Hardly a day goes by without the media running a story about the housing affordability crisis within Australia. What is amazing however is that these stories seem to miss out on what some believe to be the single biggest contributor to soaring house prices – and that is the real estate agent’s commission.
In many cases, depending on some variables such as which state you live in and the selling price of your property, the real estate agent commission of between 2% and 4% represents the largest cost of transacting property, whether you’re buying or selling.
The general public does not yet seem to associate the selling costs involved in a property transaction with the costs of purchasing a home. Because the seller mostly pays the commission (buyers agent[s excepted), people have not seen this clear connection to inflated pricing.
Sellers are paying between $10,000 and $50,000 or more in commissions when selling a Sydney property. Because it’s a somewhat hidden cost (no money physically departs from your pocket directly, but rather disappears from sale proceeds), buyers may not fully appreciate that the sale price could have this factored in, so as to pass that cost on to the buyer.
Andrew Blachut, owner of PropertyNow, licensed real estate agent and author of How To Sell Your Property Now, says this might be less of a problem if the public was made more aware of their choices when selling.
“The various governmental consumer advice websites scarcely mention the alternative to mainstream sales. This was understandable to begin with, as the ‘no commission’ form of sales is relatively new – about a decade – but there is no excuse for this to be ignored any further,” says Blachut.
He further suggests that “if the government was serious about actually doing something meaningful about housing affordability, then it would provide some balance or assistance to the agent assisted sales industry in order to level the playing field, given that these companies by default have far less market power than the mainstream agent industry.”
“Quite simply, the next time you see a Sydney property selling for a million dollars you should immediately factor in that the property is over-priced by as much as $30,000 – $40,000 because of commission and marketing expenses that are not required, but which somebody ends up paying for. That extra money means a larger deposit is needed, more mortgage insurance costs and of course greater interest costs over the loan, far in excess of the original $30,000 impost,” he says.
When asked if real estate agents should be abolished, Blachut says, “No, of course not. People should simply have a clear choice and should be educated to their alternatives. The government and media have a responsibility to help educate sellers in that regard, because it will not happen while all the key players want the status quo to remain. The point is that housing affordability increases by virtue of an agent assisted sale with no commission.”
