agent both benefit. The home seller sold his property at a price that is higher than the suggested selling range, and the real estate agent earns $930 more than he would, had he been paid the commission rate he initially wanted to charge (1.9% commission on a sale price of $890,000 results in commission of $16,910, but with the additional 5% on the extra $30,000 that the property eventually sold for, the agent earns a total of $17,840).

In your initial discussions about compensation, make sure that you clearly set out and agree upon the sliding scale that will be used to determine an agent’s commission, and keep in mind that deciding to use this commission structure does have the potential of reaping significant financial rewards, although it might also mean that you will be paying a little more commission than you would, had you opted for the flat fee commission structure.

Flat Fee

Also referred to as fixed commission, a flat fee commission structure is exactly what it says. Flat commission rates may vary from state to state, and are based on the specific percentage rate that is applicable in the state where the property is being sold. Different from tiered commission, fixed commission rates mean that the percentage of commission an agent earns on a sale stays the same, no matter what the price is that a property ultimately sells for.

If a real estate agent, for example, recommends a selling range of between $830,000 and $880,000 to a seller, after inspecting their property and establishing what comparable properties sell for. The real estate agent charges 1.9% commission on the final selling price of the property.

If market conditions are favourable to the home seller, and the property sells at a price that is higher than the agent expected, say $890,000, the real estate agent earns $16,910 in commission at a fixed commission rate of 1.9%. The higher selling price of the property means that the commission will now be more than he prepared to pay when negotiating the commission with the real estate agent, but because the price the house fetched is also higher, he will be able to cover the commission costs, and still end up with more cash in hand.

Keep in mind that the average commission rate that is applicable in the state you are selling in isn’t always what a real estate agency will charge. Due to the deregulated nature of real estate commission rates and structures in Australia, agencies might have their own commission structures, which is why it is of cardinal importance to discuss these with your real estate agent in your initial interview with them.

Real Estate Agent Fees Are Negotiable 

Contrary to popular belief, real estate agent fees are negotiable. Before signing the sales authority, make sure that you are happy with the commission structure that you and the real estate agent have agreed upon, and ensure that you have it all in writing.

Keep in mind that cheaper isn’t always better, though: real estate agents work hard for their money, and if they feel they are not being duly compensated for their work, you shouldn’t expect them to go the extra mile for you.

Other Fees That You May Have to Pay

As mentioned earlier in this article, the fees payable to real estate agents may not just include the commission they earn once the property has been sold. Additional advertising and marketing costs will be laid out by your real estate agent before the sales authority is signed, and will also be clearly marked and stipulated as a fee that is charged separately from commission.

Confirm all of these additional fees with your real estate agent, and remember that not all real estate agencies will charge additional fees, just as commission structures and rates might vary from agency to agency.

Save Money By Comparing Multiple Agents

Deciding which real estate agent to use to help you sell your property should not be a rushed decision, but you might also not have time to go from agency to agency, looking for the best deal. In this regard, online agent finders like Perfect Agent are invaluable in getting a number of suggested qualified agents to choose from.

Comparing multiple agents and having comprehensive discussions about commission and other fees beforehand will help you to make an informed decision that also suits your budget.

Conclusion

Real estate fees and commissions come with the decision of using a real estate agent to help you sell your property, and cannot be avoided. However, when considering the benefits of using an agent to help you sell your home, these fees are a small price to pay.

When choosing an agent, it is imperative that you discuss everything related to the fees you will be paying, including the commission structure that will be applicable, and any additional fees that an agency might charge for the marketing and advertisement of your property. Remember, you are at liberty to negotiate these fees before signing the sales authority, which is the binding agreement between you and your real estate agent.

Are you looking for the most reliable agent at the best possible price? Let Perfect Agent recommend a number of qualified and experienced real estate agents that can help you sell quickly. 




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