Property sellers are warned to be wary of estate agents who promise a higher price based on hot air and a lower commission once the home is sold.
According to Grant Gavin, broker and owner of RE/MAX Panache in Durban, commission will hardly be questioned if the seller believes they received a fantastic service from a professional agent as these agents are worth their weight in gold in this current market.
Estate agents who spoke to Property24 say there is always a lot of focus on estate agents' commissions when the focus really should be on the professionalism that the property seller gets from the estate agent they employ to sell their home.
They say sellers should make use of estate agents who are registered with the Estate Agency Affairs Board (EAAB) and they believe no commission should be paid out by a conveyancer unless a proper registration certificate is produced.
According to Grant Gavin, broker and owner of RE/MAX Panache in Durban, commission will hardly be questioned if the seller believes they received a fantastic service from a professional agent as these agents are worth their weight in gold in this current market.
Benhard Wiese, principal agent at Cape Coastal Homes says South African estate agents (sales agents) do not earn a fixed income and work only for commission.
There are a few exceptions such as when estate agents sell development property.
Estate agents may be paid a fixed monthly income to compensate their loss of income due to being taken away from where they have been selling for an extended period as the development needs to be marketed and developed before any sales can take place.
Mike Spencer of Platinum Global says there is no fixed estate agent commission, it is by agreement or custom.
What is an estate agent's sales commission?
Wiese describes estate agents' commission as being negotiable. The EAAB does not prescribe a fixed or specific amount as would be the case with attorneys for their time and services rendered when a property is being transferred.
“The conveyancer who effects the property transfer into the buyer’s name acts as a gatekeeper and only pays out commission to the estate agent after the registration of the property at the Deeds Office.”
He says the seller and the estate agent will then receive the purchase price and commission on the same day once the conveyancer has reconciled the transfer account.
Spencer adds that some estate agents keep the deposit and take the fees out of the deposit when the property sale is concluded. He says by doing so, they avoid having to wait if there are delays with the property transfer caused by delays in municipal clearance certificates for example.
“Estate agents' commission is a professional fee that the seller agrees to pay the estate agent to market and sell their property,” says Gavin.
If the property does not sell, then the fee is not payable meaning the cost of marketing the property is performed at the risk of the agent/agency.
Gavin explains that commission earned on a property sale is calculated as a percentage of the selling price of the home and paid to the agency once the property has successfully been registered.
“On average, this is between 6 to 12 weeks after the sale is concluded.”
Normally sellers can expect to pay between 5 and 7.5 percent of the selling price plus VAT on the commission says Wiese.
Asked about the estate agent commission percentage, Gavin says for selling property, there is no prescribed going rate but each market will have an accepted average.
“Commission is a negotiable part of our business and not something that I can pin-point to an exact percentage”
Normally sellers can expect to pay between 5 and 7.5 percent of the selling price plus VAT on the commission says Wiese.
“The average commission rate during the boom phase in our property industry has been relatively higher than during the present down cycle,” says Wiese.
He says that commission varies between estate agencies and one would not expect to pay a standard percentage.
Estate agencies have different marketing programs, some with fixed costs attached.
The marketing programs of the so-called discount commission estate agencies offering between 3 to 4 percent never measure up to those agencies operating between 5 to 7.5 percent commission charges, he says.
“Discount agencies normally struggle in the buyers’ market as some homes do not sell at all. “Listings that sell at top prices are those exposed to most buyers, they are priced correctly and marketed well enough.”
Spencer also says there is no norm and he would suggest about 8 percent including VAT.
For an exclusive mandate, he says 6 percent will be acceptable including VAT and would agree on 8 percent for an open mandate and probably between 4 and 5 percent plus VAT for a property development.
Rental property and estate agents' commission
Commission on a rental property is based on the monthly amount of rental income achieved for the landlord over the period of the lease, says Gavin.
“Rental or letting fee (commission) is paid on receipt of rental on a monthly basis and this can be paid out as a lump sum if the landlord lets the property or has his own managing agent,” says Spencer.
Wiese says rental commission is paid monthly and this is between 10 and 12 percent plus VAT of the monthly rental amount payable to the landlord by the tenant.
Some estate agents work for a placement fee, normally equal to the first month’s rental income.
“Rental or letting fee (commission) is paid on receipt of rental on a monthly basis and this can be paid out as a lump sum if the landlord lets the property or has his own managing agent,” says Spencer.
In this case, the rental agent only sources and pre-qualifies a tenant for the landlord, but will not be involved in the monthly management of the property (maintenance) and the contractual relationship between the landlord and the tenant (ensuring timeous rental payments and maintaining trust accounts).
What sellers should know regarding estate agents' commission?
VAT is important to remember as all commission is charged at a percentage plus VAT. Gavin says when the conveyancer deducts the agent’s commission from the sale proceeds, the 14 percent on top of the commission can be a surprise if it wasn’t expected.
