The key to selling your home successfully is your real estate agent. Real estate agents have the tools and knowledge needed to sell your home for a high price; it’s their job, as property selling experts who know how to market homes and deliver the goods.
Are you giving your real estate agent the right incentives to work as hard as possible for you? It’s generally believed that an agent earns more commission for selling a house at a higher price, and therefore is more motivated. But what you may not know is a much stronger incentive for an agent is how the commission rate is structured.
The most commonly used commission structure in Australia, the flat commission rate, may not give the right incentive for your agent. A much better incentive to push your real estate agent to succeed and get a higher sale price for your property is a tiered commission rate.
Flat commission rates may not motivate agents
Commission is the amount of money that an agent receives as payment for selling a house. Flat commission rates, also known as variable commission rates, are calculated as a ‘set’ percentage of the final property sale price. For example, if a house sells for $700,000 and the agreed flat commission rate is 2%, an agent receives $14,000 in payment; that’s a lot of money for selling a home, right?
If the same house sold for $710,000, the agent would make $14,200, only an extra $200. It may take extra time and resources to achieve an additional $10,000 and $200 won’t cover the agent’s costs, so they are likely to recommend a buyer take the first decent offer made on the house. An agent could start putting time and energy into a new client and starting the sale process on another home.
When flat commission structures are used and the percentage of commission stays the same, money is not enough incentive to an agent to push for a higher sales price for a client.
Tiered Commissions give strong incentives
Compared to a flat commission structure, a tiered commission structure is a whole lot more effective at motivating agents to get better property sales prices as they give much stronger monetary incentives at higher prices.
A tiered commission structure basically means that the percentage of commission paid to an agent increases alongside the sale price of a property. In order to motivate an agent, the selling price is divided into ranges, and an increasingly higher commission percentage is paid according to the range the sale price falls in.
Let’s look at a real life story from a home seller named Patrick. Patrick knew that similar houses in his area were easily selling between $760,000 to $800,000. So he offered the following proposal to his agent; he would pay a commission rate of 1.2% for a selling price up to $800,000. But, if the agent could secure a sale price between $800,000 and $850,000, the agent would get 5% of the extra $50,000.
Wanting to push his agent as far as possible, Patrick then offered a whopping 15% commission on the amount the houses’ selling price reached above $850,000. The ranges can be seen in the table below.
Incredibly the final sale price for Patrick’s home was $887,000, way more than expected. The agent also fared well receiving $17,700 in commission.
Tiered commission structures recognise and reward an agent for the amount of extra work put into securing a higher sale price for a property, with a worthy pay packet at the end of the sale. An agent is encouraged, with strong monetary rewards, to go the extra mile, so that in the end both the agent and the home seller benefit from a higher sale price.
Why tiered commission structures are wonderful
It’s a win/win situation
Busy agents will focus on your property
In city and urban areas, real estate agents often find themselves with a large number of clients, selling a high volume of properties. Tiered commission structures can motivate agents to focus on a property, and give it the time it needs.
Find motivated agents near you
Not all agents work the same way. It’s always worth comparing agents based on a number of criteria, including experience and expertise as well as commission fees, to find an agent that’s right to sell your property.
Are you curious about agent commissions in your area? LocalAgentFinder is a 100% free, no obligation, impartial service that can help you compare local agents in your neighbourhood. Simply register your details to start comparing agents’ fees and services near you.