When it comes to selling property, everyone wants the best price for the lowest possible expense.
But how open to negotiation is your real estate agent likely to be?
In this article a group of experts reveal the pros and cons of haggling on costs and strategies to do it well.
Picture this – you put your property on the market, advertised it, considered offers, negotiated with a buyer and signed a contract.
Settlement day comes and you’re daydreaming about the big, fat cheque that’s on its way.
Then you remember that a chunk of that cash is going to the agent in commission.
They’ve done their job – hopefully well – and deserve to be paid.
But the amount you hand over is open to negotiation… right?
In theory, experts agree it is.
Each state and territory has its own legislation on how the commission should be calculated, held and dispersed.
All allow the seller and agent to negotiate on the amount.
When you’re talking about property, whether it be your home or an investment, it may seem worthwhile to drive a hard bargain.
How Common Is It?
The sale commission paid to an agent depends on the state or territory you’re in, but it’s usually around two to three per cent of the sale price.
It could be higher if marketing or other costs are bundled.
An agent’s fee is often negotiable and some are happy to sit down and work out a deal with the seller, according to author, investment adviser and mortgage broker, Jane Slack-Smith.
The lack of consistency around a standard commission charged is a likely reason that many investors have a crack at negotiating it, she believes.
For those selling a home, it’s their pride and joy, and by far their biggest asset, Yardney explains.
For those with an investment property on the market, it’s a tool designed purely to deliver a return.
For either seller type, he believes it’s natural to want to save on the costs associated and to keep more of the proceeds for themselves.
So, haggling can be common.
But what sort of commissions are we talking?
How much does it cost to sell your property?
Real Estate Institute of Australia president Peter Bushby says the deregulated nature of agent commissions means there’s no one ‘going rate’ and the charges can vary, depending on the property, agency and state of the market.
“(It’s) a free market where it’s up to the parties to establish a workable price for the service,” Bushby says.
Say you’re paying around three per cent of the sale price, which tends to be what most sellers fork out, the amount isn’t very big in the scheme of things.
For a property that goes for $300,000, that’s a commission to the agent of $9,000.
“However, the agent doesn’t get all of this,” Slack-Smith says.
“The actual principal of the agency where they work would get 50 to 70 per cent.”
Is It A Good Idea?
Michael Yardney is fairly definitive when he declares that the cheapest agent is rarely the one that’ll get you the best price for your property.
In fact, he’s certain that’s almost never the case.
But if you’re determined to get a better deal, he suggests negotiating in a respectful manner.
At the end of the day, you need to keep your agent on side and in your corner.
It’s a fine line between bargaining and berating.
It’s important to be realistic.
Keep in mind the agent’s cut of the commission and act fairly.
And be smart, he says.
Even if you’re successful in shaving a bit off the fee, that’s no guarantee of the quality of service you’ll receive, Yardney says.
“Picking an agent based on their commission probably isn’t a good idea.
For one, agents only get paid if they sell your property and they’re driven by incentive and money. If you’re hounding them on cost from the beginning, they might not be motivated to work hard.”
Author and property lecturer Peter Koulizos agrees.
While he has heard stories of sellers successfully negotiating an agent’s commission, he doesn’t do it.
“I believe you should pay a person what they’re worth and I’m more interested in the service that’s being provided.
If they’re going to make an extra effort, having inspections several times a week and upping the opportunities for exposure to the market.
I’m happy to pay them what they think they’re worth.
It’s never wise to overpay for services, he points out, but if you work an agent down too much and they’ve got other listings that’ll deliver a higher pay day, don’t be surprised if yours doesn’t get as much attention.
“Say you save an extra $1,000 on the commission, you have to wonder at what cost. I prefer quality of service.”
While he insists a good agent will work hard to sell a property regardless of the commission, Bushby concedes that someone working for a heavily negotiated fee might not always give their full effort.
Low cost, fixed cost or discounted agencies pop up from time to time, offering a variety of bargain services, however he says few of them last too long.
“You can’t run and sustain a viable business and provide the services required if you continually undersell your services.
Other Areas To Save
While he’s hesitant to sing the virtues of commission negotiation, Yardney says there are some areas where sellers can save.
Marketing is a big one.
Taking your property to market might require dressing it with furniture, having professional photographs taken, producing an eye-catching signboard, shooting a video tour, putting listings on multiple online platforms or taking out a flashy newspaper ad.
All of this can become quite costly fairly quickly.
Talk to your agent about how this amount can be capped, Yardney suggests.
“Maybe they’re willing to bundle some of these services for a fixed price,” he says.
If they’re not willing to put together a package, make sure what you’re shelling out for is in your best interest, he says.
“The collateral and marketing materials should promote your property, not the agent and their business.
If your signboard or advertisement has a big agent headshot or corporate logo on it, talk to them about shrinking it down to give your property more space.”
Agents often charge a retail price for marketing services, despite usually receiving a ‘wholesale’ or bulk discount from providers, Yardney says.
However, Bushby urges caution when trying to negotiate on marketing costs, as he says they’re fixed ‘real costs’ incurred by agents for the seller.
Rather than haggle on costs, a better idea to get the best bang for your buck is to offer incentives for a higher price achieved or a sale contract within a realistic timeframe, according to Koulizos.
Performance incentives can be a good way of motivating and exciting your agent, Bushby agrees.
“You can enhance motivation to get the best price and reward that outcome by adding bonuses to the base commission if the price benchmarks are achieved.”
Finding the Best Agent
While cost is one consideration when picking an agent, it shouldn’t exclusively guide your search.
Sellers should look at ability, history, experience and service.
Here are some points to keep in mind:
- Do your homework, especially if you don’t have contacts you know and trust. Ask around for recommendations, go to open homes and ‘mystery shop’, attend auctions and ask for referrals.
- Put together a shortlist and invite three agents to give a formal appraisal.
- Ask for a detailed list of charges and expense recommendations.
- Find someone you can trust and work well with. Communication is important. Make sure it’s going to be two-way, frank and honest.
- Pick an agent that suits your demographic. A suburb with a predominantly older resident base may respond better to an experienced agent, while a trendy inner-city suburb full of yuppies might gel well with a young, charismatic salesperson.
Editors note: We are republishing this article to help out our newer readers. This article was written by Shannon Malloy and originally published in Australian Property Investor Magazine and has been republished with their permission
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.