How To Check How Much Commission Does Estate Agent Makes?

How To Check How Much Commission Does Estate Agent Makes

The decision to sell your home is never an easy one, and it typically requires a great deal of thought and deliberation. This is true even if you must sell on a relatively fast timeline. After all: this is your home. Even if you want and need to leave, it can be challenging even under the best of circumstances. But the silver lining is that you will receive funds that can help you move on to the next steps in your life, both literally and figuratively.

That said, you probably have one big question on your mind. Well, you certainly have a lot of questions on your mind, but one of the tops is “how much commission does an estate agent make?” The answer may surprise you. But it also leads to more questions: What are those fees for? How much will you pay? What do you get in return for your money? Why do different agents and agencies charge different rates? Do you need an estate agent at all?

But this guide’s goal is to minimise surprises and ensure you know what to expect as you go through the house selling process.

We will provide answers to questions including:

  • How much commission does the estate agent make?
  • How do they use my commission?
  • What am I paying for? What services will the estate agent provide?
  • What do different contracts mean – and what will I pay?
  • If I pay more, do I get more?
  • When does my estate agent get paid?
  • How do I choose the right estate agent?
  • Can I sell my house without an estate agent?

Without further ado… Let’s get you some answers.

How Much Commission Does an Estate Agent Make?

How much commission does an estate agent make in the UK? The best, and also the most frustrating, answer is, “It depends.” The first and most significant factor on which it depends is the value of the house you are selling. A house selling for £100,000 would yield a much smaller commission than one selling for £400,000. That said, the current average when it comes to estate agent fees is 1.18% + VAT. (This is different from the average for multi-agency situations, which we will discuss directly.) This will vary depending on location. As expected, for example, London rates will be higher.

It is important to note that since 2016, the Property Ombudsman has required that estate agents include VAT in their fees. Before this date, you, as a seller, would have had to add 20% to the quote provided, which understandably led to confusion.

To be clear: the average estate agent fee is 1.18%+ VAT, which is currently 20%. To make it easier to determine how much a real estate agent makes on commission, you can use an online calculator in the planning stages. When you’re working with an agent, you can ask them to be very clear and transparent about their rates.

One good source: OMNI Calculator offers an option to calculate estate agent fees with VAT as a factor. If, for example, you were to sell your house for £400,000 and the commission or fee rate is 1.18% with VAT at 20%, the commission would be £5664 (meaning your proceeds less other expenses, such as solicitors and so on) would be £394,336.

Online calculators like this and input from your estate agent will at least give you a starting point as you plan for the financial aspects of a sale going forward.

How Does An Estate Agent Use Their Commission?

Estate agents are, after all, in the business of… business. They need to make a profit; it is their job and livelihood. The fees that sellers pay go towards various costs, such as office space, company vehicles, travel and salaries. The total commission that goes to an estate agent is only a small portion of the fee. While not your concern, per se, their “take home” as it were, depends on factors such as sales targets and the sales performance of the agent.

So fees do not quite equal commission in many cases. Fees cover administrative and other overhead costs, while the commission is more of a direct pay mechanism for the agent. And, as we will discuss later in this guide, some earn that much more than others!

What Do Estate Agents Do for You?

When you’re asking “How much commission does a real estate agent make?”, an essential follow-up question is, “What am I getting from this?”

Make no mistake, though. Even if the thought of paying a fee is not palpable, think about what you get in return. While you are not required by any law to work with an agent when selling your home, it can be highly advantageous. These are experts in the field and your specific location; they take the time and effort to cultivate extensive networks that include potential buyers, solicitors, financial experts, valuation professionals and others who can help facilitate a smoother, more streamlined transaction.

All reputable agents will provide you with an agreement that details their terms and conditions. Must, under the Estate Agents Act 1979 and the Estate Agents (Provisions of Information) Regulations 1991, these professionals must provide information about their services before they sign a contract.

That said, the services included in the terms and conditions of your agreement may include:

  • Listing the property
  • Taking or arranging photographs
  • Arranging for or sourcing floor plans
  • Crafting a compelling advertisement for your property
  • Planting a “For Sale” sign
  • Advertising your property on online portals (e.g. Rightmove)
  • Advising as to staging and preparation so a house is “a buyer ready”
  • Advising as to viewings or managing viewings
  • Negotiating with buyers and their representatives
  • Assessing the buyer’s financial situation and readiness to complete a sale
  • Managing the sales process, including coordinating with surveyors, solicitors and others involved

You want to watch out for “hidden fees.” These may include charges for items such as marketing and photography that you may assume are just included. A good, experienced agent will make sure that these items – and, all items – are clearly outlined in your agreement so there are no surprises. Communication is key: if you want to know what’s included in their services, ask! And then make sure it is in writing.

While asking how much commission a real estate agent makes, it is also worth considering how much work, effort and commitment they put into it. This can make all the difference when it comes to achieving a successful result.

Different Types of Contracts

Not all estate agent contracts are the same, which can be a source of confusion for many home sellers, especially if they are not well versed in the process (e.g. they are first-time sellers or there are special considerations regarding their circumstances).

With that in mind, let’s take a look at different types of contracts and the pros and cons of each.

Sole Agency: When selling, most people opt for a sole agency contract. That is, you sign an agreement with one estate agent, giving them the selling rights to your property for a specified period as agreed to in your contract.

