When is an agent entitled to receive commission for a real estate transaction?

In the real estate market, agents play a vital role in facilitating property transactions. These professionals work to bring buyers and sellers together, ensuring a smooth process from start to finish. 

One of the key aspects of an agent's compensation is their commission. The agent's commission can play a pivotal role in their commitment to securing a successful sale at the best possible price.

When are agents entitled to receive commission?

In Australia, agents are entitled to claim their commission upon the completion of a real estate sale. This refers to the point at which:

• All necessary legal obligations have been fulfilled.
• All necessary financial obligations have been fulfilled.
• The ownership of the property is officially transferred from the seller to the buyer.

Typically, the agent is already in possession of the deposit provided by the buyer. On the day of completion, the agent is authorised to release the deposit back to the vendor, deducting the agreed commission amount. 

Agent commission when the sale falls through

When a real estate sale falls through, it can have implications for the agent's commission. The specific outcome depends on the terms and conditions outlined in the agency agreement between the agent and the client. Here are a few scenarios that may occur.

No Commission Payable

In some cases, if the sale falls through before the exchange of contracts or the completion of the transaction, the agency agreement may specify that no commission is payable.

This means that if the sale does not proceed to a certain stage or fails to materialise, the agent is not entitled to receive any commission.

Conditional Commission

The agreement may include provisions for conditional commission payment if the sale falls through. 

For example, the agreement may state that the agent is entitled to a reduced commission or a percentage of the originally agreed-upon commission if the transaction does not reach completion due to specific circumstances, such as a buyer's finance falling through or a failed building inspection.

Unconditional Commission

In some instances, the agency agreement may specify that the agent is entitled to receive the full commission regardless of whether the sale proceeds to completion or not. 

This means that even if the transaction falls through, the agent is still eligible to receive the agreed-upon commission amount. It is important for both the agent and the client to carefully review and negotiate the terms related to commission entitlement in the event of a failed sale.

How much is real estate commission?

The commission that real estate agents charge can vary between states as well as metro and regional areas. In Australia, commission can range anywhere from 1.6% to 4%, averaging a charge around 2% to 2.5% of the sale price of a home. 

Fixed Commission

The fixed commission is the most commonly used method for determining real estate agent commissions. It simply involves multiplying the negotiated commission rate by the sale price to determine the commission amount.

For example, if your home sells for $1000,000 and the agreed commission rate is 1.5%, the commission payable would be $15,000 ($1000,000 x 1.5%).

Tiered Commission

A tiered commission structure is designed to incentivise real estate agents to achieve higher sale prices. It involves setting different commission rates based on performance targets. 

Typically, an agreed target sale price is established, and two commission rates are defined:

• Below the Agreed Sale Price: A lower commission rate is applied if the property sells below the agreed sale price. This rate is usually set at a lower percentage to reflect the expected outcome.
• Above the Agreed Sale Price: A higher commission rate, often referred to as a "commission accelerator," is applied for any portion of the sale price that exceeds the agreed threshold. This higher rate serves as an incentive for the agent to secure a sale price beyond your expectations.

Get a calculation of the commission you could be paying based on your specific area.