Race to the Bottom

by Hayden Groves

We’ve all heard the idiom, “If you pay peanuts, you get monkeys” and we understand the meaning; by choosing the cheapest option, the result is usually equally cheap. This applies to just about everything in life from the food we eat, the clothes we wear and yes, the real estate agents we choose.

When market conditions are strong with supply short and demand high, the average days on market for most properties begins to shorten. Vendors begin to expect that their property will “sell itself”; they form the view that the agent’s role is made easier by an anticipated quick sale and “easy” commission. 

Emboldened by this perception, vendors seek to negotiate a lower sales commission from their preferred agent. Couple this with agents competing hard for listing opportunities in a low-supply market and agency selling fees come under some downward pressure.

When choosing your preferred agent, the selling fee is the last thing you should concern yourself with. It’s almost irrelevant. 

Now before you shout, “Of course he’d say that!” think about this. The agent’s primary responsibility is to seek the highest possible price the market will bear and achieve it in the shortest possible time. In a rising market, only a skilled, experienced and committed agent who is genuinely acting in your best interest will effectively prosecute this mandate. These agents are very rarely the cheapest. 

These agents are not satisfied with a quick and easy sale, they will push the boundaries to seek an extraordinary outcome for their client by skilfully pitching buyers into competition. 

I am reminded by the failed Purple Bricks discount agency experiment in Australia whereby their agents were motivated to list property and not concern themselves about the outcome. The model failed, despite spending more than $50m in advertising, because their agents couldn’t be vested in the sales outcome.

The agent who’ll be satisfied to work for 1% commissions have to take the “quick and easy” sale to the Vendors and encourage them to take the offer because they’re working on volumes. They must move onto the next sale to make a living. They survive by selling more than the agent who sells half the property at twice the fee. Quality over quantity applies here.

But it is the agent that takes a deliberate, considered approach to the marketing and sales process in a bespoke, nurturing way that is genuinely vested in the outcome for their client that can demand a reasonable professional fee. 

Choose your preferred agent on their merit first and negotiate the fee last. Factor into your selling outcome the bit extra you may need to pay a properly committed, partnering agent. 

Whilst there is no regulated scale of fees, generally a two to three percent commission is reasonable remuneration for a professional agency experience. Note that agents must inform you that fees are negotiable and our regulator can investigate if the fee is considered excessive.