Selling a property involves more than finding the right buyer – it starts with finding the right estate agent … and they come with a price. One of the biggest costs to factor into your budget is real estate commission. Understanding how it works before you list your property can help you avoid unwelcome surprises when the sale goes through.

1. What is the standard rate for estate agents’ commission?

In South Africa, there is no set or standard rate for estate agents’ commission. The rate typically falls anywhere between 5 to 7,5% (or more depending on the value the agent can bring to the sale) plus VAT. The commission percentage is negotiated when the seller mandates an estate agent to market their property. This percentage is recorded in the mandate agreement (a legally binding agreement between the seller and agent) which means that the commission rate is set before the property is sold.

2. What are the factors that influence commission?

• Experience: Agents who have a proven track record of successful sales in the area and have a large database of clients to market your home to might charge more than a real estate agent who is just starting out and hasn’t built up his/her database yet.
• Value of the property: Your estate agent bases the value of the property on a comparative market analysis. On high-end luxury homes of very high value, the commission rate is often lower.
• Market conditions: If it’s a competitive market i.e. there are not a lot of sellers in the area, agents are often open to negotiating a lower commission rate in hopes of securing the listing.
• Agency rules: Depending on the agent and the agency they represent, agents could be governed by their specific brand’s internal rules which vary from agency to agency, and even from agent to agent. 

2. Is commission the only charge to pay?

Not necessarily. Sometimes, depending on the agreement with your agent, you may also be charged for: 

• Advertising or administration fees for things like preparing contracts or hiring a professional photographer. 
• A cancellation fee.

3. How to calculate the total commission payable

The commission that an estate agent charges is a percentage of the actual price that the seller accepts on an offer for their property. This amount is then deducted, usually by the transferring attorney, from the sum that is ultimately paid to the seller.

If, for example, a property sells for R1 million and the agreed estate agent’s commission is 6% plus VAT, the calculation would be: R1 000 000 x 6% = R 60 000 (nett commission amount)

Because any business that has a turnover of more than R1 million must pay Value Added Tax (VAT) on goods and services rendered, this must be added to the commission. The VAT amount is calculated on the commission amount because this represents the fee for the service (the value add) that the estate agent has provided to the seller: R 60 000 x 15% = R 9 000 VAT

This makes the total amount that the seller pays to the estate agent: R 69 000 and the nett amount that they get for the sale of their property is R 931 000.

4. Who pays the commission, and when?

When the seller signs a sales mandate with an agent, the percentage payable is recorded in the Offer To Purchase (OTP), which will also spell out what happens if either the buyer or seller backs out of the deal. Most OTPs include standard clauses which state that if this happens, the party that is at fault is liable for the estate agent’s commission. They must pay it directly to the estate agent and/or their attorneys.

The OTP forms part of the batch of documents that goes to the Deeds Office. The commission on the sale of a property is usually paid when the transaction is concluded i.e. when all the conditions set out in the offer to purchase (OTP) are met and the property is transferred into the new owner’s name.

Once the property is transferred and registered in the new owner’s name, and the transferring attorney disburses the proceeds of the sale, they will usually deduct the commission amount, plus VAT, and pay it directly to the estate agent.

5. When can an estate agent claim commission?

An estate agent can claim commission when, in legal speak, they can prove that what they have done was the ‘effective cause’ of a sale, which could become complicated if there is more than one estate agent involved. This is why it is important that all the conditions – for everyone – are spelt out in the offer to purchase (OTP).

Content by RE/MAX.

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