The Perceptions, Problem, Practice, and Power of Commission
Estate Agents commission is one of the most highly contentious and misunderstood payments that one encounters during their lifetime.
The perception of commission varies according to what angle one is looking from. Purchasers are often of the opinion that they are paying more for a property due to an agent putting commission on top of the price of the home. This is incorrect, commission is a percentage of the sales price. The sales price of a home is one of the best examples of a free market system at work, as the price is determined by what a willing buyer(s) will pay for it. Therefore, it is impossible for a purchaser to pay more than the market related price.
Sellers often have the perception that they are paying an exorbitant fee for a service. Commission is not a fee that is paid against services rendered, as is the case with say a builder, engineer, or architect, where payment is made against time spent executing the service. Commission is only payable on the successful conclusion of the sale of a property, therefore all the time and money invested in the pursuit of a sale by an agent or agency is spent at risk. As per any service offered at risk, such as an attorney being paid on contingency that a client wins a settlement, payment is higher.
However, the biggest misconception about commission is that buyers and sellers view it as a net amount that an agency or agent gets paid into their pocket. This is certainly not the case. Commission is the gross, VAT inclusive amount that an agency is paid, before expenses, both directly related to the sale; marketing, agents' portion of commission and 3rd party payments to other agencies (if applicable), and the general expense of running the agency.
The problem with commission is not actually the percentage earned, it is the lack of service in general that the clients in the process receives from the agency. This is unfortunately due to the structure of the industry. Traditional agencies employ the same model as a tiered commission-based sales company such as 'Amway' or 'Herbalife', where risk and responsibility gets shifted down the line to the person selling, which in our industry's case is the agent. The risk in the agent's case is that they only earn on the sale of the property. The lack of income stability and risk on behalf of the agency, leads to a scatter gun approach to agent recruitment, with very few good candidates able to enter the industry. Therefore, the person handling your extremely important transaction may not be the best fit for that industry, not fully engaged in the process and may have a very loose management and support structure.
We at HUNT Properties have identified these structural issues of our industry hence the reason why the structure of our company is vastly different to traditional agencies. Read more about that HERE.
The practice of commission as a result-based payment is inherently a sound approach. As alluded to earlier most people are happy to pay attorneys more at risk against a positive result. I am relatively certain people would do similarly if a doctor cured them and a financial adviser made them money.
That is the power of commission. Improving the execution of the process of selling properties and giving clients a service that they see value in is a challenge that HUNT Properties gladly accepts.