Commission matters for real estate agents around the world.
In a recent report that featured on the Private Property website, it was noted by one of the readers that UK estate agents earn far less in commission, usually charging between 2.5% and 3.5%, while their South African counterparts charge anywhere from 5% to 7% to provide a similar service.
It would appear from this that South African agents are charging way in excess of what the accepted norm is in Britain. However, as with most things in life, when we scratch the surface it quickly becomes apparent that all is not what it seems and although SA agents may charge more, they back this up by offering a far more comprehensive service.
Michael Pashley, an agent with Harcourts says that there are a number of reasons why the commission charged in South Africa is higher than that in the UK. “Agents in that country do not get involved with assisting with contracts or any other legally-binding agreements. The system is very strange in that if you want to buy a property you make a verbal offer to the agent. They pass that offer on verbally to the seller and report the response back to the buyer. It is only when written contracts are exchanged that the agreement becomes binding.”
He says that this means that buyers could put in 10 verbal offers on different houses, have six accepted and choose just one. If the buyer decided a month or so down the line that he wanted to pull out of the deal before any contract was signed, he could do so with no compensation being due.
In addition to the uncertainty that this method creates, the fact that lawyers have to be used to draw up contracts means that British homeowners have to pay legal fees that vary between £250 to £500 on top of the commission charged by the agent. In addition to this, says Pashley, British sellers have to obtain an Energy Performance Certificate (EPC) which shows prospective buyers how energy efficient the property is. “Costs vary, but are usually around the £90 mark.”
This is completely different to how the law operates in South Africa whereby a buyer views a property and signs an offer to purchase with the seller via the estate agent, thus legally binding himself to the deal. However, it is not the only difference.
In most instances, South African sellers contact the agent or agents they wish to market their home and leave everything in the agent’s hands, including the marketing of the property. No money changes hands until the property is sold and the agent claims his commission. In the UK, however, sellers often have to pay for the privilege of getting the agency to list and advertise their properties. These rates vary depending on the level of service offered. British agents tend to use the web far more than their South African counterparts to advertise property for sale. If a British seller wants to reach an even wider audience by advertising in newspapers and the like, he is often going to have to pay extra for this service.
In South Africa, although most agents advertise property on the web, a great number of sellers demand that the property also feature in the print media and would be suitably shocked if the agency concerned attempted to charge them extra for this privilege. Any agent in this country will tell you that advertising is any agency’s biggest expense and the fact that they are forced to bear these costs with no guarantee of any return on their outlay, is a tremendous risk that they take every day.
In Pashley’s opinion, a professional South African agency deserves the commission they make from selling property, provided that they do the job properly and this includes issuing the seller with a written marketing plan, indicating exactly how they plan to market the property.
Perhaps the biggest difference between the two countries is that while British agents earn a basic salary, have free medical care and are guaranteed a substantial government pension, South African agents, for the best part, are on their own. Very few, if any, agencies offer a basic salary. Medical aids are expensive and the old-age pension offered by government is not nearly substantial enough to retire on.