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One flat-fee aficionado has taken a swing at traditional agents, attacking the industry’s current commission structure, saying that it is commensurate with neither effort, expertise nor skill and instead over-rewards incompetent agents while punishing vendors.
David Kaity, associate director of Brisbane-based property marketing strategist firm Revolutionary Real Estate, is calling for the current structure of real estate commissions to be completely abolished in Australia.
He gives three reasons why he believes commissions are unethical and immoral and should never be charged or paid.
1. Unfair reward scheme
Mr Kaity claims that real estate commissions are not tied to either effort, expertise, skill or time spent by the agent.
“As long as they get the listing, an incompetent real estate agent marketing a million-dollar home can still earn twice as much in half the time as a diligent agent marketing a $500,000 home at the same rate of commission,” Mr Kaity says.
“This is an unfair reward scheme and another reason why commissions should be abolished. A traditional commission is simply a percentage of the value of the sale price of a home, but the value of a home has no bearing on the time, effort, skill, knowledge and experience required to market it.
“Why should the owner of the million-dollar home be punished by paying twice as much for no other reason than owning a more expensive home?”
2. No incentive
Real estate commissions don’t incentivise agents to achieve the highest sale price, Mr Kaity says.
He illustrates this point using an $800,000 home as an example.
“At a commission of 2.5 per cent, an agency would only forego $250 for every $10,000 reduction that they convince their vendor to accept in order to secure a quicker sale and collect their $20,000 commission sooner.”
Furthermore, the associate director says that most real estate agents are employed by a franchise and only keep around 40 per cent of the total commission.
“For them, it only costs $100 for every $10,000 hit they convince their vendors to take in order to close the sale and pocket the commission sooner.”
Mr Kaity points to a study conducted by economists Dubner and Syverson, published in 2008.
“This study was also featured in the bestselling book Freakonomics and found that real estate agents have an incentive to convince clients to sell their houses too cheaply and too quickly,” Mr Kaity said.
3. Unfair pay rise
Real estate commissions are unethical, Mr Kaity notes, because they give agents an unfair and unearned pay rise.
“The same agent can sell the same home at the same rate of commission with the same effort and be paid significantly more, simply because the home has increased in value,” Mr Kaity says.
“As we know, average property prices have outstripped inflation in Australia’s capital cities and so agents are unfairly getting paid significantly more for the same work.”
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