As you explore selling your home, you may be wondering how much a real estate agent charges in commission. Is there a national standard or do fees and commissions vary by state? Are there differences between commissions in the capital cities? Does any law govern what a real estate agent can charge? Are commissions higher in some locations than in others? What types of commissions are there? Is there more than one? All of the answers to these questions are relative to your area, your particular house, and your agent. Most of it comes down to the common denominator in any market situation: supply versus demand. Fees and commissions vary according to the circumstances of the client. We explore the nature of real estate agent commissions and the factors that govern them. An understanding of how the commission structure works creates a better-informed buyer and seller.
Fees & Commission Rates in Australia
Australia does not regulate the rates of fees and commissions of real estate agents. Fees and commissions are determined by the market. As such, they differ from state to state and city to city. Nevertheless, while there is no standard, there tends to be an average rate. This can differ from a low of 1.6% to a high of around 4%. However, this is more of a general guideline and is subject to ancillary factors. For instance, some real estate agents might include the “fees” in their commission. These account for things like advertising, home staging, and general office costs. Marketing and advertising might constitute a separate fee from the sales commission. It is wise to sort that out first to make sure you budget for it. Otherwise, those costs are absorbed into the commission, which will be higher as a consequence.
Other determinants will make a difference to the size of the commission. These come down to the principle we’ve already mentioned: supply and demand. In an area that has fewer real estate agents handling more listings, the commission charged is likely to be higher. The workload of real estate agents is heavier and given their relative scarcity, they can charge a higher rate. This can mean that in a less affluent area or a regional area, you will find their commission is higher. For instance, in Sydney, the rate might be 2.1%, while outside of Sydney, in Orange, you could pay 3%. That will mean a bigger bite out of a smaller sales price, but in this case, supply and demand work in the favour of the real estate agent. In the next section, we compare properties in two different states, subject to alternate average commission rates.
Real Estate Commissions By Average
As we’ve stated, there is no standard for real estate agent commissions, only an average. The market determines the ultimate cost through the division of fees and commissions. Yet, working with the average rule of 1.6% to 4%, we can examine how these fees break down in two different states. One is a median-priced home in Sydney and the other is in Victoria. The property in Sylvania, in Sydney’s south, sells for an average of $1.7 million. Let’s say the average commission is 2.5%. This means that you would pay a commission of $42,500. Out of 1.7 million, you would have $1,657,500 leftover to spend on Uber rides. On the other hand, in Ballarat, the median price for a home is around $760,000. We will use a lower average real estate commission of 1.6%. This equals $12,160 in commission and fees, leaving $747,840 remaining.
Different states, different regions, a small difference in percentage, but a big difference in commissions. However, in sales as well. You can tell right away that there is a value variance between the states as well as the cities and regions. For a rough idea of commission rates by state, click on the following links: Bear in mind that commissions and fees do change each year and are subject to other factors. And we repeat, there is no standard. Again, this is just to offer examples.
The Difference Between Fees & Commissions
Fees and commissions are not necessarily the same thing, and it’s important to know when they’re calculated uniquely. Fees are the costs that the real estate agent outlays for the sale of your property. Signage, photographs, home staging, flyers, and brochures must all be paid for. Likewise, costs incurred in the sale of the property, such as mobile talk time, online conferencing, and luncheon meetings, will also require remunerating. The real estate agent might not itemise these costs but bundle them as a percentage on top of their commission. Again, there is no standard rate of fees. However, it is likely they will run from 0.5% to 1% of your home’s value. The commission is the percentage of the sale price of your house that the agent receives for selling your property. As we’ve highlighted, this will depend on where you live, your property, and the state of the market.
A real estate agent may use one of two main options for structuring their commission: fixed or tiered commission. We have previously described the fixed commission. This is the total calculated at a negotiated percentage rate from the total value of the sale of your property. Meanwhile, a tiered commission rate is based on the performance of the real estate agent. It is designed as an incentive-based approach to ensure that the agent achieves the highest sales price for your home. Known as the “commission accelerator,” an agreement is struck whereby two commission rates may apply. If the house sells under the agreed sales price, the commission is low. Yet, if the agent achieves a higher than expected outcome, the commission is high. This could mean that if they do exceptionally well, you agree to pay them 6% of the total sales price.
Fees & Commissions Are a Matter Of Negotiation
Everything in business is subject to negotiation. Because there is no set charge or commission in real estate, these can be negotiated. This is why it is important to investigate prospective real estate agents and interview them over their fee structures. It begins with comparing real estate agents and finding the one that suits you. Perfect Agent offers the ideal screening service to allow you to make these essential comparisons. Once you have narrowed down your choices, you need to test their flexibility over fees. Bear in mind what you have to negotiate with and what you are asking. If you are aiming for a high sales price, you can’t expect them to drop their fees too low. Equally, if your property isn’t the greatest on the market, be flexible. But beware of agents that take the cheapest commission. As the adage goes, you get what you pay for.
There are no regulatory requirements regarding the fees and commissions that a real estate agent may charge. However, there are averages. These are contingent upon shifting market factors. The Commission averages contrast from state to state. Similarly, they change depending on the city and region. Sometimes the fluctuations are higher, sometimes they are lower. However, in the end, it boils down to negotiating the commission that best suits your strategy. Taking all the variables into consideration, both you and your chosen real estate agent need to be flexible. Of course, the key to the whole business is meeting the perfect real estate agent for you. If you need help getting in touch with the ideal agent, contact Perfect Agent.