Selling property: real estate commission and fees explained

When it comes time to sell your home or investment property, you could be hoping to pocket a juicy profit. But don’t forget to budget for a key cost of selling – real estate commission.

Real estate commission and fees in Australia

When it comes to selling property, you generally have two options: sell it yourself or engage with a professional to help.

If you choose to sell through a real estate agent – as most people do, you can expect to pay for their services, and this is often through a commission based on the price the home sells for.

Different real estate agents structure their commissions in different ways, and on top of this, real estate commissions can vary widely across Australia. So what are some of the most common commission models, and what can you expect to pay?

What percentage fee do real estate agents charge in Australia?

Commissions are essentially the fee you pay your real estate agent for selling your property.  The commission is often based on a percentage of the selling price, but there can also be a number of fixed-fee options.

It’s worth noting that an agent usually also helps with advertising, photography and copywriting to market your property, but these services may be charged on top of the commission.

Across Australia, real estate commissions based on a percentage of the selling price typically range from around 1.6% to 4.0% of the price your property sells for. However, this range is a general guide only as commissions can vary tremendously depending on factors such as the location and value of the property.

The different types of fee structures include:

• Flat fee real estate commission

Some agents may offer a fixed fee commission. A benefit of a fixed fee is that you will know upfront exactly how much you will be paying, and it could work out to be cheaper than paying a commission. The downside is that it can be hard to find an agent that charges a flat fee.

This flat fee could be in the form of a capped commission, where you pay up to a certain amount; or a flat fee no matter the sale price, which may or may not include other fees such as marketing costs. It’s important to note that it’s likely that a flat fee will be in the thousands of dollars. It could be a wise idea to make sure you understand what the terms are of the flat fee, and what happens if the property fails to sell.

• Fixed-percentage fee commission

One of the most basic ways commission is charged is using a fixed-fee structure. This is typically charged as a percentage of the final sale price of the property. When you receive an estimate from a real estate agent, they will generally let you know the approximate amount they believe your property could sell for, along with the percentage they’ll charge in commission (which may or may not include their advertising services).

The benefit of agents charging a commission as a percentage of the sale price is it can act as an incentive for them to fetch the highest price possible for the property. The incentive may not be as high compared to agents working with a tiered structure, but a fixed-percentage fee could work out cheaper if you’re selling a more expensive property.

• Tiered/sliding scale real estate commission

Another common structure for real estate commissions and fees is based on a sliding scale or tier. Essentially, the commission is based on a percentage of the total sale price, with this percentage increasing as the total sale price increases. For example, an agent might charge 2% on properties up to $500,000, 2.5% on properties between $500,000 and $1,000,000, and 3% on properties over $1 million.

Another version of this model you may encounter could be an agent charging a percentage up to a price point, with an additional percentage charged for any dollar over that amount. For example, they may take 2.5% for any sale up to $500,000 and 5% of every dollar over $500,000. Again, additional fees for services such as advertising may or may not be charged on top of this.

Tiered commission rates work like a bonus system for real estate agents. In general, it can incentivise them to work harder to sell your property at a higher price, since it will benefit both of you. You might end up paying more with this structure than the others, especially if your property sells for a high price, though the benefit is the potential to secure a better price for the property, which could outweigh the increased commission.

What should you be paying in real estate commission?

The average real estate commission can vary a fair bit depending on where you live.

The table below shows state-wide average agent commissions. In South Australia for example, you could pay real estate commission averaging 1.99%, or you could pay as much as 2.96% if you’re selling a home in Tasmania.

Bear in mind these figures are not set in stone – commissions vary even within the same state. As a guide, the average commission based on rates charged by agents who used OpenAgent in Queensland, may vary from 2.53% in Brisbane, through to 2.73% in Toowoomba or 2.86% in Townsville.

Average real estate commission and marketing costs

Source: OpenAgent.com.au

Why do real estate commissions vary?

According to OpenAgent.com.au, the differing levels of real estate commissions comes down to a few key factors:

• the area
• the value of your home
• the current state of the property market.

In our state capitals for instance, home owners can usually select from a wide number of real estate agents, all jockeying for your business. This helps to keep commissions down. In rural or regional areas there may be far fewer agents to choose from, and this can give agents scope to charge a higher commission to sell your property.

Other fees you may pay when selling property

There are usually additional expenses involved in selling a property on top of the commission, including marketing costs.

As the table above shows, marketing costs can be as low as a few hundred dollars, or they can add up to $10,000 – potentially more.

It’s important to understand exactly what the real estate commission will cover. Some agents may have mandatory marketing fees, or involve you in the development of their marketing plan and therefore how much it will cost. Some advertising costs could include:

• a ‘for sale’ sign
• online/print real estate listing
• social media marketing
• physical marketing material, such as letters or flyers to neighbours
• open for inspection brochures
• floorplan
• photography
• videography
• staging furniture or props.

The way you sell your home can also shape the costs you pay. Choosing to sell at auction will likely mean paying a separate fee for the auctioneer. While this can involve a flat fee of up to about $1,000, some auctioneers may charge a fee based on a percentage of the sale price of your home.

Other related fees that you might want to consider include home loan discharge fees, conveyancing fees and GST. A discharge fee is the fee charged by lenders for terminating a mortgage, such as when you sell your house and repay the remainder of the loan. This varies depending on the lender, but is typically around $275 to $350.

If you’re choosing the auction route for selling your home, an auctioneer will typically cost between $200 to $1,000, although in some cases their fee may be included as part of the commission you pay your real estate agent. Conveyancing or legal fees will typically cost you another $500 to $2,200, depending on the state or territory you live in and the service provider.

It is a good idea to confirm whether GST is included when you’re given quotes from the real estate agent, auctioneer, conveyancer or solicitor. Also keep in mind that even if your home doesn’t sell, you might still need to pay for marketing and other fees.

Explore further: How much does it cost to sell a house in Australia?

Can I negotiate real estate commissions?

An important thing to note is that real estate commissions are often negotiable. In fact, it is relatively common practice for sellers to negotiate commissions down. This makes it a good idea to ask a number of agents what their costs are – and be prepared to haggle.

Remember, you can only negotiate the commission before the sale. Most of the other fees you’re quoted are often also negotiable, including advertising fees. When you have settled on the fees and costs, make sure that you get everything in writing. This could provide some protection and help ensure you have a clear understanding of what you can expect to pay.

Final words

Selling your home typically comes with a number of different costs, but real estate commission can be one of the most expensive. When you’re planning to sell your property, it could pay to speak with a number of agents and weigh up your options to determine not only what commission structure works best, but also who you believe will achieve the best result.

Cover image source: Gorodenkoff/Shutterstock.com