Typically buyer’s agents work on a commission, however, there are a variety of structuring options for buyer’s agent fees. The final make up will depend on the services being sought by the property buyer.
Buyer’s agent commission-based assignments are generally for full service offerings. After working together to define the type of property you’re interested in, the agent will go on to locate suitable properties, conduct inspections, possibly bid at auction, negotiate with the seller’s agent and ensure the purchase is successfully completed right down to building and pest inspections.
It is also possible to pay buyer’s agent fees on an hourly rate or fixed fee basis when seeking specific skills to assist with individual stages in the process of buying your home or investment property.
Some agents are happy to work under a non-commission fee arrangement, even for a full buying service. There is more information on this below.
Can I claim it?
In some cases, property investors are able to include professional buying fees as a deduction in their income tax return. Try to confirm this with your accountant early to get an idea of the real financial impact of using an agent – it could mean an effective discount of up to 45% of the fee!
What you need to know before negotiating buyer’s agent commission or fees
Remember that the agreement you sign should clearly dictate the financial obligations you have to the agent. ‘Clearly’ being the operative word. Make sure that you feel comfortable with your understanding of the terms.
Another thing that should be clear is the agent’s responsibility to you. What deliverables or outcomes must they produce to trigger your financial obligation? Stipulating this in the fee agreement will protect you should the agent be unable to fulfill your needs.
All documentation regarding fee and service obligations should be agreed and signed prior to the commencement of services. You can always add provisions for adjusting the terms if you think this might be necessary after the service period commences. If the signed agreement is overlooked at the beginning, you must make sure it is done before any property transaction takes place.
It is normal for agents to charge a non-refundable retainer or commencement fee. The amount is determined by the type of property sought and the buyer’s profile and is generally between $500 and $1,500. This fee compensates the agent for their time and hard work should you choose not to go ahead with a property purchase for some reason beyond their control.
In addition to the retainer, a standard commission ranging between 1% and 3% is charged at the completion of the property transaction. This fee is based on the purchase price inclusive of GST.
Notes on paying commission and alternative fee structures
There is a school of thought that by charging a commission a buyer’s agent may have an incentive to negotiate a higher purchase price. This behaviour is contrary to the ethos of independent buyer’s agents, however there are some other ways to structure fees if you are concerned about this.
Some buyers prefer to set the agent’s fee based on their property budget. This limits the fee, giving the buyer complete control and peace of mind.
If your budget is flexible, another way to bring certainty to fees is the tiered flat rate model. This means that the buyer and agent agree on a number of stepped fixed fees that fall within different property price brackets. The final fee payable is determined by the amount paid for the property, however there is limited incentive for the agent to let the price creep up during negotiations.
There are a small number of agents who include a blanket cause in their agreements stipulating that the buyer is liable to pay fees or commission irrespective of the agent’s contribution to the successful property purchase. There are stories of buyers who have independently sourced and transacted a property after initial meetings with an agent being required to pay fees.
To protect against this, if you notice a similar clause in the contract with your agent simply request that they remove it. If the agent has legitimate commercial reasons for including the cause, request that the contract explicitly state which suburbs it relates to as well as the time period required to pass before the contract will lapse.
It may be possible to include a release clause in the agreement with your buyer’s agent, which will provide you with the option to release yourself from their services. You will need to enact this prior to the agent providing any significant services.