Multi-Agency: We mentioned earlier that the fees involved would depend on many factors. One of these is whether you choose a sole or single agency, as described above, or a multi-agency agreement. For a higher fee (about 3% versus the 1.18% for solo agents), you agree to have several estate agents work to sell your property. The agent who does complete a sale is the one who earns the commission.

Sole Selling Rights: In this type of contract, you agree to give exclusive selling rights to one agency. That is, they are the only agency that may sell your property – usually for a specified period. But the issue is that if you find a buyer on your own, you must still pay a fee to that agent.

Fixed Fee: Under this model, the estate agent’s commission is paid as a fixed fee instead of a percentage of the sales price. In many cases, this is less expensive. However, be aware that with a fixed fee agreement, you must pay this amount upfront.

Open-Ended Agreements: In this case, you pay the estate agency a fee for any sales that result from an introduction they made, even if there is a wide gap (of years!) between the introduction and the sale completion. Not your best bet in most cases, in our opinion.

There is another option still. Many estate agents operate under a “no sale, no fee” model. This means that if they do not sell your property, you do not owe a fee. This is certainly worth enquiry. You don’t want to end up in a situation in which you have no buyer – and you still owe estate agent fees.

If I Pay More, Do I Get More?

Sometimes, sure – but this is by no means a hard and fast rule. Focusing solely on price does you a bit of a disservice. For example, if you opt for the cheapest agent, they may not include all of the services that you need or will do so at an extra cost. You also want an agent with a stellar reputation in your area; this can help your house move faster as they have connections that can enable them to reach the right buyer.

Look at price, but look beyond to ensure you are getting what you need from your estate agent.

When Does My Estate Agent Get Paid?

When an estate agent receives payment depends on which type of contract you enter into. Earlier, we mentioned fixed-free contracts; these are frequently used by online agents who charge a set rate. This fee is to be paid upfront. Again, this can be less expensive than going with a traditional estate agent but the risk here is that the agent will exert less effort in selling your house. They’ve been paid; they may be a bit less motivated to go the extra mile. This isn’t always the case, but it is certainly a factor to be aware of.

With most estate agents, fees are payable when your house sale is completed. Typically, your solicitor handles payment from the proceeds of the sale, and you receive the balance. As they must sell your house to get paid – and because higher sales prices lead to higher commissions – the thought is that they will put in the effort necessary to sell your house expediently and to the optimal buyer.

How Do I Choose the Right Estate Agent?

Working with the right estate agent is key to success and a stress-less process. As we have discussed, while the price is important, it is essential to look at other factors.

  • Reputation. Ask friends, family, and co-workers who have gone through this process… whom do they recommend? Why? Look online to access reviews, ratings and testimonials. Scour their websites to see who is helpful, respectful and most likely to get results.
  • Contracts. Which type of contract works best for you? Sole agency? Multi-agency? Fixed fee? Sole selling rights? Refer back to the section on contracts to weigh your options and find an estate agent that offers these services.
  • Terms and Conditions. What services are included in the estate agent’s contract? Do they cover everything you need? When will they be paid, and what is their commission rate? Can you sever the contract if you need to? What happens if you want to sell on your own or through another agent? Ask about all of this and make sure you are satisfied with the answers.
  • Gut Feeling. It’s not scientific, but what does your gut say when you speak with the estate agent? Do you get the feeling that they are motivated, smart, hardworking, and respectful of your time and goals? Do they listen? Are they able to offer suggestions, ideas and information? What is their approach to interacting with people? These are all important considerations.

Can I Sell My House Without an Estate Agent?

The short answer is “Yes.” There are no laws or regulations that prohibit you from selling your house on your own. There are some compelling reasons to do so, such as saving money on commissions and fees. However, there are compelling reasons not to do so.

Estate agents have in-depth knowledge and experience in this field; they know the ins and outs of the process, whereas a lay person would have to figure it out all on their own. This includes everything from staging and marketing your home to interacting with solicitors and valuations experts to drafting and exchanging contracts and completing the sale. It’s a lot to juggle.

It can be a complex process, and a good estate agent acts as a guide. But there is another way to bypass the complication. In considering your options, you may consider working with a cash house buyer.

This process is designed to be effective and very simple to manoeuvre. It starts with a quick online form or phone call with basic information regarding your home (e.g. postcode, size). Within 24 hours, the buyer extends an offer in principle. If you are happy with this, you proceed. If not, you may decline. You are under no obligation at any point.

Should you choose to continue, the buyer instructs valuations professionals to conduct inspections. With those results in hand, they extend a formal offer. This may be the same as the initial offer or, if the surveys uncovered some serious issues with the home (e.g. roof problems, dampness in the house, outdated wiring, etc.), then it may be reduced to reflect that. It rarely happens that an offer is rescinded; virtually all homes have value.

If you are happy to go ahead, you accept the offer and the buyer instructs solicitors to complete the legal aspects of the sale. You do not pay for any of this, and you gain back your time to start packing, arranging removals and planning your next steps. You can complete a sale within days, rather than months with a traditional sale. A cash buyer will typically offer between 80 – 85% of total market value but remember that you do not have to cover other expenses associated with a sale.

In this guide, we have covered many questions, from what commission a real estate agent makes to how to sell on your own and get the results you need. Well-prepared, you can make solid decisions for your future.

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