In some parts of the world, agency commissions are on the decline due largely to tech disruptors that enable agencies to be more efficient and less admin-dependent. One report from Australia, suggests that as tech develops further, it will further drive agent fee rates down. To compensate, agencies will need to start generating revenue from sources other than traditional commissions.
To clearly explain the South African estate agent fee scenario are three property group executives from Rawson, Chas Everitt, and Leadhome.
Addressing the question that SA’s estate agent’s fees are high compared to other global countries is David Jacobs, Gauteng Regional Sales Manager from Rawson Property Group, and Marcél du Toit, CEO of Leadhome Properties. Du Toit feels that, yes, if you are comparing the average fee levied as a percentage of the property sale price, then “SA’s rates are significantly higher than most other countries. But this does not, however, consider the fact that that the local market is fundamentally different from other international markets.”
How different means taking into account the strength of the Rand and relative affordability of property versus other asset classes, and that property is much cheaper in SA than, say, the UK, says Du Toit. “Driving up commissions is the reality that property takes longer to sell locally and that only some 35-50% of properties that an agent takes to market may sell.”
There is another differing practice in play in other global markets, points out David Jacobs, Gauteng Regional Sales Manager of Rawson Property Group: “In America and Mauritius the commission is around 5% with the seller AND the buyer each paying 2,5%, and this commission is non-negotiable regardless of the price of a property. This is in contrast to SA, where a mandate between the seller and agent is agreed upon at a rate that is usually not higher than 7.5% and is only paid by the seller.”
Ultimately, negotiating commission must relate to ‘value’, not so? “And what adds real value for most homeowners is a high level of affinity with an agent they feel they can trust to provide the expertise, experience, and current market intelligence to help them sell their home for the best price possible in the shortest time frame, and with the least stress,” says Berry Everitt, CEO of the Chas Everitt International property group. “In circumstances where this connection is lacking, and the whole transaction feels impersonal and mechanical, clients may feel that the commission they are being asked to pay is too high.”
In general public conversations, few times is an agent’s commission considered well-deserved, which is unfortunate and perhaps relates to ignorance. The activities performed are not just those of showing and marketing the house, inspection and listing, photography and sometimes video. Agents provide vital market and sales information based on well-researched reports and other properties in an area. They can also tap into networks of buyers, including those with other agents, and are well-trained in the art of negotiation and the conclusion of sales agreements. Even beyond the successful sale of a home, while the home is in the transfer process, the agent remains committed to helping facilitate the deal and reassuring and advising both buyers and sellers of the regulatory framework.
It also has to be borne in mind that the agent isn’t the only recipient of the commission if working for an agency. In traditional agencies, it’s shared, usually 50/50. Leadhome applies a 70-30 split in favour of the agent and has a fixed commission, which according to Du Toit, is the lowest fee in the market. “We are of the mind that clients do pay too much when they sell their homes, but this doesn’t mean we compromise our services. In fact, we retain best-in-class agent support structures, world-class tech, in-house training and performance coaching. I think this sets the tone for traditional agents to recalibrate towards a fixed-fee model.”
Chas Everitt International has been deliberately moving away from the traditional agent/agency paradigm for some years now. “We are offering a range of work options for our agents depending on their preferences to work alone, in teams, remotely or in-office. We provide many possibilities, and as a result, we have a completely non-standard and flexible commission split system that can be individually tailored according to a whole range of factors,” notes Everitt.
Expected volatility ahead - recession threats, inflation and interest rate adjustments that will put a damper on sales volumes, and cybersecurity disruptors - indicate that macroeconomic signals are mixed and concerning. These are, however, unlikely to change agents’ commission structures in the immediate future, but it depends on the ‘a la carte’ model that each agency applies.
How much of the market will, in time, switch over to self-directed consumers using technology depends on the sentiment of the public, with global estimates going up to 20%. In a struggling economy, especially those forced to sell because of diminishing financial circumstances, agents can, however, expect sellers to start negotiating more aggressively for a lower commission rate.
Writer : Kerry Dimmer
