Ag shame, hey.
The poor old South African estate agents can't even afford to buy a decent home anymore because they simply don't earn enough money. At least that was one of the findings contained in the latest survey of the real estate sector.
The survey, circulated to 42,000 registered estate agents, is backed by the Institute of Estate Agents of South Africa (IEASA), Property 24 and the Estate Agency Affairs Board (EAAB).
According to the findings of this survey, 54% of the practicing estate agents earn an average of R13k a month, enough to qualify them for a bond of say R400k. Another 28% of agents earn between R13k and R26k a month, so they could get a bond of up to R800k.
Just 20% of agents (one in five) qualify for a bond of R1m or more.
So if anyone thinks that estate agents are making buckets of money for every property they sell, they should think again because, as the survey points out, five years ago at the height of the property boom, just 20% of agents earned more than R20k a month anyway.
So where is all this commission going?
There are two factors to consider. First of all, these agents work for just nine months of the year while their salaries are averaged out over the full 12 months. More importantly, though, is the fact that there is a commission-sharing arrangement between the real estate agent and the principal agent and invariably the principal agent gets 50% of the commission for doing very little.
So if a property is sold and the commission is, say R50k, half of that money goes to the principal and the estate agent who did all the work gets the balance.
The principal justifies this by saying that they have to carry the costs of advertising and marketing the property on behalf of the individual agent and have to carry the administration charges, overheads and all manner of fees on behalf of the agent.
For the life of me I cannot see how these charges equate to 50% of the total commission payable.
All estate agents have boom-and-bust cycles, which means they may sell three properties in one month and then not sell another property for another three months.
In order to streamline their cash flow, agents often take advances against future commissions so that they can put a slice of bread and butter on the table for the family. Of course, they pay prime-plus interest rates on these advances in much the same way as they would pay a pawnbroker.
So the agent who is putting in all that time and effort to secure a sale faces the uncomfortable and unpleasant reality of giving away 50% of his or her earnings just because he or she works for a franchised agency. Surely this is neither fair nor right?
I have always thought that selling property as a real estate agent may offer individuals an extremely rewarding and lucrative career that will provide a decent living for sustained period.
And, if I look around the suburbs of our cities, it is clear that there are a great many agents who are working for a handful of large principals.
What does upset me though is the way that principals continuously earn money on the back of an estate agent's for doing very little if anything to lodge the sale at the Deeds Office.
Sure, the principal provides the pavement pointer boards, access to advertising in the electronic and print media and some office space and telephones too. But these elements cannot equate to 50% of the full commission payable.
The principal agent doesn't provide any of the ancillary benefits that come with permanent employment (like a guaranteed salary just for turning up at work); a medical aid or retirement annuity or even a group life insurance scheme.
On paper anyway, the principal agents are actually laughing all the way to the bank.
I have yet to meet a poor principal agent who's unable to afford an overseas family holiday once a year. Why? Because they make most of their money on the back of someone else's efforts. Like retailers do.
In terms of new legislation, estate agents will have to be registered in much the same way that insurance brokers are today. Estate agents will have to have a fidelity guarantee from the EAAB and without that guarantee will not be permitted to practice as an estate agent.
That's all well and good, but isn't it now time to introduce some level of justice into the commission payable and the amount of commission-sharing that is permitted between the agent and the principal?
Ideally, free market conditions should prevail and agents should be prepared to accept or reject a principal agent's offer. But I actually do believe that there is collusion between principal agents because the offers made to individual agents applying for a job with a principal are all virtually identical.
That cannot be good for free market conditions for competition either.
What appears to be happening right now is that principal agents who set down commission-sharing fees that are uniform within the real estate sector are unfairly exploiting individual agents.
It seems to me that this exploitation goes way beyond the fair and just principle of sharing the spoils.
Estate agents themselves must now fight for their rights and insist that principal agents drop the commission-sharing ratio and allow free market conditions to apply. If the principals are not prepared to do so, then, and only then, should the Competition Commission step in to halt the collusion.
That way I believe agents could start working for the interests of both the seller and buyer and in the interests of the property market as a whole.
*Hartdegen writes a regular column for Property24.com. The content of his columns constitutes his personal opinion and doesn't pretend to be facts or advice. Contact him at paddy@neomail.co.za.
Readers' Comments Have a comment about this article? Email us now.
Absolute rubbish, as a pricipal agent/cy we have huge overheads, tax bills, SARS & board compliance issues, trust account fees, trust account audits, Investment fees that are not recoupable etc etc! You would change your mind if you could look at the "books". Incidently most principal agents are also active agents, they are normally also the "entrepreneurs' that started the business in the first place! The commission that they earn on their own sales is more often than not the "profit" that you are talking about. – Neil Tucker
Paddy, you are talking utter rubbish (and I bet you know it). If you don't know why I am saying that, then you are, I guess, one of the 90% of agents that do 10% of the sales. The real professional agents (the 10% that do 90% of the sales) make enough money not to be bothered by what(or what not?) the principals bank. They simply get on with the job and make money for themselves first and foremost. Paddy, you'll say it best when you say nothing at all! – Morris Pieterse
I once worked for Aida and sold a property for 3.9Mill. The client only wanted to pay commission of R75k and, when I presented the agreement to the principal he tore it up saying that only he could negotiate commission. Result I lost 50% and the client lost a good sale. The entire industry sucks. – Angelo Peros
Interesting article, but I cannot understand how anyone can justify the amount of commission charged by estate agents in South Africa. When I left England to come here (3 years ago) the estate agent charged me 1.25% + VAT. For this, I got an excellent professional service, with printed colour full details of my property, online details and photos, advertising in their window, accompanied viewing, full negotiations done on my behalf, updates every step of the way. So what do you get for the 7% charged here I wonder? I'd love an answer from an estate agent! – Expat Tannie
I am a Real Estate agent from the US and in South Africa currently in the process of practicing in Johannesburg. In a free market society as an agent commissions are negotiated just like the deal we negotiate on behalf of our clients. It's an absolute rip off that as a seasoned agent I give up half of my commission that I worked hard to bring to the company. I am completely happy to pay for marketing cost or any cost that I incur in a given month on a transaction. This then becomes a business expense that I write off when I do my taxes. I bring the business, do the deal, sweat the process I should get the chunk of the money.- Soraya
