What is an Estate Agent's Sales Commission and how it works?
The Institute of Estate Agents used to publish a recommended tariff, which was reviewed from time to time and was unfortunately outlawed by the Competition Commission as being anti-competitive many years ago.
One can only wonder why the Commission followed this line because it was a recommendation only and, practice showed that tariffs were negotiated all the time – mostly downwards. After the nullification of the recommended tariff (at the time 7%), it remained very negotiable for upmarket properties but actually went sky high for the lower end in some cases.
The recommended tariff, much as it was not enforceable by anyone, did at least give consumers, across the market, an indication of what is considered reasonable.
Jan le Roux, CEO of Leapfrog Property Group is of the opinion that 7% is a fair and equitable amount but, does concede that some sort of sliding scale should apply, and most often does, on more expensive properties. There is a case to be made that, give or take, the same amount of work is required per transaction - hence a minimum fee. However, one should not forget that marketing expenses on high-end properties is far more costly than at the lower-end, although the increase in cost is not directly proportional.
What most people forget is that agents are only paid a success based fee, i.e. sellers only have to pay the commission if an offer to purchase materialises that they are happy to accept. Should they not accept the offer, no commission is payable.
Sellers very often err in thinking that when an agent manages to sell a house in a very short period of time (for 7%), that very little effort went into it. In reality an agent can only make a quick sale like that if they’re experienced, on-the-ball and actively working in their area all year round.
“One should, in conclusion, remember that nobody is legally forced to use the services of an estate agent - much as I advise that one should. It is a totally voluntary choice, and one can only deduce that agents render an invaluable service because consumers are willing to pay them 7% for utilising their services”, believes le Roux.
He goes on to state that the often quoted argument that the purchaser is effectively paying the commission because it is included in the purchase price is, of course, a fallacy. “I am yet to meet a seller who, should he succeed in selling a property privately, sells for less because an agent is not involved!” says le Roux.