August 21st, 2016

How to Negotiate Real Estate Commissions

Commission is a contentious issue with Vendors, we hear it all the time.  The best advice we can give is do NOT focus on commissions when you first meet an agent, focus on results. There are a couple of ways around this and the key is not cutting commissions but linking it to results. Think about it?

Think about this for a second ... you’re going for a job interview and the employer spends all their time talking your salary down before you've even had a chance to proof yourself - how would you feel about that company? Would you want to do your best?

You can watch this short video here

Makes you think doesn't it...read on.

WHAT ARE STANDARD RATES?

In some areas, it will depend on your selling price. Having a higher priced home could help you save on a few percent of commission. For example, agencies in Auckland typically have a $300,000 benchmark meaning that they will have a commission of between 2.95% and 4% for up to the first $300,000. Anything over that figure is between 2% and 2.5%.
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Otago has a slightly different threshold. A 4% commission is usually applied to the first $250,000, and then 2% after that. Wellington is a 3.5% commission on the first $400,000, but 2% thereafter.

SEARCH YOUR TOP AGENT NOW!

COMMISION STRATEGIES

Here are a few options you could discuss with your agent:

1. You could negotiate what’s called a set fee: No matter what the property sells for there’s a set fee. I would try and use this option when selling via auction - not price. This strategy won’t affect the negotiation phase too much as the house will be sold via auction. Some agencies are offering this 'fixed fee type of service,' however, I'm yet to see a super performer work inside this type of environment.
   
   
2. Discuss a refund on the marketing costs: If you do this they won’t be so flexible on the fees but this is often a simple clean-cut way of saving money. Just be careful of those that offer free marketing costs, as you may find the commission rate blows out on the end result i.e.: it’s higher. In a market where there's few listing many agents will offer this option, its all care no risk for them but for you it locks you down to paying the marketing fee's if the house doesn't sell, hence sometimes forcing you to sell to avoid an expensive marketing campaign which can be in the thousands.
   
   
3. Tiered approach: This is my favourite. Work out what you would be happy to sell your house for? As an example, say you would be happy with $500,000 (after fees) and be realistic. As an example, say to the agent, “If you can get us $510,000 for our property, then we are happy to pay full rates. No questions. However, if you get below $490,000 then your commission rate drops.” The negotiated fee structure could look something like this:
   
   House Price $480,000 to $490,000 (discount 10%)
   House Price $490,000 to $500,000 (discount of 5%)
   House Price $500,00 to $510,000 (standard commission)
   House Price $510,000 to $520,000 ( $1,000 BONUS for every $10,000 over $510,000)
   
   This shows the agent you're committed to selling for a realistic price and they too will be sharing in any pain should the price not meet the expectations you've both agreed too.
   
   

When looking at agency fees do not make the mistake of selecting and agent that just drops their fees because you asked them too. If they drop their fees straight away, what do you think they will say to the purchaser of your house when it comes to talk about price?

TIP: Keep the topic a healthy discussion between you both. Remember, real estate agents are used to negotiating so they won't be offended. Also remember, they are selling your biggest asset so you need to have them working 'with' you as a true partner. If you do this, then the natural law of reciprocity will set in and all will have a great outcome. Play fair and you will all win :-)

Watch this short video here