Are all real estate agents rich and overpaid?

There is a debate in the world about the usefulness and the alleged obscene amounts of money earned by some professions.

It’s widely acknowledged that real estate agents are not the most trus­ted pro­fes­sions in Australia.

The four professions least trusted in Australia, based on the percentage of Australians (aged 14 and over) who rate sales-related professions as having “very high” or “high” ethics and honesty:

1. Insurance Brokers: 7 %
2. Real Estate Agents: 5 %
3. Advertising People: 4 %
4. Car Salesmen: 3 %

Given stories about gazumping and myths about how real estate agents really do business, it’s easy to see why the public ranks real estate agents so low.

So, are all real estate agents rich and overpaid?

Here’s the truth.

Commission structures for real estate agents

Do you know how real estate agents get paid?

There are two different commission structures for real estate agents - fixed and tiered based - and understanding how these two structures work might give you some insight into how ‘rich’ they really are.

Fixed commission

A fixed commission rate commission is the traditional method when it comes to calculating what real estate agents charge.

It's based on the sale price multiplied by the negotiated commission rate.

For example, if you were to sell a home for $1 million and were charged a commission rate of 1.97% you'd pay $19,700 in commission ($1,000,000 x 1.97% = $19,700).

Tiered Commission

A tiered commission rate is based on performance and is used as a way to encourage real estate agents to get a higher sale price.

You can do this by negotiating a higher commission rate above an agreed sale price, otherwise known as a "commission accelerator".

A seller would typically agree on a target sale price (or what you want the property to sell for), and then agree to 2 different commission rates if the property sells above or below that price.

Here’s an example:

A seller expects a sale price of $830,000.

Rather than a flat 2.5% commission rate, the seller could agree on a lower rate of 2.0% if the property sells for under $830,000 and a higher rate of 6% on everything above $830,000.

This will give the agent a greater incentive to work hard and achieve a price above your expected sale price.

What is the average commission for real estate agents in each Australian state?

Real estate agent commissions in Australia vary from 1.6% to 4% of the total sale price, depending on location and agent competition in that area.

That’s because the simple rule of supply and demand dictates that postcodes with lots of local agents drive competition for your listing.

To get business agents are forced to lower rates to remain competitive while the reserve applies in areas where there are fewer agents.

Comparison service Which Real Estate Agent has a great breakdown of how much real estate agents charge in each state.

Average Real Estate Agent Commission by State:

State	Metro	Regional
Queensland	5% on first $18,000, then 2.5%
New South Wales	1.8–2.5%	2.5–3.5%
Australian Capital Territory	2.5–4%
Victoria	1.6–2.5%	2.5–3.5%
Tasmania	3.25%
Northern Territory	2.55%
South Australia	2–2.75%	2.75–3%
Western Australia	2.44–3.25%

Source: WhichRealestateAgent.Com.Au

Melbourne

The average real estate agent commission in Melbourne is 1.6% to 2.5%.

This increases in regional Victoria because property prices are lower and agents adapt their commission to ensure they earn comparable fees.

Example fee calculation:

If you sold a property in Melbourne for $600,000 and your agent charged a 2% commission, you would pay $12,000 to the agent in commission: 600,000 x .02 = 12,000.

Sydney

Sydney’s average real estate agent commission is 1.8% to 2.5%, only slightly higher than the average in Melbourne.

The reason for such a low average commission is that property prices are higher in Sydney (and in Melbourne) than in other Australian cities. Agents can more easily earn a good commission with a low rate.

Example fee calculation:

If your agent charged a 2.3% commission and your property sold for $750,000, you would need to pay your agent $17,250 in commission: 750,000 x .023 = 17,250.

Brisbane

The average real estate agent commission in Brisbane is structured a little differently from the rest of the country, Which Real Estate Agent claims.

Agents typically charge a 5% commission on the first $18,000 of your property’s sale price and 2.5% for the remainder.

This is a popular structure both in Brisbane and regional Queensland.

Example fee calculation:

A property sale of $535,000 at the above average rates would earn the agent $13,825 in commission:

18,000 x .05 = 900

517,000 x .025 = 12,925

900 + 12,925 = 13,825

ACT

As Australia’s capital city, Canberra has a unique real estate market due to the high number of well-paid public servants and the high level of restrictions on land development.

