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What is the difference between fixed and tiered commission?

When it comes to commission, home sellers might feel stuck when deciding whether to choose a fixed or a tiered commission structure for the real estate agent that is selling their home. It is important to remember that commission structures may vary according to a number of factors: where in Australia the property is located, what the local market is like and how much commission you are willing to pay.

In terms of commission in the Australian real estate market, there are basically two commission structures that real estate agencies use: fixed and tiered commission.

Fixed commission structures

Fixed commission structures are based on the specific percentage rate that is applicable in the state where the property is located. These rates vary from state to state and even from suburb to suburb. This means that you will have to find out what the average commission rate is from the real estate agent that you use to sell your property. Because real estate commission rates and structures are deregulated in Australia, agencies might also have their own structures in this regard – confirm all these details in initial conversations with prospective agents.

A fixed rate simply means that the percentage of commission an agent will earn on any final sale price is fixed, regardless of the eventual price the property fetches.

Tiered commission structures

Tiered commission structures, sometimes also called negotiated commissions, function as an incentive for the real estate agent assisting with the sale of your property. A tiered commission rate escalates according to the price that the property sells for, and it is important that home sellers negotiate this very thoroughly with real estate agents. In other words: should your property fetch a price that is above a certain amount, the real estate agent will earn more commission according to a sliding scale which is negotiated and decided upon.

Tiered commission is the real estate equivalent of a “bonus” system, and is supposed to function as extra motivation for the real estate agent to get the best price for your home.

Which commission structure should you choose?

Choosing a commission structure depends on a variety of factors, and will differ from seller to seller. If a seller chooses a fixed commission structure, it is easier to budget, as they can estimate the amount of commission that will eventually be paid. Fixed commission is also preferable if you are looking to sell quickly.

Tiered commission means that the real estate agent is more likely to work a little harder to get a higher price, to also make it worth their while in terms of commission. Getting a higher price for property means that it will likely be on the market a bit longer, though.

When deciding on a tiered commission rate, many experts also believe that you are more likely to get a realistic estimate in terms of the selling range of your property from real estate agents. Some agents might propose a higher selling price when vying for your business, but ultimately negotiate a lower price once they have secured you as a client. This is less likely to happen when you opt for a tiered commission rate, as agents will have to reach a certain price in order to earn full commission on the sale.

When deciding on a person to help you sell your property, it is important to have thorough conversations about which commission structure best suits you in your current situation. This will give you a good idea of what kind of commitment you can expect from a real estate agent, as well as how much cash you will have to fork out once the property has been sold. Be open and honest about your financial situation and expectation from the sale of the property, and don’t just go for the cheaper option unless you have to. Most important of all: compare real estate agents and commissions to ensure that you make an informed choice before agreeing to use an agent to help you sell.

 

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