In the Indian property market, property agent’s commissions have been a matter of huge concern and considerable heartburn. Just by offering leads and connecting buyers with sellers and by doing negligible groundwork, the agent scooped up a significant pie. As the market gets organised now, every single rupee demands justification. The agent has to provide a comprehensive range of services in order to claim his standard commission.
The market had a traditional approach to compensate the agent involved in the sale and purchase process. 2% commission was the standard entitlement. This rate remains the maximum even today. But there are many leading property agents willing to negotiate as they do not wish to lose any client.
There are brokerage firms with a fixed percentage of commission. It is non-negotiable irrespective of the property sale price. This is one key reason why buyers and sellers hire agents who charge less or are ready to negotiate the commission rate.
Type of property
Usually, commercial properties are priced higher and the scope of making more commission is vast. The real estate agent who specialises in this segment looks forward to earning more even though the percentage is the same. In the housing sector, the property agent has to sell a number of apartments to earn what he does from a single commercial sale.
A real estate agent works without any assurance of getting paid. Even if he invests his time, energy and marketing effort, he ends up with no commission if the deal is not closed successfully. There are several cases where he is deprived of his earnings when negotiation fails at the eleventh hour. His interest is high where he has worked hard and deserves payment. He becomes flexible when buyers or sellers want to reduce his commission rate even after agreeing to pay the standard rate. He knows he will end up with nothing if he does not accept the offered amount. There is no transparency in what the property agent finally ends up with. The secrecy of a deal keeps it undisclosed even though the property agent claims to have received the standard commission.
Flat-fee brokerage model has gained popularity in the community of property agents as the amount appears to be much more reasonable for buyers and sellers. Instead of calculating the commission in terms of percentage of sales proceeds, they negotiate and finalise a flat fee. Giving a fixed percentage means sharing a portion of sales proceeds with the property agent. In case of a flat fee, the property agent gets a fixed amount irrespective of the property price. If it sells for a higher value, there is no surplus gain and even if it sells at a lower price, the property agent has nothing to regret.
Some real estate brokers have come up with a viable alternative to the standard commission option. In this new plan, they list a host of services for which they have separate rates. If a client is not willing to hire an agent for the full range of services, he ends up with a much lower amount in a successful deal. The advantage is that he knows what he is offering to the client and the client also knows what he is paying for.
Nowadays property agents offer services such as legal documentation, research, and site visits. He splits the amount under various heads and charges accordingly instead of demanding a fixed percentage amount without doing much groundwork. This rationalisation augurs well. The property agent does not sulk if he gets paid for what he offers. In cases where he has done everything or offered superior expertise, he is entitled to get his standard commission.
New agents cannot demand the same rate of commission like those with decades of experience in the real estate market. Top-rated agents often charge more because of their proven track record. Buyers can easily hire them instead of trying out a relatively new property agent as they close a deal much faster and in a hassle-free manner. Paying the standard commission rate is not an issue where the job is executed well. In other cases, it always pinches the buyer and the seller. Lowering the commission becomes their singular agenda.
Agents aiming to get more clients often try out the flexible commission route. They offer different rates to different clients. While it is unethical to undertake this approach, many prefer to do it because some clients can afford to pay more than the others. In case of distress sale where the seller disposes of a property to tide over a financial crisis instead of slicing a higher profit, the property agent tends to be negotiable.
Scope of commission
There are several ways to earn a commission. Here are the common options available.
Sale and purchase deals
A property agent gets a commission on sale and purchase deals. There are no fixed rules. The official claim is that the rate is 2% of the property price fixed between the buyer and the seller. But the ground reality unveils a different truth. 1% commission is what they get and in some cases even lower than that.
In the case of rental properties, the property agent gets less for residential properties compared to commercial properties. In case of residential options, the commission is half of a month’s rent. In case of commercial properties, it is one month’s rent.
There is no established rule that defines the percentage of commission a real estate broker is entitled to earn upon successfully closing a deal. It varies from one area to another and there is a lot of negotiation on the percentage of commission that a property agent finally gets.