The low supply–high demand environment has created high property prices and higher average real estate commissions throughout the ACT.

You can expect to pay between 2.5% and 4% in agent commission when selling in Canberra, which is the highest average real estate agent commission in Australia.

Hobart

The REIT has created a scale of fees and commissions that they recommend agents use.

Although not regulated, this guides agents on price and has created a high average real estate agent commission in Hobart and regional areas of 3.25%.

Darwin

In Darwin, the average commission rate is 2.55%.

This is higher than many other Australian cities because Darwin has a smaller population. You can also expect to pay the same average rate in regional NT.

Adelaide

The average agent commission in Adelaide is much lower than in the rest of Australia because prices are much cheaper on average.

In Adelaide, you can pay between 2% and 2.75%, but the higher rate is usually reserved for regional areas, which can go as high as 3%.

Perth

In Perth, the average real estate agent commission is between 2.44% and 3.25%.

This is higher than in more populous cities, like Sydney and Melbourne, because property prices are lower in Perth.

3 types of real estate agents… and their worth

A real estate agent will earn in dir­ect pro­por­tion to the amount of work they put into their job.

Yes, there are a large num­ber of agents who aren’t worth put­ting out if they were on fire; that’s why you need to inter­view a few before you decide who to work with.

Here are the 3 main types.

1. The Good

Just like any­one that is good at their job they are in high demand.

• They have meth­ods, know online/offline mar­ket­ing, sys­tems, and a track record of success.
• You will see their mar­ket­ing and sign boards every­where on a reg­u­lar basis.

Yes, a lot of agents go for price reduc­tions as their only option to sell prop­erty — but not good agents, they know how to do the job prop­erly and they can.

• Price the home cor­rectly in the first place with a clear proven strategy in mind and
• Will find the real reason why the prop­erty isn’t selling (put all B.S. to the side); it’s not always because of the price.

I will agree, that some agents have egos lar­ger than the known uni­verse; they need some inher­ent belief in their own abil­it­ies to be able to get up each day and be told to ‘rack off’ by the next 40 people they speak to and keep com­ing back for more.

2. The Average

It’s the old 80/20 rule. 20% of the agents make 80% of the money.

A good real estate agent will con­tinue to learn and hone their skills over their career: oth­ers will plod along, last­ing maybe a year in a job they were never suited to but were drawn to by the promise of unlim­ited earn­ing capa­city, total work/life free­dom and other shiny con­cepts that can’t be delivered without massive effort and con­stant hard work.

This is why we have a massive influx of Gen Y’s enter­ing the industry, but they are lucky if they make it past the 12-month mark.

We also have one of the highest churn rates of new staff and broken dreams as an industry (there is always fresh meat for the grinder in the real estate industry).

• These agents don’t have a clear plan, meth­ods, they have no idea about online/offline mar­ket­ing, lim­ited sys­tems, and struggle to show a track record of success.

• You will not see their mar­ket­ing and sign boards on a reg­u­lar basis.

3. The bad

When you inter­view these agents they fold eas­ily when you quiz them about their nego­tiation ability.

They will resort quickly to com­mis­sion cut­ting to get your prop­erty listing.

There is an old say­ing “price is only an issue in the absence of value”.

Good agents spend a lot of time and money learn­ing how to negotiate so if an agent can­not nego­ti­ate his or her fee what will they do with the price of your home?

That question is a cause for concern.

These agents are best char­ac­ter­ised by:

• No clear method of nego­ti­ation and resort to com­mis­sion cut­ting to sign you up.
• Lazy and want to belt the price to below the land value.
• Don’t bother with decent sig­nage, then for­get to advert­ise the open house and won­der why no one turns up but uses the excuse of “your price is too high” for the reason the property hasn’t sold.
• Use of par­tic­u­larly bad pho­to­graphy thus tar­geted by buyer agents on the hunt for easy or cheap deals.

How much do real estate agents earn?

Not as much as you’d think.

The truth is that when it comes to how much real estate agents earn, the aver­age agent only makes a mod­est income of $50,741 per year, according to Payscale.

Of course, there is a dif­fer­ence between a real estate agent and a real estate agency, which fuels the myth that indi­vidual Real Estate Agents earn­ing big money for selling a home.

