Commission levels have risen in the past two years for both real estate sales and property management, new data shows, yet agents remain under intense pressure to cut their rates.
Macquarie Relationship Banking’s 2012 Residential Real Estate Benchmarking Report, released late last month, revealed that average national commissions for sales rose 0.1 per cent from 2009 to 2.6 per cent, while property management commissions rose by half a per cent to 7.6 per cent.
The results surprised Ric Mingramm, general manager and director of sales at PRDnationwide Kippa-Ring & Kallangur, in Brisbane.
“If you look at the local area, we’ve got so many discount commission guys,” he told Real Estate Business in relation to sales commissions.
“We got a flyer yesterday offering [commission of] 1.25 per cent, plus free advertisements. As the market tightens, people are dropping their pants left, right and centre,” Mr Mingramm said.
Shaun Bassett, head of the residential real estate segment at Macquarie Relationship Banking, said agents that offer heavily discounted commissions won’t survive.
“When we entered hard times, there were a lot of people heavily discounting,” he said. “What we’ve seen is those who charge a commission rate considerably lower than the average simply can’t survive.
“Those who protect what they charge consider it a reflection of the service you provide,” said Mr Bassett.
Real Estate Business’ most recent Quarterly Sentiment Survey, undertaken in April, found that 78.4 per cent of the 283 respondents had been asked to discount their commission in the first quarter of this year, with almost one in two following through and reducing their fee.
Mr Mingramm said it was critical for an agent to protect their commission rate.
“We’re always under pressure to cut our commissions, especially when we have three other agents who are cutting their commissions every day of the week,” he said.
And although admitting he loses quite a few listings, his attitude towards commissions is to wait until you have a contract before even discussing rates with the client.
“When you’ve got a contract, and the vendor has decided to dig their heels and won’t move for five or six hundred bucks and insists on a commission cut, then you’re better off to cut your commission by the five hundred bucks and get something than having the deal fall over.
“But if you discount your commission upfront, and that situation still happens, then you might have to undercut yourself twice.
“Most of the time, if you get a really good sale, they won’t even ask. But if they wanted more, then that’s when you might have to negotiate.”
Lee Tamblin, from Perth-based 1st Place Realty, ran his business for two and a half years as a ‘one per cent commission’ agent, but last week increased his rate to 1.5 per cent. Yet he told Real Estate Business both models are sustainable due to the quantity of properties he sells.
“We found that we lost business because we were too cheap, and people began questioning what we do and how we do it,” he said.
“Some people won’t sell anywhere near the amount of properties I sell. This year I’d be close to a hundred properties, and that’s me on my own. That’s the reason I can do it for one per cent, plus I don’t have an office - I work from home.
“I could stay at one per cent for the next two-three years or so. But if I want to grow and get staff, I've got to increase my price slightly.”