Written by Christian Longobardi
Questioning the Real Estate Agent Commission Structure in South Australia
A real estate agent is generally not considered the most revered of professions. A recent Google search beginning with “real estate agents are” suggested “scum”, “scumbags” and “useless” to complete the sentence. One commonly held criticism of real estate agents is the notion that they are too commission-conscience and eager to take a slice of the profit from what is the most momentous financial transaction most people will ever undertake. To some extent this is accurate.
Real estate agents in South Australia are commission-conscience, but rather than comparing these individuals to “scumbags” we should be questioning what has facilitated this unsustainable reliance on the commission.
Under a sole agency agreement, an agent has “the exclusive right to sell the property and is entitled to receive the agreed commission whether or not they are the one to actually sell the property.” This excerpt from the Land Agent Act refers only to commission payments if the Vendor sells the home themselves whilst under a sole agency agreement.
Essentially, ‘an’ agent will get paid commission in most circumstances, but not necessarily ‘the’ agent that has done the work.
Sandra Berry, President of the Society of Auctioneers and Appraisers, highlights a number of thought-provoking scenarios where many sales people and Agencies aren’t being paid at all.
“An agent will take on a listing for a property and do everything required to effect a sale. This might include presenting multiple offers to a client that are continually rejected. This process can take anywhere from 4 weeks up to 12 months and sometimes longer in Country regions.
“Under current Sales Agency Agreements, if the Vendor decides not to sell and removes their property from the marketplace, the agent gets paid nothing for all the time and work spent providing the service. The current legislation supports this, denying the Agency any part of the Professional Fee or Commission, in essence it’s termed a ‘Success Fee’ and success only happens when a property settles.
Some agencies are endeavoring to secure a reasonable administration fee to cover minimal costs associated with losing business through no fault of their own.
Considering that the cost of a sales person is no less than $4000.00 per month, that’s got to be a pretty significant Administration Fee to cover the costs when a Vendor removes their property from Sale.
It is a requirement of the Act that inexperienced Real Estate Salespeople are paid by their Principal an annual salary until they can substantiate, by performance ,that they can earn the minimum wage for the industry, ‘Commission Only’ employment is no longer an option for new recruits. Ms Berry argues the inequitable manner in which real estate agencies are reimbursed for their services places great financial pressure on all concerned.
“35% of real estate agents that come into the industry won’t be there within the first 12 months.”
Ms Berry argues that real estate agents are often enlisted to do extensive work by homeowners who are ‘Testing the Market’.
Individuals looking to sell their property can essentially have a revolving door of agents provide, for example, a detailed appraisal, advice on presentation, some will call agents back into their homes for two or more occasions and still not financial compensate the agent for their services. All this goes on at great expense to the agent that takes time to prepare, provides detailed opinions on pricing and marketing strategy. The Consumer pays nothing for all this service. Some consumers are dragging in 5 to 7 agents for opinions.”
Many everyday Australians are understandably unfamiliar with the many intricacies involved in selling a property, primarily due to the rarity in which the undertaking occurs. Prospective sellers naturally wish to sell their property for the highest price possible, and are encouraged to consult a number of agents to determine which price is realistic. However, as Ms Berry asserts, the lack of financial investment from the Consumer has created a disrespect for the industry’s time and knowledge.
“When a home fails to sell, one of two things has normally occurred, the marketing has not been strong enough to attract buyers or the price is unrealistically high.
“If clients had to pay for their real estate agent’s time, I would expect that we would never have a problem with unrealistic pricing, and if we did, it wouldn’t take long before the client followed the agent’s advice in this and many other facets that would assist to get their property sold. “
“A financial investment by the client would see increased diligence from Vendors when engaging their agents. “
“It would also assist to minimise the continual change of agents representing one owner ‘the grass is going to be greener mentality’ that we see all too often.” This in itself is costing Vendors thousands of dollars on any one changeover, it’s a false economy “
This often results in a second agent reaping the rewards from the first agent’s hard work over a 90 day period. It also elicits disrespectful behaviours and angst amongst industry colleagues.
To say real estate agents do not have the best interest of their client in mind is illogical. The success of the client often equates to the success of the agent. However, consideration should be paid to instances where agents are unsuccessful in selling a property and the fiscal realities associated. As Ms Berry outlines, while there are serious considerations as to where the real estate industry is headed, there is reason for optimism.
“My concern is that the real estate industry will remain just that, an industry where society deems it nothing more than a series of cogs.”
“My hope is that we make changes to practices that will ensure we are recognized as a profession, as the service we provide is vital to one of the most important transactions anyone could participate in.”
“If we want to achieve this it’s really time to take stock of how and what changes are required to elevate our professional image”.