Trimmed commission rates becoming ‘ridiculous’

As the debate over commission fees continues, one of the country's leading principals has said the baseline rates some agents are now charging have got out of hand.

Earlier this week, Real Estate Business reported that average national commissions for sales have dipped by 0.1 per cent to 2.22 per cent since 2012, which represents a significant drop from the 2.5 per cent recorded in 2009.

John Cunningham, principal at Cunninghams, ranked 23 in the 2014 Real Estate Business Top 50 Sales Offices, told Real Estate Business the falling rate comes as little surprise since through those four years the market has tightened and volumes were down in some areas by up to 50 per cent, so competition has been fierce.

“In our area, volumes were down by 15 to 20 per cent and fees were being cut by 30 per cent, so you can see what effect that had on business margins," he said. 

“We saw average fees in the market drop from two per cent to 1.7 per cent, whereas we maintained our fees over the same period at two per cent and increased our volumes by 30 per cent, so clearly it reflected in significantly increased market share."

Mr Cunningham warned that discounting is now getting down as low as one per cent, “with a lot of sweetener deals being done on marketing, so the margins are getting ridiculous”.

Ben Chick, a sales agent at Harcourts MacKay, who was ranked 40 in last years’ Real Estate Business Top 100 Agents, said one major concern is that it's not the client asking for a discount most of the time, rather the agent believing the discounting of their fees will get them the listing more easily, and in turn, not understanding this is only making a rod for their own backs.

“Those agents with a track record of success, and who show value at the presentation stage of the listing, will inadvertently have fewer problems with a drop of commission because the client sees the worth and the fee is irrelevant,” said Mr Chick.

He is also not surprised to see the commissions rates fall, stating that as more agents enter the industry, due to it’s current upturn and perception of a great marketplace in the metro areas, the fee will drop because there isn’t as much stock available and it is competitively sought.

“I believe this is skewing the figures and the high amount of new agents who have started are dropping fees to get the business,” said Mr Chick. “I would counter this by saying I’d suggest the recognised and established agents are not having any problem with keeping their rate as they were, given a majority of clients still want the best agent to represent them in the sale of their home because they believe they can achieve a better price regardless of the conditions." 

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