Agents: Pull your heads in about commissions, you’re getting more, not less

GUEST OBSERVATION

A lot is being said about the standard rate of commissions dropping in recent months, where the average fees have dropped by up to 30%. This from an industry average of 2% rates over the sale price of the property to 1.7%. Is it a case of too many “agents spoiling the industry” or simply basic mathematics?

Property Prices

We have seen over the last 12 months double digit figures in the percentile rate of properties increasing in values across major capital cities.

Almost three years of capital growth with alarming figures in prices achieved another bench mark of what is happening in the property market. Some areas such as the outer western suburbs of Sydney ( such as Mount Druitt, Hebersham, Lethbridge Park, Whalan and Bidwil), have witnessed property values increase from $210,000 to $290,000. Valuations and prices sourced from our landlords. 

Now let’s look at the affluent areas making headlines such as; the Inner Western suburbs, Redfern and the North Shore Corridors. These areas that have been exposed to 20% to 35% capital growth in pricing.

Let’s do the maths

Lower priced properties last three years: Three bedroom home 

• $210,000 x 2% = $4,200
• $290,000 x 1.7% = $4930

Higher valued properties sample Dulwich Hill last three years: Two bedroom apartment

• $530,000 x 2% = $10,600
• $640,000 x 1.7% = $10,880

And if we look at median prices:

• 2010 median home values Sydney $633,200 x 2% = $12,664
• Current median figures Sydney $781,000 x 1.7% = $13,277

What does a Vendor get for their commission?

The average time properties currently spend on the market is notably less. There is a push toward auction campaigns that run three to four weeks and the banter from industry 'specialists' is that if the home is on the market for longer than four weeks, the advertising is stale.

Summary

There is an incorrect assumption that agents deserve more for the work they do, and real estate agents need to pull their heads in. In fact, agents are being paid more although the commission rate may reflect a lower figure. Are agents giving any more for their want to earn more in fees? I believe not. If anything the push for vendor paid advertising throughout most major industry training seminars is actually costing vendors more.

There are approximately 53,000 registered real estate agents in NSW alone; an overcrowded industry with fewer experienced agents staying in.

We now have direct competition from mortgage brokers, financial planners and accountants as well as marketing companies assuming the role of the real estate agent when selling new properties.

Most of the industry is bidding for the custom of a reduced footprint of sales in the “secondary stock” space, the mum and dad homes.

EDWIN ALMEIDA is managing partner and licensee-in-charge of Just Think Real Estate.

Note: Edwin happily takes 1.5% commission on properties for certain clients as a commercial decision. Some use both his property management services and sell multiple properties through his business.