$675 Per Hour!
In his book Real Estate Without Agents, (Rowley Publications, Sydney 2004 at p.7) respected author and real estate journalist Terry Ryder calculates commission estate agent commissions as being equivalent to an hourly rate of $675!
Ryder’s calculations are based on a commission of $13,500 paid on an average of 20 hours’ work by the commission estate agent. In reality, most properties do not require an investment of anywhere near 20 hours, sending the rate up to a figure in excess of $1,000 per hour.
Effectively, the commission estate agent tells a vendor client, “If you engage me I will make more money for you than I charge you.” This is false.
The truth is that the commission estate agent rarely covers her own costs in a sale transaction. This is because the reasoning applied in the calculation of the commission assumes that the client’s property is worth zero.
No real estate is worth zero. There is always a figure at which a property will sell without any effort whatseover.
EXAMPLE: If a property is worth $300,000 how much assistance would be needed to sell it at a bargain price of $100,000? Would you pay a commission estate agent a commission for achieving such a result? Of course not. This is because you expect the commission estate agent to add something to transaction; you expect the commission estate agent to gain an amount that you could not gain on your own. At what point would you regard the commission estate agent
as having made a difference? The fair and ethical starting point is current market value.
Achieving more than current market value
An honest commission estate agent would acknowledge that there should be no bonus, in the form of a commission, paid just for achieving current market value. This is because no special expertise is required to achieve this figure. A simple fee-for-service would be fair.
A commission my be justified where the commission estate agent achieves a figure that is in excess of the current market value of the property, and this has been achieved solely as the result of professional expertise on the part of the commission estate agent.
The truth is that commission estate agents do not have the negotiating skills, qualifications or expertise to make any real difference to the sale price. In fact, their lack of skills and expertise usually hampers efforts made by the parties’ lawyers in the final stages of sale negotiation.
It should be borne in mind that coaxing more money from a purchaser can be illegal if it is the result of any form of deception or improper conduct, and commission estate agents
have a long history of difficulties in these areas.
Charging on event vs. charging on result
Most people believe that the commission paid to a commission estate agent is payment for a result, but this is quite misleading.
There are good results, and there are bad results; but the commission estate agent
expects payment no matter what the result.
The exclusive sale authority used by estate agents requires the payment of commission in the event of a “sale”. However, it goes on to define a sale as a situation where a purchaser has made an offer, even if the vendor does not accept that offer.