Real estate agent commission is the amount your agent charges for the successful sale of your property. In this article, we’ll talk you through the following:
- How commission works and how it’s calculated
- The different types of commission structures (fixed vs. tiered percentage)
- Benefits of the commission model
- Commission rates across Australia
- GST on real estate agent commission
Do real estate agents get more from commission?
If you choose to sell your property with a real estate agent who charges commission, you’ll be paying them a percentage of your final sales price for their efforts in selling your property. You’re paying for things like negotiation skills, strong market knowledge, people skills, organisation and knowledge of the settlement process.
The commission amount paid to your agent generally sits separately to other fees associated with selling such as marketing and auctioneer fees. However some agents operate differently. That’s why it’s important to ensure you’re clear on the commission, fees and marketing strategy when you compare real estate agents.
How do you calculate real estate commission?
To calculate your real estate commission, you’d simply multiply the commission percentage by the final sale price.
For example, if you were selling your property for $700,000 and your agent was charging 2% the calculation would be $700,000 x 2% = $14,000 paid in commission.
As mentioned, there are other selling costs to consider such as marketing costs and auctioneer fees. You can use our handy selling costs calculator to calculate the cost of selling your home which also takes into consideration things like home staging and storage costs.
There are two common types of commission structures: fixed commission and tiered commission.
A fixed commission rate means the percentage of commission an agent will receive on any final sale price remains fixed, regardless of the final sale price. You can therefore be certain on the rate you’ll be charged. However, there may be more risk that your real estate agent will sell it quickly for a lower price as compared to if you were being charged a tiered percentage amount, where there is more of an incentive for the agent to sell for more.
Tiered percentage commission
A simple way to define tiered percentage commission is a ‘sliding scale’ bonus system. The main benefit of a tiered commission structure is the fact your real estate agent will likely work harder to sell your property for the highest price possible as their commission rate escalates according to the price the property sells for.
A working example below:
Let’s say you agree to a 2% commission rate on the sale price if it’s below $480,000. But if you achieve a sale price above $480,000 you agree to pay an additional 10% on the amount above $480,000. So, if the final sale price ends up being $500,000, you would pay 2% on the first $480,000 (9,600) and 10% on the additional $20,000. ($2,000). So, the total commission payable would be $11,600.
Benefits of the commission model
There are three main benefits of the commission model: incentivised agents, the ability to negotiate your rate and no upfront fees.
|Incentivised agents||Real estate agents are incentivised to achieve the highest price possible. More money in your pocket means more money in theirs.|
|Negotiable||You have the ability to negotiate your commission rate before you sign with your agent.|
|No sale, no charge||Unlike some companies that operate on a flat fee basis and charge an upfront fee, if an agent doesn't sell your property, you don't need to worry about being charged.|
Does commission change state-to-state?
Across Australia, commission rates are deregulated meaning they can set their rates at whatever they like. However, agents need to be competitive to win business. Therefore, their commission rates are determined by the level of demand for services in the area. The national average commission rate sits at 2.23%. Currently, Tasmania has the highest average commission rate at 2.87%, and South Australia has the lowest at 2.01%. New South Wales and Victoria’s average commission rates are competitive at 2.02% and 2.04% respectively.
Find out more about commission rates across Australia. Commission rates also vary a lot depending on the location of the real estate agency. Metropolitan real estate agents tend to charge more as there’s generally a higher level of competition between sellers meaning a lower average commission rate. Whereas agents in areas where properties are more dispersed will mean a lower level of competition between real estate agents and therefore they can afford to charge lower rates.
Do you pay GST on real estate commission?
Because real estate agents are providing a service, sellers are subject to 10% Goods and Services Tax (GST). Sellers pay the commission amount plus GST to the agent, or the commission amount inclusive of GST. For example, if the rate is 2%, the commission should state either 2% plus GST or 2.2% inclusive of GST.
If you’re selling your property, it’s up to the real estate agency you choose to make it clear whether their charges are exclusive or inclusive of GST. If unstated, then the commission amount paid would be GST inclusive.
Real estate commission – what’s next?
You can compare real estate agent commission rates using our online comparison platform. Here, you can compare real estate agent commission rates alongside sales history, fees, marketing strategy and more. Remember, commission rates are an important part of the equation. However, you’ll want to ensure that they have adequate experience selling properties in your area. So, it’s important to look at sales history too. By using LocalAgentFinder, you can also compare independent reviews from fellow sellers that have sold properties in your area.