Estate Agents: Are their commissions too high?

The general public's perception of estate agents are that their income is often way higher than the effort it takes to do the work, but is this true and are their commissions too high?

It has been reported that despite the longer and harder hours that most estate agents pour into their jobs, the average income is only R8000 per month - this according to Lanice Steward, chairman of the Institute of Estate Agents Western Cape.

She says that the reality is that when an agency takes a mandate to sell a property, they do so on the risk that they will in fact be able to sell the property. In order to fulfill this they often incur huge costs that the public are not aware of. 

It is no secret that print media is expensive and in some magazines agents can expect to pay around R25 000 to R35 000 per full page advert. While many would say that online advertising has taken over from print media and it is cheaper to run, this is simply not the case. In reality, she says 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 need to charge advertising rates that would cover the costs of uploading property information and photos to market a property. These companies have to cover not only the actual website but their back office costs, rent, salaries, etc.

The costs however does not stop there, agents are constantly on the phone and on the road trying to make the sale. Even after all this, they are still not guaranteed to make the sale. There are agents who do earn exceptionally well but the hours are very long and they usually work seven days a week, says Steward. 

If an agent earns the reported R8000 a month, that means the the agency also earns R8000 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, need 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, 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.  Steward says 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 focused 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 they are overpriced, says 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 says

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  • Adriaan Grove - posted 07 Jan 2015 12:16 PM                                    

    Agent commissions will always be a controversial point for the general public. Just on the point of the print and online marketing:

    a) if you still spend R30k+/month on magazine ads you are doing it wrong.
    b) real estate websites don't require huge upfront investment and maintenance costs. Those days are gone, use a reputable service provider and get something setup in a flash for under R2k and for R500-R2k/month hosting fee including email, depending on office size.

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