Property

Misconceptions about Commissions

Real estate agents get paid through commissions, which are pretty much the sole source of their income. It’s not unlike in other sectors of the service industry, where doctors, attorneys or masseurs live on payments for the services they have provided. However, real estate commission has its own uniqueness.


Agent

First of all, the price elasticity of commission is very low, which means that a lower commission rate doesn’t necessarily attract more customers. Commission rates in general remain low, mostly around 1%, and both buyers and sellers are much more concerned about the actual selling price of the property than the commission. Back in the days, property speculators were willing to pay high commission rates to real estate agents as incentives for agents to show them premium, much coveted properties before showing to others. On the other hand, agents would also provide second-rate services to clients who pay less commission, causing those buyers to save small but lose big.

In the 1960s and 1970s, homeowners would sell their own properties without commission. Due to the conflict of interest between agents and homeowners, many agents would purchase properties then sell them to buyers—similar to the second-hand market selling model. It remained an open secret until large agencies started to advocate for a new model where both parties in a transaction pay commissions. This way, realtors also have the responsibility of protecting the benefits of the homeowners, eliminating the conflict of interest.

Meanwhile, the first-hand property market went a different route. Before 1997, developers weren’t commissioning real estate agencies to sell their developments, but agents could seek buyers and bring them to sign contracts with developers, and make commissions from homebuyers.。

After 1997, though, developers began to depend on agencies; on top of official commissions, they also ruled that agencies could only represent developers, and not receive payments from buyers. It may seem like that homebuyers got the better end of the deal by not paying commission, however, with developers now the only party paying commission, agents no longer have to protect buyers’ benefits.

In addition, while it is a common industry practice for parties to negotiate the price before signing the contract, agencies rarely use commission discounts as a means to compete. There have been a few small agencies that tried this method in order to be more competitive, but few succeeded. Most of them made even less profit after adopting discounted commission rates, which led some to go out of business.

總In a nutshell, low commission rates aren’t necessarily a good thing. At the end of the day, it is quality services that can attract and retain clients. Property purchase is a major investment, and agents have the responsibility to keep the clients’ interest in mind. If they are committed to providing genuine, satisfactory services to customers, realtors don’t have to worry about getting the appropriate amount of commission that they deserve.

>> Related information: Understanding the Role of a Property Agent