How much commission should you be paying your NSW real estate agent?
Unfortunately there is no short answer to that question - in fact a ‘standard’ real estate agent commission does not exist. The good news is that you are welcome to negotiate what commission you pay.
In terms of legal regulations, there is no legislation in NSW that governs what real estate agents charge to sell your property. The rate you pay depends on a number of factors including your location, the value of your property, the current market and the real estate agent you are dealing with.
At the end of the day the market - simple supply and demand - dictates what you pay an agent. And if you want a sense of what you could pay, the national average is around 2% to 2.5% of the sale price of your home - with a low of 1.6% and a high of 4%.
Commissions makes a big difference
In real terms, what commission you pay makes a big difference - in fact it is the largest single cost associated with a property sale. Let’s take a look at two examples:
- A property sold in Bondi for $1 million - where the average agent commission rate is 1.89% - would attract a commission of $18,900
- A property sold in rural Orange for $1 million - where the average agent commission rate is 3% - would attract a commission of $30,000
Here are some of the factors that could influence the commission rate:
What’s included in the rate?
The rates or commission a real estate agent charges varies, with some including advertising and marketing costs in their commission structure, while others break these costs out and charge you separately for them.
The type of property
If you have an unusual property or one that is only going to appeal to a small subset of buyers your agent is going to have work harder to sell it, so are likely to charge you more for their time and efforts.
The value of your property
If you have a comparatively expensive property agents may be prepared to take a smaller cut, and be willing to accept a lower commission rate - simply because that fee is still a great days work for them.
The commission real estate agents charge in NSW varies quite widely depending on where you live. If you live in Sydney metro - where there are lots of agents competing for your business - you can expect to be charged a lot less than a country postcode.
As an example the average agent commission rate for inner city Redfern is 1.97% - based on a fixed commission rate. Contrast this with rural Broken Hill where the average agent commission rate is 3.20%.
The supply and demand of agents
The simple rule of supply and demand dictates that postcodes with lots of local agents drives competition for your listing. To get business they are forced to lower their rates. The reverse applies in rural areas, where fewer agents mean there is less competition for listings, which results in higher commissions.
Quality of the agent
How do you know an agent is any good? By their track record of course - so look for recent sales of properties similar to yours. Some agents are great at selling one type of property and make it their speciality. Others are more flexible and understand the best way to sell a particular property.
Sometimes, it is not so much about what an agent charges you, but more about what it could cost you if you get the wrong agent to sell what is likely to be your most valuable possession.
Experienced agent vs newbie
There is no doubt that experience counts, but it doesn’t always work in your favour. Experienced agents may have sold more properties than a newbie, but their commission rate is more likely to be higher.
Newer agents, on the other hand, will be looking to get as many listings as possible, so they may be prepared to negotiate a lower commission rate with you. Even though they have less experience in your area, you could save thousands by using them to handle your sale.
Understanding commission structure
Be aware that there are two main commission structures agents work to: fixed and tiered. Fixed is very straightforward - you multiply your sale price by the commission rate.
The incentive-based or tier-based commission structure is performance based - and motivates the agent to put more effort into getting a higher sale price for your property. You would then pay a higher rate on anything they get over a set price.
Fine tune your negotiation skills
If you want to get the lowest possible fee, you have to fine tune your negotiating skills. It's worth speaking to a few different local agents to see how flexible they are. You might be willing to pay a slightly higher commission if they have a proven track record of selling above market rate.
Also find out what is included in their commission rate. Some agents include marketing and advertising in their overall commission rate - while others don’t.