Nubricks Blog - Real Estate Agents Commissions too high?

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08 May 2006

Real Estate Agents Commissions too high?

Many people have strong opinions on this subject, so lets start the debate.

Real Estate Agents have always made their money from commissions. It is generally a percentage of the property sales price and can vary enormously according to the local industry standards or size of the developer and their marketing budget. The percentage rather than fixed rate has always been a long running dispute between property buyers and sellers and the property agent. Does a property agent’s work rate go up inline with the value of the property they are selling? There are many agents that will counter that this IS the case with high dollar property and their subsequent clients who respond a higher quality of marketing thus raising promotional and sales costs. However, an argument for having a fixed agent rate is that it will make the market more competitive and stop some agents favouring higher value clients over first time buyers for example.

Commission Rates

Inman the US real estate Blog discussed the coming out party and questions were raised like - Do you need to pay 6% for an agent?
In many overseas property markets including Spain, Bulgaria and Cyprus, commissions paid to agents can be as high as 25%, which in my opinion is ludicrous when you compare varying levels and quality of service given by different agents. There are those that drop you at the sales office and hang around long enough for you to sign your contract and then there are those that offer a life-time of service from lawyer recommendations, furniture and rental assistance to local restaurant recommendations and handy area tips.

Off Plan Property commissions are governed by what developers the emphasis that they place on the agent network. Many developers use agents as the marketing tool to drive clients to their sales offices. Again the commission percentage offered can vary wildly depending on the profile of the developer/agent. Whilst overall marketing costs may be higher, it is usually the case that no more marketing is required to sell and penthouse in comparison to the lowest price apartment on the development, in fact as a general rule of thumb, the lowest price properties on a development tend to sell out first. What you tend to find (although this is not always the case) is that a good development will sell itself and as such agents will get a lower commission as the developer has a good reputation and has other means of marketing, like a property Blog!

In the off plan property industry an estate agent will receive an agreement from a developer, which generally means a payment of the full commission will be made on the signing of the clients contract. Some agents will hurry you to sign the agreement, as they want paying. Make sure you have all your finance in place before you sign on the dotted line, don’t be rushed.

Agent’s justification for commission

Lets take out the distrust and arguments for the moment and look at the obvious.
If you are agent you have to get paid for your service, so a form of remuneration is necessary. Many agents state that the commission should be high, as they have high marketing costs. So lets see what that can entail:

Imagine you are a property agent based in Turkey trying to sell to the UK market. How do you go about reaching your potential buyers?

Website – Good marketing tool but you have to really know what you are doing, to do no other marketing.
Offline Marketing – Advertisements in Magazines and Newspapers, PR, affiliations with property companies in the UK to name a few.
Exhibitions – Usually at a large event with a stand to meet interested clients.


Website costs can again vary a great deal. Main costs are database, website infrastructure and Internet marketing.

Offline marketing is costly and longer campaigns are better for building trust and authority.

Exhibitions costs include travel, accommodation, event marketing, staff costs, materials and stand.

So costs can mount up, if an agent embarks on these marketing routes.

Can you go direct to a developer and get a reduced price?

Some developers have embraced this strategy, reducing prices for walk in clients or direct clients from their websites. However many have not and so you pay the same price whether you use an agent or not, my advice in this case is to go with an agent as they will tend to be able to offer you a service and give you more information than a developer.

Companies that are trying to cut the trend of high commissions

Below is a small list of companies that are trying to make a difference and help property buyers, by reducing their commissions.

Halfapercent in London will charge commission of 0.50% if the seller pays £250 for digital photos and conducts all the viewings themselves. They then have sliding scale % commission rate options.

Direct Auctions based on the Costa del Sol work on a 2.5% selling fee. When selling off plan property developments to their clients, they will offer cash back, which starts from 3.5%. Some developments have 10 or 15% built into their prices, and so this is a significant amount of money handed back to the buyer.

And, instead of marketing it as a guaranteed rental return, or 1 years mortgage payments – you can use it however you want, a furnishing pack, holiday or a new car.
Do we really need Overseas Estate Agents?

So with the advancement of technology and the Internet as a median to reach buyers, are agents up the creek without a paddle?

I believe that the role of an agent in an overseas market is to educate a client about the area, explain why a client should invest and try to match a property to the client’s requirements.

Now I know that many agents don’t do this and prefer to show clients properties on the beach when they asked for golf or £300,000 villas instead of £200,000 apartments, but there are some good companies out there, problem is finding them. As the industry is unregulated many unscrupulous individuals and companies take clients for a ride. DO YOUR RESEARCH, talk to buyers online in forums, talk to friends that have bought and look for industry bodies, who can point you in the right direction.

I did a post a while back about industry bodies, have a look as these companies are trying to be the new kite marks for the overseas property industry.


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