This article was published on 25 August 2009. Some information may be out of date.

Secrets of real estate agents

Sorry — this is my third column in a row about real estate commissions. It’s just that readers keep responding. Lately it’s been agents or former agents, letting us in on their secrets.

It all started after I suggested house sellers try to restructure agents’ commissions so that, if they sold your house for less than expected they received much less in commission, and if they sold it for more they received much more commission. Currently, the sale price usually makes little difference to the agent’s commission.

Somewhat to my surprise, no agent has written angrily about this. Here are some agents’ comments:

  • “You are so right, the amounts above or below the sale price are negligible from the salesperson’s commission perspective. When I was with the major agencies, this was never discussed — a ‘taboo’ subject. Now I am an independent, I am able to charge what I feel is reasonable and by negotiation.
  • “A part that bugs me (which you did not mention) is GST. Those amounts you noted were exclusive of GST. I am an advocate of advising the total amount including GST.
  • “Sure, theoretically the salesperson does not get this, but it is a direct cost that is glossed over by all agents (except me). It is an out of pocket cost for the vendor (generally), on top of the commission — and the advertising package!
  • “Bottom line, I totally agree with you that the commission is absurd, and it would be great if the general public offered incentives for the sale. I have done this a couple of times and thoroughly enjoyed the experience.”

My response: There we have it, readers — an invitation to negotiate from at least one agent who has faith in his ability. Good on you.

From your letter and the next two, it sounds as if a smaller independent agent might be more flexible.

  • “I was an agent for four years and know how it all works. The agent is the contractor to the real estate agency. The agency never loses. The agent loses commission to the company every time they drop their rate, as the company very rarely negotiates with the agent.

    “There was a mention in your column of agents taking longer to sell their own houses. That amuses me. Only sellers that sign something fast complain. Sellers that wait, get advice, get valuations, and do not put themselves under pressure by buying first and therefore forcing the sale of their own home, do not apply undue pressure to a financial situation that needs a serious mind.

    “It’s the seller’s decision to sign something, and might I suggest they do not simply sign three-month listings in the first place but sign shorter listings. And define the listing contract with advice from their lawyer, instead of just thinking, ‘It’s only an agreement so I will sign it.’. The agreement has the commission rate on it. Wake up.”

Me: Some good tips here. And your emphasis on sellers taking more responsibility is fair enough.

  • “After eight years with Barfoot and Thompson, we set up our own company. Our commission is 1 per cent plus GST, and yes we can make a living out of this. In the UK the rate is 1.5 per cent. The real question may be why is it so high here in the first place.”

Me: Good on you for slashing the usual commission, and showing that it can work. Nevertheless, your commission doesn’t include an incentive for getting a higher price. How about three quarters of 1 per cent up to an agreed price, and 2 per cent after that?

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Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.