Agent commission: What am I paying for?
Category Advice
You often feel estate agents get too big a piece of the pie, mainly because you don't know and can't see what the agent is actually doing for commission earned. This sometimes leads you to avoid using an agent when selling your home.
For most people, selling your home is one of the largest property transactions that you will make in your life. Naturally, as a homeowner you want a solid return on this investment. Now that you can list your home for free on various online property platforms or with low fee online agencies, you may well ask why you should pay commission for an estate agent to sell your home for you. The reality is that most people soon find out that there's far more to getting a good price for your home within a reasonable time than just getting it listed online. No wonder most residential properties (over 95%) are still sold by estate agents. That's because very few property owners have success in selling their own property. History has shown that local area agents with a track record of successful sales achieve more sales and higher prices for sellers.
What does an agent do?
The estate agent provides a professional marketing and selling service from start to finish that will result in the best outcome for the buyer. This includes:
Recommending a competitive asking price
To help you price your home competitively, an agent must do a comparative market analysis (CMA) and stay up to date with local, regional and national market trends and news.
Taking care of all admin and documentation
Paperwork is generally drawn up by the agency's attorneys to ensure legal compliance and protection. Besides the sale mandate, this also includes arranging for home inspections and then completing a schedule of specifications as well as a schedule of defects. The agent will advise you of any vital maintenance, clean-up and staging required for viewings.
Developing a marketing plan
The agent lists and markets the property. For this purpose, they take inside and outside photos or arrange for a professional photographer, prepare a listing presentation and take care of all marketing materials (flyers, brochures etc) and activities (including website listings, listing alerts, digital mailers, social media updates etc).
Liaising with buyers
The agent liaises with buyers. This process includes vetting them to ensure they are genuine, sharing information about the property and the area, taking buyers to view the property and hosting show days. The agent negotiates an offer from the buyer, re-engages with counter offers and usually works with a mortgage originator to assist the buyer (if needed) with home loan finance.
Networking
Agents typically network with other agents in their team to ensure the net of buyers is cast as wide as possible. Any shared commission arrangements are taken care of by the agent in the case of a sole mandate.
Staying up to date with new legislation
Real estate is legally complex and legislation constantly changes. Agents keep up to date to ensure that all aspects of their work are compliant so that clients enjoy legal protection.
How much time does this take?
Estate agents typically juggle multiple listings and work with sellers and buyers on an ongoing basis. There's usually a whole team working, so it's not a matter of just the hours the agent spends, it's a 24/7 ongoing operation.
How does commission work?
Most agents work on a commission-only basis. This means if your home doesn't sell, they don't get paid. The commission is usually calculated as a percentage of the selling price, generally between 5. 5% and 7. 5%. You as seller must pay the commission should the property sell within the time frame stipulated in the sales mandate to a buyer who was introduced by the agent. This will apply even if you end the mandate or appoint a new agent.
Advantages of an agent
You will most likely increase your chances of getting a higher selling price. FSBO (for sale by owner) properties often get lower selling prices, sometimes up to 10% lower. An agent's valid Fidelity Fund Certificate will provide legal protection and recourse. This also gives you the assurance that all necessary legal and related admin is properly managed. You will also not have to deal directly with the buyer or any issues. Your property will also be exposed to a much bigger pool of buyers which increases your chances of a sale at a good price.
What to look for
All professional estate agents must be registered with the EAAB (The Estate Agency Affairs Board) and will have a Fidelity Fund Certificate as proof. The best way to determine how good an agent is, is to look at their sales track record as well as client testimonials. A track record of successful sales on sole mandates would be an indicator of a good agent. A good agent will also give you feedback on a regular basis about buyer interest and other issues pertinent to the sale. Such an agent will also undertake price counselling should the feedback from buyers be that the price might be too high.
Getting rid of an agent
Unless it's specifically contracted otherwise, a seller can terminate an agent without incurring any costs, says Frazer. As mentioned though, the agent will still be entitled to commission should the property be sold to a buyer introduced by the agent within the time stipulated in the mandate agreement. There are many agents competing for the mandate to sell your property. You need someone who has your best interest at heart. The following checklist is to ensure you make a good choice.
1. Honesty and transparency
Your agent needs to explain fully all the documents you are signing. Trust your gut. If your "gut" is telling you that something does not feel right or that your agent isn't being fully transparent with you, ask for the contact information of past buyers that the agent has represented.
2. Frequent communication
You need an agent who will stay in touch to keep you updated and is contactable when you need him or her (within reason, i.e., responds in no more than a couple of hours).
3. Business connections
There are many different parties involved in the sale of a property. You need to be confident that your agent can recommend the right people to you based on their established reliability and credibility.
4. Proven track record and success
Meet with a couple of agents and ask about their sales history and success, especially over the past year. Pay attention to how visible an agent is in your area (boards, branded cars, etc) as well as online. How they promote other properties is how they are likely to promote yours. Visit Google My Business to find out what other property owners thought about the service they received.
5. Strong negotiation skills
To receive the best deal possible, you need an agent who is a strong negotiator, without being too pushy or aggressive. How they treat you in trying to win the mandate is how they are likely to treat buyers when trying to close the deal.
6. Professionalism
Expect professionalism. Ask your agent to describe situations where they have gone the extra mile for a client. This will give you insight into what their service standards and levels of professionalism are.
Author: Sunday Times Extracts
