Real estate agent fees

Understanding real estate agent fees and commission

The two key agent costs to budget for are their fees and commission.

Generally, real estate agent fees are designed to cover their costs for advertising and marketing your property. Since not all real estate agents include marketing and advertising costs in their commission structure, it's smart to prepare for these costs separately in your calculations when budgeting for the sale of your property. This can include street signage, online and print advertising as well as flyers and brochures. 

There is no such thing as an average real estate fee, rather the recommended budget for advertising and marketing is typically between 0.5% to 1% of your home’s value.

In practical terms, and based on the current median Australian dwelling value of $537,506, you would be spending anywhere from $2,687 to $5,375 on real estate advertising and marketing. This is to ensure enough people see your listing and you get the highest possible price for your property.

The real estate agent commission is a percentage of the sale price in exchange for selling your property. Commission rates aren't regulated and are actually set by individual agents; therefore, a rate can vary from suburb to suburb and state to state - depending on the agent and state of the local housing market.

The average commission real estate agents charge varies between states, metro and regional areas – and ranges from about 1.6% to 4%. Across the country the average charge is around 2% to 2.5% of the sale price of your home, or from $10,000 to $12,500 when selling a $500,000 house.

Factors that influence the commission rate an agent charges include:

• If advertising and marketing costs are bundled into their commission structure, or charged separately 
• The type of property, with more unusual properties typically attracting a higher commission 
• The value of your property, where agents are often prepared to charge a smaller commission for a high end property
• Location, with commissions varying quite widely depending between metro and regional/rural postcodes

Want to know what real estate agents charge where you live? Use our Real Estate Commission Calculator to estimate how much commission you'd be paying on the sale of your property.

We've collected the commissions from real estate agents right across Australia to work out the average commission rate for each suburb. Use our commissions calculator to work out what that means in real dollars based on your expected sale price.

Fixed vs. tiered commission

There are two main options when it comes to real estate agent commissions: fixed and tiered.

Fixed commission is the traditional method when it comes to calculating what real estate agents charge. It's based on the sale price multiplied by the negotiated commission rate.

For example, if you were to sell a home for $800,000 and were charged a commission rate of 1.97% you'd pay $15,760 in commission ($800,000 x 1.97% = $15,760).

A tiered commission rate is based on performance, and is used as a way to encourage real estate agents to get a higher sale price. How? With a higher commission rate above an agreed sale price. This is also known in the trade as a "commission accelerator".

First, you and your agent need to agree on a target sale price (usually close to what you expect your property to sell for). Then, define 2 different commission rates:

• One if the property sells under the agreed sale price (usually low)
• One if the property sells above the agreed sale price (usually high)

For example, let’s say you expect a sale price of $830,000. Rather than going for a flat 2.5% commission rate, you could agree on paying a lower rate of 2.0% under $830,000 and a higher rate of 6% on everything above $830,000. This will give the agent a greater incentive to work hard and achieve a price above your expected sale price.

How much commission does a real estate agent make?

As we have seen, real estate agents charge commissions of anywhere from 1.6% to 4% of the sale price of your property, depending on where you live and the forces that influence your local market. Do the math and you would assume that agents are rolling in cash.

The reality is, when an agent works for a principal or real estate agency, they don’t take the whole cut. The commission gets split and shared between the parties, so they actually make less than one would typically think. Add in franchise fees from agencies on top of this, and agents make even less - something to bear in mind when you begin negotiating fees and commission with your real estate agent. 

Another factor to consider is the condition of the market. When markets are slower, commission rates tend to be higher as there are less properties to list for sale and it often takes much longer to sell - especially in regional areas. Not only does this mean agents find less business in slower markets, but it also means they have to work harder for you in order to achieve the positive results that come with an active market.

Real estate agent fees and negotiation

What's important to remember from all this is that commission structures are flexible. In fact, it's common to negotiate, especially since there is no longer any legal regulation of commission percentages for the real estate industry.

For this reason, it's important to ask potential agents all about their commission structure when you first interview them, or when you have OpenAgent pre-screen them for you. Then you can compare apples with apples when deciding on the right agent.

Negotiating fees with agents

Once you've researched and shortlisted potential agents it's worth speaking to a few different local agents to see how flexible they are on their fees and commission. 

If you want to get the lowest possible commission you will have to fine tune your negotiating skills - and remember that everything is negotiable! With this in mind here are our top tips for negotiating fees and getting the right agent on board.

