Property sales commission explained

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06 Sep 2013

In previous decades, when the property market was booming, people became estate agents because they thought it was an easy way to earn money by selling property as a pastime.

Payment of the commission comes from the party which gave the agent the mandate to find or sell the home. In most cases it will be a seller who appoints an agent to sell their home.

This negatively impacted on the image of the real estate industry as service levels were low and homeowners saw an agent as someone who made a lot of money for minimal work, and because these types of agents were truly only interested in quick income, explains Craig Hutchison, chief executive officer of Engel & Völkers Southern Africa.

However, once the recession hit, sales dropped and the property market became more difficult, most of the fly-by-night agents were filtered out.

This left experienced and dedicated individuals who took up real estate brokerage as a career and had to work very hard in order to make a living out of selling property, he says.

According to Hutchison, the real estate industry has come a long way from the local housewife selling homes in her spare time, to now being a professional career choice for many and stringent qualifications required ensure that a high standard is upheld.

The public still bears the scars of the previous generation of estate agents with the most often used statement being ‘Agents earn so much money for doing nothing’.

Why are there estate agent commissions?

Being an estate agent is an occupation much like any other, you earn an income from working.

By having completed the necessary studies and portfolio of evidence to gain their NQF4 qualification, estate agents are thereafter qualified professionals in their career field.

The only difference is that most agents do not earn a salary and their earnings are commission based per sale they conclude, which constitutes their livelihood.

When is an agent eligible to ask for commission?

Both the agent and the agency they are employed by must have a valid Fidelity Fund Certificate in order to be eligible for commission.

This means that the agent is qualified to operate in the real estate industry and has the necessary insurance and security as a safeguard, which also serves as protection for their clients.

When is a commission effected?

An agent’s commission comes into effect when they successfully match a buyer and a seller, i.e. when a sale is successful in terms of a written contract being signed and accepted.

Therefore you only pay commission if they were successful at completing the sale which means ensuring that the finances are arranged and the transaction is registered at one of the 8 deeds offices across the country.

In some countries, agencies work on an hourly rate and not a percentage of commission, which can sound tempting, but in reality it can be a very costly exercise as you pay the hourly rate whether or not the agent manages to sell your home.

According to Hutchison, the real estate industry has come a long way from the local housewife selling homes in her spare time, to now being a professional career choice for many and stringent qualifications required ensure that a high standard is upheld.

“Our system is much more secure as you are guaranteed results for the money you pay.”

When is the commission paid?

The commission is only paid to the agent once ownership of the property has been officially transferred to the buyer.

The transferring attorneys will handle this matter and after registration, they will pay the agent and at the same time, any monies leftover, will be transferred to the seller.

Who pays the commission?

Payment of the commission comes from the party that gave the agent the mandate to find or sell the home. In most cases it will be a seller who appoints an agent to sell their home.

On very rare occasions, a buyer who is looking for a new home or investment, could instruct an agent to find them a specific home and then they are legally obliged to remunerate the estate agent.

This arrangement is not cast in stone though, and the buyer and seller can come to their own contractual agreement as to who pays the commission.

Is there a quality control in terms of service delivery?

There is really only one way to check the quality of an agent's service – exclusive mandates. An exclusive mandate is concluded when the seller authorises one agency the privilege to market and sell their home.

The security in this selling process is the ‘mandate’ part.  The agent is legally mandated on paper to sell your home according to a pre-agreed upon set of deliverables to which they sign a commitment.

Should the agent not keep to their conditions as stipulated in the mandate, you have the right to cancel the agreement and either market the property yourself, or find an agent who is properly committed.

An agent who works on open mandates is not in control of who is doing what, and you could end up with agents who are not committed at all due to the fact that one of the other agents might sell the property without their involvement and then there will be no commission payable with this sale, he adds.

In the next article, find out more about disputes and negotiations.

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