The indi­vidual agent would only earn a por­tion of the com­mis­sion for each sale, with the bal­ance going to his or her agency.

It would be com­mon for an indi­vidual agent to earn a third of the com­mis­sion for the sale, and the bal­ance goes to the agency he or she is work­ing under.

How many hours do real estate agents actu­ally put in?

Just like any self-employed per­son, you will need a pas­sion for what you do, a crazy work ethic, and have some of the same insec­ur­it­ies as real estate agents (no work, no pay).

On a reg­u­lar basis, many of us work 12-hour days, including Sundays.

We some­times work with cli­ents for 2 years or more before mak­ing any money out of the rela­tion­ship, and some we may still be help­ing 3 years down the track without hav­ing done any business.

• Also read:Caveats – The Red Flags of Real Estate
• Also read:Are all real estate agents rich and overpaid?
• Also read:The offer and acceptance process when buying a property
• Also read:How much of your income should you spend on a mortgage?
• Also read:Pre-settlement inspection guide: what to inspect, why and when

Risk vs reward

How many tradespeople would do all the prep work and put everything in place to com­plete the job, hav­ing paid for everything needed to get the job to the start­ing line, only to have to wait per­haps weeks, months or years to real­ise any form of pay­ment, if at all?

And what if, after all that work and out­lay, the whole thing goes pear-shaped and falls over due to some­thing that the real estate agent can’t control?

If a real estate agent clocked in and out each time they worked on a par­tic­u­lar prop­erty, kept a detailed list of asso­ci­ated expenses, and then did the maths from the final com­mis­sion paid over the time taken to earn it, the rate would work out to be close to the min­imum $/hour as defined by the powers that be, in the major­ity of cases.

I want you to ask your­self this: how many people would work with no retainer, no car allow­ance, and every week­end, some nights, sup­ply your own sta­tion­ery, busi­ness cards, etc. and you only get paid if you get the results.

Now that’s not to say that some sales don’t cal­cu­late differently.

Those homes that are lis­ted and sold quickly after only a short rela­tion­ship are obvi­ously far more prof­it­able from that view­point; how­ever, they are the excep­tion, rather than the rule.

Most people take around 6-18 months to sell their home from the moment they get the idea and start check­ing into it until the day the house settles.

So if you work it out, here is the mega com­mis­sion you think a real estate agent earns for a sale.

The com­mis­sion cut up

Let’s say an even $10K for the pur­pose of this exer­cise and we’ll use all the low­est com­mon vari­ables: $10K com­mis­sion for 6 months work (180 days).

Let’s say at 3 hours per day,

3 days per week (just for argument's sake) = 216 hours = $46.30 / hour (approx).

From that, you need to take the Fran­chise Fee (if applic­able) @ 10% = $41.67 / hour and then take out the cut that the agency you work for gets — for an aver­age agent, that’s 50% = $20.84 / hour, maybe a refer­ral fee.

At this stage, we haven’t even taken the taxes, fuel, car, phone, train­ing, and other over­heads yet.

There won’t be many real estate agents retiring to Hawaii anytime soon, on those numbers.

The reason agents are paid so much is the risk; how many people would go to work 10–12 hours a day 6–7 days, and pos­sibly not get paid?

Ser­i­ously think about who would go to work, do their job, be on-call, get dragged away from their fam­ily and then at the end pos­sibly not get paid.

The aver­age agent earns $60-$80k per year, work­ing hours that most would have their uni­ons shut down a workplace if they were forced to do, let alone at the risk of not get­ting paid.

Are real estate agents worth it for sellers?

A good real estate agent earns their fee.

And remember…the cheapest estate agent is the one who gets you the best sale price – not the one who charges the lowest commission.

But what about those top earners?

Suc­cess­ful people earn good money, unsuc­cess­ful people do not.

That is how the free enter­prise sys­tem works, people!

Remem­ber that the skill of a good real estate agent is to get the buyer up in price and negoti­ate the deal.

The aver­age per­son does not have this skill and gets less for their home.

Remember…most people do not sell and buy a large number of houses in their life­time.

For the major­ity, they may sell 1 or 2.

For the most part, sellers are very emo­tional when selling and at times tem­por­ar­ily insane.

