Advice and Opinion

Are commission rates too high?

It is often is a public perception that estate agents have a really easy, cushy job, and make huge amounts of money for very little effort or work, says Lanice Steward, chairman of the Institute of Estate Agents Western Cape.

The reality is, however, she says, in South Africa when an agency takes a mandate to sell a property, they do so on risk that they will in fact be able to sell the property. They usually incur huge costs which the public generally are not aware of.

Print media has always been expensive, with some of the top magazines charging around R25 000 to R35 000 per full page advert and many people believe that websites have taken over from print media and are cheaper to run. In reality, online marketing can be just as expensive as websites often need huge investments into them to host, update and maintain them and to ensure Search Engine Optimisation (SEO). Large online portals have a huge staff infrastructure and would need to charge advertising rates that would cover the costs of uploading property information and photos to market a property. These companies would need to cover not only the actual website but their back office costs, rent, salaries, etc.

Agents work on risk, incurring ever-increasing petrol costs and cell phone costs, with no guarantee that they will be the successful agent in the sale of the property. Although there are a few agents who do earn exceptionally well, the hours they put in are long, and they often work seven days a week, said Steward.

Agents often work longer, harder hours than many other professions, but the reality is that the average agents’ income at present is reported to be R8 000 per month. Which means that the agency is also getting R8 000 per month.

This business model therefore does require agencies to charge the commission rates they charge. Obviously at the top end of the market there is a need to be more negotiable, invariably that agent will be concluding fewer sales per year and, therefore, needs to be rewarded accordingly for their efforts.

In addition to long working hours, the implementation of the new training and qualification requirements from the Estate Agency Affairs Board, whereby agents must complete continuous training, as do other professions, to ensure that they are abreast with the ever-changing legislation and legal requirements imposed on agents, which can also incur costs.

Very often, people in SA will compare selling property to the British model where agents will charge as little as 1 or 2% but they do not factor in the fact that the marketing is a cost to the seller and frequently no marketing will be done until the payment for this is deposited into the agency’s bank account. Agents in SA act as paralegals, and complete all the necessary documentation with regards to buying or selling property whereas in Britain it is necessary for both buyer and seller to hire their own solicitors to draw up and exchange contracts, which is an additional cost.

Frequently if a mandate is given to more than one agency, and the property is overpriced (as does often happen because the seller insists he wants a certain price), the property will take a long time to sell and the advertising costs will by far exceed the commission that is paid by the seller. When the seller is paying the marketing fees, he is more likely to be more focussed on selling his home quickly and pricing his property correctly, because he will not want to pay for weeks or months of advertising. Inevitably, the reason behind most properties not selling is that fact that they are overpriced, said Steward.

“The next time your estate agent asks for their commission plus VAT, take cognisance of the costs that are about to be incurred on your behalf,” she said.