Spencer emphasises the importance of discussing fees upfront and confirming the details in writing.
He says sellers should not confuse nett and gross prices without commission. He says usually estate agents tell sellers what the selling prices in the area are and what they can expect their property to sell for.
The seller then assumes that this selling price is the gross selling price including the agent’s fees or commission.
This misunderstanding often leads to many sellers accusing agents of wanting to steal from them. The best way to ensure this doesn’t happen is for both seller and agent to agree in writing on the price, gross and nett.
“The seller should understand that if the buyer offers less than the asking price, the agent still receives the same percentage agreed upon and that there is no guarantee they will get the nett price agreed upon.”
Wiese believes that sellers need to insist on a properly constructed marketing plan for their property. This is when the seller contracts with the estate agent in terms of a sole mandate and at a certain commission percentage.
A comprehensive marketing plan includes items such as when and where the property will be advertised (electronic or print media) and details on which property portals will host the property and what other tools the agent will use to market the house (show houses, social media).
He says the less commission the seller commits to means less exposure to their property being seen by many buyers and hosted on various property portals.
Sellers should be aware of a variety of agendas which form part of the real estate industry and therefore part of the seller’s choice of estate agency and commission they will pay, he says.
Wiese explains that the majority of all property sales (up to 70 percent) happen within the circle of estate agents.
“The seller should understand that if the buyer offers less than the asking price, the agent still receives the same percentage agreed upon and that there is no guarantee they will get the nett price agreed upon.”
When a seller is not willing to pay more than 5 percent when two estate agencies are involved in a transaction this means the estate agencies will be paid less than 2.5 percent each for that particular transaction.
He says many South African estate agents work on a 50/50 commission split with their agencies. The gross income then is about 1.25 percent for the estate agent with some of that amount going towards intra-office commission splits.
“The estate agents can therefore end up with earning even less than 1 percent commission.”
He urges sellers to ensure that the mandated estate agent will not exclude other agents from their property (mandate) by not offering them a 50/50 split but an unequal split of the commission, such as 60/40 and up to 80/20.
An unequal split makes it less acceptable to other estate agents to introduce their buyers to the property and a less than 50 percent commission offer to other estate agents drives more agents and their buyers away from the seller’s property.
Wiese is very vocal about this one: sellers should be very wary of estate agents who promise them a higher price based on hot air and a lower commission.
“It is these listings that often show up six months later with reduced prices and a stale marketing plan.”
He adds that the amount of the price reductions tends to exceed the difference in commissions asked by the other agents who gave a lower valuation but a market related price. – Denise Mhlanga
Readers' Comments Have a comment about this article? Email us now.
Estate Agent commissions are a rip-off. Your article seems to suggest that someone offering to sell a property at 4 percent commission wouldn’t have an adequate marketing budget. That has nothing to do with it! Smaller independent estate agents who specialise in relatively small areas have far more expertise than the nationwide franchises. In addition to this they don’t spend millions each month on advertising in the Saturday Star – and they don’t offer their staff lavish end of year jollies. The UK property market works perfectly well on commissions of one and a half percent. In South Africa in the 1970s and 1980s commissions of 4 and 5 percent were common. Given the massive property price inflation since then, why do agents think they now deserve 7.5%? I suggest it’s to feed the corporate fat-cats sitting at the top of the agencies. - Neil
"Spencer adds that some estate agents keep the deposit and take the fees out of the deposit when the property sale is concluded. He says by doing so, they avoid having to wait if there are delays with the property transfer caused by delays in municipal clearance certificates for example"I have a major issue with this! No agent is permitted to pay himself commission before the property has been transferred, regardless of delays anywhere!As an agent of 20 years' standing, of which 15 years have been as a principal of my own agency, I have made it a policy NEVER to keep deposits in my trust account. They are paid directly by the buyer to the transferring attorney. This should, I have always believed, be mandatory.Secondly, his ramblings about commission are in parts, ill-informed. I am SHOCKED that he could suggest 8% commission. That's a direct invitation to sellers doing private sales which however ill-advised they might be, are a constant threat to agents' livelihoods.I recently left one of the biggest agencies to become a solo operator again precisely because I could offer clients far more flexibility on commission now that I don't have to pay vast amounts to a corporate for no measurable benefits. I frequently do sales at 4% commission much to the delight of my buyers and sellers. And this is in a small town where sales of over R1,5m and R2m rarely take place. They get top service and quality marketing and the benefits of my lower overheads are passed directly to the client. I don't have to pay for a huge corporate infrastructure or what Neil correctly describes as "corporate jollies". I agree with Neil that 7,5% commission is too high, but comparing local commissions with those in the UK isn't quite fair. UK properties are on the whole far more expensive than SA properties and the commission is proportionately much higher. - Helaine
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