There­fore, you need an object­ive party hand­ling the negotiations.

The per­sonal sacrifices

The thing is… real estate agents can be as wealthy or as poor as any­one, but what people for­get is the amount of sac­ri­fice of per­sonal time and energy that goes into suc­cess­ful agents.

To those of you who say they don’t deserve what they earn, I chal­lenge you — agents make the choice to either work their guts out to make the most they can, or they can cruise by and do the bare minimum… therefore earn­ing the min­imum wage.

In today’s world, where even the smal­lest com­mod­it­ies come with huge price tags, most people have to earn as much as they can to sup­port their fam­il­ies and life­styles, but oh boy, does it come at a price.

Leav­ing before 8 am and get­ting home at 9 pm, kids' school events missed, week­ends full of open homes and nego­ti­ation, and that bloody phone that can never be turned off!

Real estate agents “work­ like a dog”.

Do you say they’re always out at lunch?

Most likely it’s a meet­ing with a cli­ent or a nego­ti­ation.

Swan into work whenever they want?

Well sure, they’re mostly out of the office on the road clos­ing deals, doing inspec­tions, or vis­it­ing homes for apprais­als.

Real estate agents live and die by the work they do and abso­lutely deserve what they earn.

They give up a lot to achieve suc­cess, going from abso­lutely noth­ing to a thriv­ing career based on their own hard work and tenacity.

Would you trust your most valu­able asset with an unsuc­cess­ful look­ing real estate agent?

At this stage, you may be ask­ing your­self:

How come real estate agents own expens­ive cars, watches, and offices?

As you prob­ably already realised, agents are all about per­sonal promotion.

To even get an inter­view as an agent, you have to already look the part.

I know many real estate agents who don’t really care about what car they drive, but unfor­tu­nately, we live in a mater­i­al­istic soci­ety.

Sellers make judg­ments whether we like it or not on such things, whether it be sub­con­sciously or consciously.

Because we look suc­cess­ful, people have pre­con­ceived notions that we are liv­ing it up, but in real­ity, it’s all good mar­ket­ing.

I often ask the agents around the office:

How was your week­end?

The usual reply is:

Aaaarrrr I was in the office for most of it.

End of conversation.

So, do I really need a real estate agent to sell my house?

Or can I do it myself?

You may still be think­ing that if someone WANTS to buy a house THEY WILL, and the Real Estate Agent him/herself will have abso­lutely noth­ing to do with that decision!

This is true to some extent, but at what price?

If you think real estate agents are a dying breed and you think you can sell your own prop­erty for top dol­lar, I think you should, but just make sure:

• You don’t hold back on the marketing
• Have a sys­tem of nego­ti­ation to get the best offer
• Flex­ible work hours for buyer meetings
• And do your best not to get emotional

Although there are many own­ers who have the abil­ity to sell their own homes, there are mil­lions of oth­ers who are pet­ri­fied at the very thought.

Here is one example that I have seen a few times.

The “Sale by Owner” vendor has had what he considers to be an excel­lent inspec­tion with Mr and Mrs Jones.

They are mak­ing good buy­ing noises, or so he thinks.

They say:

We will get back to you!

Two days go by and not a word!

What does the private seller do?

Does he phone them?

The thought crosses his mind that if he does that, he might risk appear­ing as an anxious seller!

Does he even have their con­tact details? Does he start to doubt his assumed abil­ity to be able to spot a def­in­ite buy­ing sig­nal?

Hmmm! Maybe this is not as easy as I thought!

A good agent doesn’t have to worry about these things.

He is not embarrassed to phone Mr and Mrs Jones. That is his job!

A good agent is also a damn sight bet­ter in spot­ting buy­ing sig­nals than the aver­age homeowner.

Sellers who get emo­tional dur­ing the selling and the nego­ti­ation pro­cess usu­ally make irre­vers­ible bad decisions (unknow­ingly), that cost them more than an agent would have.

I have seen it almost on a daily basis, and I will admit I made many bad negotiating decisions when I first star­ted.

That’s why good agents spend thou­sands of dol­lars on coach­ing and train­ing and selling sys­tems.

This human ele­ment of selling a prop­erty is why real estate agents will always be needed.