How to negotiate for a good real estate commission
If there is one reason that people all over the world do not like working with real estate agents and brokers, it will be the commissions they have to pay them. The issue of commissions has destroyed relationships between many agents and their clients, between friends and even family members. Poorly managed negotiations for commissions has even led to the abandoning of multimillion projects and protracted legal tussles in court.
The passion and seriousness attached to commissions is a signal that it is an important component of the real estate sector which needs to be looked at and properly understood to avoid the commotion it sometimes creates.
What is commission in Real Estate?
According realtor.com, the real estate commission is the agent's fee for service. It is a percent of the sale price negotiated at the time of the listing. Every seller has the right to negotiate the commission, just as every agent has the option to hold fast to their fee. Full-service agents charge more than fee-based, or flat-fee, agents.
What this means is that when you make the decision to undertake a real estate transaction; buy, sell, lease or rent a property, so many activities are triggered to ensure you have a deal. These activities which I have already explained in my earlier article on “All you need to know about Real Estate Brokerage” is something that must be paid for.
Unlike charges in other sectors, where service charges might be fixed, real estate service charges are not fixed but determined by the value of the property or transaction on the table. A portion of the full charge of the transaction is what goes to the agent or brokers facilitating the transaction.
This commission is what the agent or broker uses to cover his expenditure in facilitating the transaction or closing the deal. For instance, advertising and marketing, free site and property viewing, fuel cost, follow-ups on documentations, scrutiny of all paperwork, saving the client time, money and resources in ensuring the transaction is closed. Apart from this, the broker or the brokerage from where the agent works pay utility bills, graphic designers, social media marketers among others to stay in business.
Most of these expenses are made upfront at no cost to the seller or buyer in the hope that the deal will be closed so that the agent or broker gets paid. Most often if a deal is not closed the agent or broker gets nothing or something small if he or she is lucky. This something small does not even cover the expenses made so far.
What is the Ideal Percentage for a Commission?
There is no fixed commission as it depends on the percentage agreed between the seller or buyer and the agent or broker. The percentage could be as high as 10-15% (special cases) and as low as 1-3% depending on the cost of the property in question. In fact, some commissions, particularly involving very high cost of property can be below one percent; e,g 0.5%.
Your ability to decide on the right commission percentage is dependent mostly on many factors; the experience of the agent or broker involved in the deal; thus the one representing the seller (Seller’s or listing agent) or the one representing the buyer (buyer’s or selling agent). If the agent or broker has a solid track record of closing deals lots of deals in a year, his commission could be quite high because he or she knows his worth and can demonstrate to you with his many deals he has in his bag. On the other hand, an agent who closes a deal once in a while will not be able to charge higher commissions and you the client, will not even be ready to give him that.
Another thing is that a property which has been listed for GHC 2million (about $420,000 using 4.7 cedi to dollar exchange rate) will have a less percentage for a commission than a property which is going for GHC 700,000 (about $140,000). However, the actual money that will come to the agent or broker will be higher for the former than the later. At the end of the day, it is all about the negotiations that are pre-agreed upon before the transactions take off.
Some clients instead of the percentage of the fee on the transaction are able to negotiate for a flat fee which the agent must, of course, agree to. Sometimes it is the agent or broker that makes this alternative suggestion. All the same, it must be a fee that is mutually beneficial to all parties involved.
Who Pays the Commission and Who Collects it?
In the ideal situation, as happens in the developed countries, the commission is paid by the one selling, leasing or renting out the property. This is agreed on paper before the transaction begins. What the seller or the person making the listing agrees as percentage to be paid as commission should be agreed upon by both his or her agent and that of the buyer and his or her agent as well. This is because, whatever is agreed will be shared between the agents on both sides.
Another thing is that although it is assumed the seller is the one to pay, they buyer is believed to have also paid because it is taken from the money the buyer gives to the seller. The buyer’s agreement to the listing offer or price is by extension, an agreement to the commissions to be paid to the agent(s) involved in the transaction.
For instance, if a seller agrees to a six percent (6%) commission on a property worth GHC700,000, the two agents, thus the seller’s agent and the buyer’s agent will share between them. This is either shared 50/50 or 60/40 or 55/45 etc with the seller’s agent taking the bigger share mostly. If the two agents are working in the brokerage, they have to return their share to their brokerage where their actual take-home share will be given them which differs from brokerage to brokerage.
Commissions in Ghana
To be very frank, Ghana’s real estate industry is young and not regulated hence, most of these standards of commission payment are not cast in stone. One will say the Ghana experience is 100% negotiation with a little bit of precedence influencing some level of standardization.
In Ghana, you may hardly get a seller and a buyer having different agents. Usually, you have what we call the dual agent scenario where the agent represents both buyer and seller. In the past, the agent takes a token from both seller and buyer or landlord and tenant in the case or home rental. This is still existent, especially in smaller cities.
However, in major cities where big transactions happen, the system of taking the commission from the person offering the property for sale, rent or lease is imminent, but not fully exclusive. One thing is key, always ensure whatever commission is paid is what was agreed on paper (contract agreement) before the transaction starts. Both agents and brokers must ensure their basis are covered to ensure the right commissions are paid or arrived at.
Compare and Contrast
In developed counties where it is easy to track people and companies easily coupled with a good database of properties, their locations and their estimated costs or selling prices, it is easy to do such comparison.
In Ghana, it may be a herculean task, but u can always use online platforms like www.meqasa.com and www.tonaton.com to look at similar properties and how much they are going for, be it sale, rental or lease. The website of the real estate agent or broker can be very useful for comparison.
You can also look at the locations and when they were listed and when they were taken off the market (you may not get for all, but it is worth the try). Then make sure, you don’t talk to one agent and decide. Talk to more than one agent and negotiate with all the agents you talk to.
Now with the parameters you have set for yourself considering the tips I recommended in the article (How to Employ the Service of the Right Broker or Agent), you should be able to settle on the agent whose commission, expertise, demeanour etc suits your aspirations.
The Ghana Association of Real Estate Brokers (GAR) is also working on a standardized commission rate card to be adopted by its members and possibly all agents in Ghana.
Unfortunately, this is all time will permit. Watch this space for the part two of this series. Until then, it has been your trusted Real Estate Broker; Chris Nii.