Comparing Commissions: What Consumers DON’T Get Right About Fees Around the World
In the landmark Sitzer/Burnett case, attorneys introduced commission structures from around the world as a means of validating their argument that US agents “are paid too much.”
The problem is that it is not a true “apples to apples” argument. While it was a good trick to look at just the fee amount or percentage to make that judgment, there are also a lot of other factors that need to be taken into consideration before deciding which method of buying and selling property is the best or even the most costly overall.
Related reading: Tranio – Real estate agency commission rates in different countries
Australia
One of the countries that the plaintiff’s attorney, Michael Ketchmark, touted, which the media loves to report, is Australia, which is a lot less than half if you spin it the way he and the media did. HOWEVER, the commission structure and practices there are very different.
In Australia, agents are less collaborative, and over 40% of homes are not even sold in the same manner as we do here in the States. They are sold at auction, with the agent essentially standing on the porch calling out the current bid and interested buyers on the lawn, hoping their bid wins the home. The seller also pays the marketing expenses (typically in the thousands) in advance as a separate fee.
Down under, an agent will quote a seller their fee (usually 2-3%) and enter into an agreement for them to pay the marketing bill for the advertising, yard sign, auction costs, etc. This generally runs about $7,500, and they round up to $10,000. So, the homeowner cuts a check for $10,000, and if the house doesn’t sell, they don’t get that $10,000 back because it was spent on expenses.
This stark contrast in real estate practices is a crucial point to note. In the United States, the traditional approach has been different. Agents typically charge a higher percentage, but they also cover the expenses and marketing costs from their own pocket. They do this in the hope, with no guarantee, that the listing will sell and close, and they will be reimbursed for these fees. If the sale doesn’t go through, they bear the costs.
Great Britain
All right, now let’s look at Great Britain. They charge even less, typically 1%, but can go up to as high as 3%. But here’s an interesting thing: in Great Britain, there’s no MLS. That’s right, you read that correctly. Can you imagine not having MLS here in the States? We can’t!
Great Britain agents negotiate their salaries with small bonuses. So, really, that money is going to the office, not to the agent, and then the agent is paid a salary. The agents don’t even have to be licensed! So, the quality you’re getting in Great Britain is not the same as it is here. Also, unlike in the U. S., there is no cooperation among agents; in addition to that 1-3% percent, the homeowner pays the marketing fees in advance, traditionally $10,000 or more.
So, while it made a colorful litigation point for the plaintiff’s attorneys, it’s just not apples to apples comparatively. (More like apples to beef jerky!)
Related reading: NAR – Real Estate Practices Around the World
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The Takeaway
In the wake of all this litigation, you may see agents here now replicating some of those models, however. Many agents are moving to a tiered commission structure ranging from lower rates with marketing expenses paid upfront to higher rates where agents absorb the expenses and the risk and are only compensated once the home is sold and closed. Not only does this give buyers and sellers more options to choose from and greater transparency in the process, but it also hands some of the control back to those who felt like they had none.
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