A simple guide to real estate agent's fees & commission

A simple guide to real estate agent's fees & commission

WHAT KIND OF FEES DO REAL ESTATE AGENTS CHARGE?
All real estate agent brands structure their fees in different ways. The best way to understand a real estate agent’s proposal is to review it carefully, once you have some understanding of what they’re likely to offer. It’s also advisable to take independent legal advice before signing on the dotted line. Here’s an overview of commonly-charged real estate commission, fees and costs:

Real estate agents usually charge an ADMINISTRATION FEE - this standard fee is likely to be around $500 and covers the real estate agent’s administrative costs in setting you up as a client and vendor (or seller) of the property.

Real estate agents fees are usually quoted excluding GST
It’s worth noting that real estate agent fees are often excluding GST. So be aware that there will be an additional 15% on top of their estimate.

Real estate agents generally charge COMMISSION - Real estate agents sell properties on commission, which means they sell your house on your behalf and take an agreed percentage of the commission when the sale is finalised. If the agent doesn’t sell the house, they don’t get paid any commission. Real estate commission rates vary widely. Some real estate agents charge a flat rate of commission, but most real estate commission is calculated on a tiered basis. For example, you may be charged around 3.95% on the first $400,000 of the sale price, then 2.5% thereafter. It’s worth noting, the individual agent rarely receives the full amount of commission, but shares the amount with their agency franchise and possibly other agents.

Real estate sign words scrabble

Real estate agents will offer you a MARKETING campaign - Marketing costs also vary widely, and the options offered by real estate agents will depend on the type of property you’re selling, your location, the local market and so on. Some of these costs may include:

  • Advertising costs including fees for online or newspaper listing or property magazine features
  • Promotional costs such as flyers or brochures 
  • Professional photos 
  • Professional copywriting

Marketing costs may start at around $2,000 and go up to over $10,000; again, this depends on various factors.

Real estate agents provide some marketing for FREE - It’s not all one way and not the other; check with a prospective real estate agent on the kinds of marketing they’ll provide free of charge. This usually includes any promotional ‘FOR SALE’ signage, listing your property on the agency website, and sharing the listing with other real estate professionals in their agency (sometimes offers start coming in more quickly this way, as your pool of prospective buyers instantly and immediately widens). Real estate agents may also offer free of charge the cost of events and marketing to promote your house listing to their existing client database, and social media promotion.

OTHER COSTS to be aware of - Besides administration fees there may be costs like LIM reports or title searches, and depending on your agreed sale structure, you may also have to pay auctioneer’s fees, if the real estate agency doesn’t cover the cost. An auctioneer’s fee is usually between $400 and $1200 and must be paid regardless of the outcome of the auction. Sometimes real estate agents advise you to make repairs or additions to your property to enhance its sale value or appeal to potential buyers (these are not obligatory). Once you have a signed sale and purchase agreement with a buyer, there may be conditions within that contract requiring you to make repairs or reparations to the property, and these should also be factored into your selling budget (you will be legally obligated to see these conditional agreements through). 

Some real estate agents will rebate marketing - Upon selling a property some agents will rebate part or all of the marketing costs. This needs to be negotiated and included in your Agency Agreement.

ARE REAL ESTATE AGENT FEES INCLUDED IN CLOSING COSTS?
Although the timing of payments owed to your real estate agent may vary slightly, here is a guide to when fees and costs are expected to be paid:

On signing a real estate agent agreement:

🏠 Administration fees and costs

🏠 Initial marketing/ advertising costs

🏠 Auctioneer’s fees (if you are selling via an auction)

On both parties signing a sale and purchase agreement (eg closing a deal whereupon the purchaser pays a deposit):

🏠 Real estate sales commission (also known as closing costs)

If your house doesn’t sell, and/or when your initial contract term expires and you choose to extend your contract:

🏠 Additional marketing/ advertising costs

DO I HAVE TO PAY REAL ESTATE AGENT FEES OR COMMISSION IF MY HOUSE DOESN’T SELL?
All administrative costs and initial marketing costs must be paid to the real estate agent whether your property sells or not; these costs will usually be paid before the marketing period, and if the house doesn’t sell you won’t be entitled to a refund. No commission needs to be paid if the agent doesn’t sell your house for you.