1. Ask each agent what their commission is, and don't be shy – let them know you'll be comparing them against one another. This way you might be able to get an agent you like more to "price match" against a competitor.
2. If you want a record price for your house, don't expect an agent to drop their fee. Record prices require much more work, and you'll obviously have to pay a premium on it.
3. Consider asking for a sliding scale rate structure (like the tiered commission discussed earlier). The idea is to incentivise the agent to secure you a better selling price.
4. Don't just settle for the agent with the cheapest commission. More often than not you get what you pay for.
5. To make sure you're comparing like with like, include the advertising fees in your cost estimates, since they may or may not be included in an agent's quoted commission.
6. Don't forget that if own a high-end or luxury property, you can probably negotiate with the agent on a lower commission rate.
7. When it comes to negotiations don't be shy – haggle on all the fees and costs. Of course the agents won't tell you this, but everything is negotiable.
8. Lastly, make sure you get all fees and costs in writing from the word go. That way you won't be left high and dry when it comes to selling time.

Are cheap agents worth it?

It may be tempting to go with the agent who charges a lower commission, but will they be able to get you the best possible sale price? 

Newer agents will be looking to get as many listings as possible, so 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. 

On the other hand, experienced agents may have sold more properties than a newcomer. Although their commission rate is likely to be higher, they have the know-how to achieve a better sale price for your home and get you more money in your pocket; especially if they have a proven track record of selling above market rate. Hence it's usually well worth the money to go with an agent who will work hard for you and has a proven sales record of delivering.

Ultimately we think you should pay your agent what they’re worth and focus on their performance and the service they provide, rather than just their fees and commission.

How do you know if an agent is any good?

It can be tricky choosing a real estate agent. How do you know they are any good? 

Their sales track record is a great indication of their ability. Ideally look for a local agent who has sold 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 local market really well.

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 your most valuable possession.

You can also use our platform to research agents and produce a tailored agent shortlist. Our unbiased agent selection uses millions of data points to find agents with experience selling properties just like yours. This includes support on hand, when you need it - like recommending additional agents or advice on how to negotiate commissions.

Marketing and advertising fees and costs

Not sure where exactly all your money is going when it comes to real estate agents fees?

Fees vary from state to state and also from agency to agency, but the bulk of these go toward marketing and advertising your property, specifically:

• Real estate photography
• Creating a property floor plan and listing description
• A 'For sale' signboard
• Open inspection brochures
• An online property listing
• A print property listing
• Auctioneers fees, if you choose this sale option

When selling your home, it's a good idea to ask your agent for a breakdown of the costs for your property marketing plan. Each agency may have its own special deals with suppliers such as photographers, copywriters and different advertising websites. 

Like agent commissions, advertising costs are also not set in stone and can sometimes be negotiated with the agent. In addition, it is possible to pay for your marketing costs as they are incurred or to ask to have them built into the agent's fee, which doesn't need to be paid until the property is sold. However, it's important to keep in mind that you're required to pay these costs whether or not your property sells.

Additional fees and costs to budget for

Here are some final tips on costs you'll need to factor in, to help you budget and choose the right real estate agent to sell your property. It's a good idea to understand all of these potential costs so there are no nasty surprises as you go!

Unconditional commission

It's common for a real estate contract to state that the commission payable is unconditional once the sale is complete, which is when contracts have been exchanged. This means that you will be liable for the commission even if the sale falls through prior to settlement, so it's recommended that the buyer's deposit is at least the figure of your agent's commission so you don't end up out of pocket.

You should also have your solicitor review all agent contracts prior to signing to ensure the clauses stated are reasonable.

GST

A GST figure of 10% is required for all real estate transactions, and this will be in addition to any real estate agent commission charged.

Auctioneer fees

Selling your property at auction requires paying an auctioneer's fee. Because most real estate agents are not registered auctioneers, this cost is most often considered as separate to your real estate agent's fees.

Pre-sale repairs and renovations

Even if you're not planning on doing major renovations before you sell, you should put aside some of your budget for small touch-ups and pre-sale repairs to ensure your property is presented at its best.

Here the focus needs be on cost effective, cosmetic jobs that have a big visual impact, but are easy on the wallet. You should also limit any structural works unless they are crucial to help sell the property.

Some popular and effective pre-sale repairs and renovations include:

• Painting indoors and out, as well as trims
• Changing door/cupboard handles and taps
• Mowing the lawn and tidying up your garden
• Upgrading or replacing flooring
• Cleaning guttering and downpipes
• High pressure washing driveways, paving and paths

All this can help to impress potential buyers and get the sale price you want.

Other selling costs to consider

In addition to the fees an agent might charge you, there are a few other costs in selling your home that you need to be aware of.

Conveyancer or solicitor fees

There is a lot of paperwork involved in a property transaction, so don't forget to budget for conveyancer's or solicitors fees.

Mortgage discharge fees

If you are discharging your current mortgage there is likely to be a cost associated with this.

Bills, rates and taxes

Don’t forget to budget for all the outstanding bills, rates and taxes after you settle - some of which will come through weeks after you have moved out. 

Hidden costs

There are also a whole host of ‘hidden’ pre and post sale costs you may not have even thought of. These include home staging, house cleaning, removalists fees and any repairs and renovations to get the property looking its best. 

Moving

Once you sell your home you naturally have to move out, so you should always include the cost of moving all your furniture and belongings into your budget.