Before we look at what they earn it’s important to understand the service they provide.
What do buyer’s agents do?
Buyer’s agents source property for their clients from the open market place and off market (property that is for sale yet not advertised). They then negotiate on property price via private treaty or auction.
Their experience should:
-Save their client’s time and money
-Choose a better quality property that will increase in value quicker than the common property or
-Choose a property that has a value added component, ie. renovation, sub-division etc.
-Give buyers access to real estate that they normally would never come across
In the same way a real estate agent caters his/her service to benefit the seller (vendor). The main role of a buyer’s advocate is to look after their client’s best interest.
Who Pays A Buyers Agent?
Just like a real estate agent, buyer’s agents are paid a fee by the people whom employ them (the property buyer).
It’s illegal in the state of Victoria for any licensed real estate agent to collect two payments from a single property transaction. It’s a major conflict of interest and incentifies the property advocate to not act on their client’s best interest.
How much do they make per deal?
What a buyer’s agent earns varies from agency to agency. Typically, buyer’s agents are paid fixed rate that is agreed upon or a percentage of the property value.
Commission Model: When the buyer’s agent is paying a percentage of the property price, this percentage is approximately 1.2% – 1.8% of the property value. If a property is purchased at $1M, at the lowest rate, a buyers agent would earn $12,000 for their work.
The problem with this model is it incentifies the agent to spend more of their client’s money. Instead of walking away from an auction because the price is too high, a buyer’s agent might be tempted to spend an extra $50K to earn a bonus.
Fixed rate model: A fixed rate removes the temptation of over spending money and insures transparency. The clients know what they’re in for when it comes to payment of services.
With a fixed rate payment model, the value of the property doesn’t matter. The agent would be paid the same regardless. A fixed rate can vary from $5000 to $15,000.
Engagement fee: Initially, when you hire a buyer’s agent, this is a fee that is paid at the start of a relationship, normally this fee in non-refundable and in the range of $1000 to $2000.
Negotiating only model: Many home buyers prefer to find their own property. The hard part is dealing with the real estate agent, working out the value of the property and negotiating a fair price. Many buyer’s agents offer a discounted plan that doesn’t include a property search. This is a great option, if you wish to stay in control.
Question: When selling a home, real estate agents do not get paid up front. They earn an agreed commission only if they sell the home.
Across the buyers agent market, this model is not offered by any known buyer’s agents.
The reason for this is that the real estate industry has very high turn over of employment. Many agents are paid well below a minimum wage in times of low activity (not converting enough listings into sales). This occasionally pressures agents to behave unethically and sometimes, leave the industry altogether.
Watch out for these traps:
Hidden Costs: For instance, a buyer’s agent may only charge a fixed rate for 3 auctions, and then change to a higher rate afterwards. In this example, there is an incentive for the buyer’s agent to not purchase a property in a timely manner.
A buyer’s agent should guide their clients to the right property within their budget, they shouldn’t have to attend more than three auctions for any one client.
What happens if they don’t buy a house for you?
Make sure you clarify the details before you hire them! Ask questions like:
-Do you have to pay a fee if a property is not purchased?
-Do they offer a different rate if the buyer finds the property?
-Are the buyer’s agents affiliated with developers or real estate agencies and potentially earns a double commission.
All agents’ fees are negotiable.
According to Consumer affairs Victoria, all fees charged by an agent are negotiable before the client signs an authority.
What this means is ‘ask for a discount!’ Compare their fees to a similar agency’s and offer constructive feed back.
-Make sure they organize a building and pest inspection on your behalf.
-Attend the final inspection with their client before settlement.
-Offer value added services like video clips of property inspections.
Read The Agreement Before Signing.
The law states that when you “sign” any documents, you are bound by every single clause/term and condition in the document, even if you did not read it.
Hence, the only arrangement that exists is an agreement is in writing. Check if the contract states:
-What the fees are and that they are clearly outline
-The role and responsibility of the agent
-When fees are to be paid
Are the Buyers Agent’s Fees Tax Deductible?
If the buyer is buying a principle place of residence, fees a buyer’s agent charges are not tax deductible although if the buyer were buying an investment property, the fee would be treated like any other advisor through the property purchases process. For more information on this topic contact the Australian tax office.
Across Australia, the buyer’s agent industry is young, so separating fact from fiction can be difficult. For anyone looking at hiring a buyer’s agent, understanding the cost structure is vital for a positive outcome. For more info on Buyers Agent’s Fees check out the below video:
Mark Ribarsky is a real estate advisor and a residential property developer. He is the founder of Wise Real Estate Advice, one of Melbourne’s leading buyers agents.