On the chopping block: why fee cutting hurts everyone

On the chopping block: why fee cutting hurts everyone

20 May 2021

The contemporary proverb says “All is fair in love, war - and business” but according to some long-serving agents the increasingly common tactic of fee cutting is going beyond healthy industry competitiveness.

Commission charges vary across NSW with Sydney already home to the lowest fees due to the sheer number of agents on the ground. Historically, metropolitan agents are used to a little real estate rivalry when it comes to their earnings, but current market conditions are causing some short-sighted agents to make some difficult to reverse decisions.

Why it’s happening now

High demand, low supply and falling days on market have all created an environment where fee cutting is on the rise.

“I've never seen such drastic fee cutting,” said Betty Ockerlander of McGrath Epping, who is also a REINSW Committee Member of the Residential Sales Chapter.

“I think it’s happening for two reasons; firstly, many vendors think the market is easy because there are plenty of buyers and they believe they don't need to pay as much commission; secondly there are so many agents clambering to get listings. Vendors see the market is booming and think ‘Oh anyone can sell a property right now’ and they probably can - but at what price?”

Despite rising property values across the state, Ms Ockerlander said some homes aren’t reaching their sale price potential due to the motivation of the listing agent.

“Many low commission agents are quick to take the first offer and don’t care about communicating with other buyers to find out if they're higher. For them, it’s more about getting a quick sale and some commission in their pocket,” she explained.

Fee cutters let themselves down

Peter Chauncy of McGrath Crows Nest and fellow Committee Member said agents who slash their commissions are creating a rod for their own backs.

“These agents don't think about the long-term impact on their own business and brand, as well as all their competitors. They should be fighting for their fee and justifying what they're going to do to make a difference during their vendor’s campaign,” he said.

“I find that a lot of these guys who get into the habit of offering a low fee, they're almost too afraid to ask for a normal fee eventually because they get into that pattern of thinking that's all they're worth,” he said.

Mr Chauncy added that a commission is what separates experienced and inexperienced agents.

“The experienced agents tend to hold their ground a lot better and really focus on what it is they're delivering to the customer. It’s a shame because an agent should be selling themselves and justifying what it is they do for their fee, instead of just dropping it without any great reason to hopefully win business.”

Low fees can be hard to reverse

Agents should consider the long game, before taking the path to fee cutting.

“What I would say to agents is to be very mindful of doing it. Of course, every now and again you might make an exception to the rule; because there are repeat clients or a listing you really want. Just remember though, if you become an agent who charges a low fee, well all of a sudden you're going to be that agent for the rest of your career,” Mr Chauncy said.

“You can’t start charging people a lot differently as you build your career because that sort of thing catches up with you. News travels fast in this business!”

Ms Ockerlander agreed that fee cutters set a precedent that might come back to bite them.

“In that case the only way you can make money is by doing volume, but that doesn't leave a nice taste in anyone’s mouth,” she said.

“When the market turns again, these cheaper agents won't be able to sell the properties and frustrated vendors will come back to ask us for help. I've lost listings before because other agents have had lower fees, but vendors come back and say, ‘Oh, it didn’t sell, it’s your turn now, Betty.’ But as I have been honest with them, I tell them I'm still sticking with my original fee and then they eventually understand,” she said.

Defending your fee to vendors

It might be tempting for a vendor to go with the lowest commission, but a quality agent’s job is to explain that they will get just what they paid for.

“Ask those potential vendors who’ve been offered low fees, ‘What's the end result that you want to achieve? Do you think that agent can achieve it? What is their track record, and can they price it?’” Ms Ockerlander said.

“I like to let my vendors know I don't leave any stone unturned. I make sure I've contacted every buyer that can possibly like their house. I try to sell the value proposition, because at the end of the day it is about the net figure you’re getting in your hand, not just having a sale,” she added.

Mr Chauncy concluded that transparency and clear communication speaks to potential vendors.

“We've always maintained a fair fee and what I say to most of my clients is, ‘Look, I believe in charging everyone the same'. Anyone can sell a property at the moment it seems, but an experienced agent will often get that last 5 to 10 per cent and that's ultimately why they continually get hired,” he explained.

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