ARE REAL ESTATE AGENT FEES NEGOTIABLE?
Whether you can negotiate real estate agent fees depends entirely on the agency, and sometimes on the individual agent. There’s no legal restriction on negotiation, but some real estate agents are open to discussion on their initial quotes for fees and commissions, and some are not. It’s worth enquiring of a real estate professional at the outset if there is room to negotiate any of the costs outlined in their initial proposal. Whatever is agreed in your contract for real estate services, however, is legally set in stone between vendor and real estate agent once signed. No negotiation is possible after the agreement is signed, unless the contract expires, in which case your real estate agent may revisit their fees and commission in negotiation in order to secure a second contract term with you.

Lap top contract real estate

ARE REAL ESTATE AGENT FEES TAX DEDUCTIBLE? 

Sale of your private home - No, real estate agent expenses cannot be deducted from your regular income as they are not attached to any income-producing activity. Capital expenses, the costs you incur to buy (or increase the value of) a capital asset are also non-deductible, so real estate agent fees incurred to buy your private home cannot be deducted either.

Sale of your rental property - No, real estate agent expenses cannot be claimed when you sell a rental property. However, real estate agent expenses can be claimed against your income if they are for fees and commissions relating to the rental of the property. Other expenses you can claim from your rental property include rates, insurance, mortgage interest, repairs and maintenance, vehicle and travel expenses, legal and accounting fees or mortgage repayment insurance.

PITFALLS TO AVOID
There are some rare situations you want to be sure you don’t get tangled up in when you list or sell your house with a real estate professional. Here are a few points to note:

Make sure your real estate agent is licensed - You can search the New Zealand Real Estate Authority (REA) public register of all licensed real estate professionals to ensure the real estate agent you’re considering engaging to sell your house is appropriately licensed. An unlicensed real estate salesperson is a renegade who may not be working in your best interests.

Your real estate agent’s obligations - Your licensed real estate agent works on behalf of the vendor (that’s you), not the purchaser or potential buyer of your home. The real estate agent is obligated to work in your best interests at all times. They should also set out the complete terms of agreement in their proposal to you in clear language with an itemised list of costs and a breakdown of commission and fees, as well as a clear estimate of their appraisal of the property’s value. Your real estate agent should make sure you fully understand these terms before entering into the agreement. Your real estate agent is also obligated to share any information about the listing with prospective buyers, including any current issues with the property.

Vendor obligations - You, the vendor, as seller of the property, must inform your real estate agent of any issues that may affect a prospective buyer’s purchase of the property, whether they be leaking, subsidence, electric, plumbing, structural or any other issues.

Commission after the contract ends - If your contract with a real estate agent expires without a sale, but you subsequently sell (within six months) to a person who was introduced to the property through that same real estate agent, you will be obligated to pay commission as per your original agreement. Most real estate agents use standard Real Estate Authority (REA) clauses in their agreements, but some may use other clauses, so it's important you take independent legal advice to be fully prepared for what’s ahead before signing up.

In closing…
We often hear that buyers should 'do their homework' when purchasing real estate, but when considering real estate agent fees, commissions and closing costs, it pays for a seller to do a little due diligence too. Understanding what’s involved with fees and commissions is the key to maximising the value of your real estate, and minimising any stress or confusion around selling your property.

If you want to find out what agents might charge to sell your property, just post it on mypitchlist.co.nz and wait for the proposals to be sent to your inbox. It’s totally free and only takes a couple of minutes.

Note: your address isn’t shared until you choose to connect to an agent so it is totally risk-free.

 

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