Why Real Estate Agent Commissions Are a Terrible Investment

There is only one reason why most Australians would consider paying exorbitant real estate agent commissions when selling their home. They expect the expense to pay off in a higher sale price for their home than what they could otherwise achieve. In other words, they expect some sort of a return on their ‘investment’. The reason why the word ‘investment’ is in inverted commas is because commissions are a terrible investment and in fact should never be considered as an investment at all.

A good investment not only gives you a return OF the investment, but also a return ON the investment. In the vast majority of cases, real estate commissions give you neither a return on the investment nor even of the investment. Consider the following case study as an example, to which the attached picture relates.

We recently marketed a one bedroom unit in metropolitan Brisbane, which sold for $290,000. Not long before that, a real estate agent who is considered the ‘local area expert’ marketed the one bedroom unit next door, in the same complex, which sold for $265,000. What was the reason behind such a significant discrepancy?

I knew the owner of that unit and I know that she paid around the going rate of commission, which is 2.5% plus GST or about $7,300, to sell her unit. Instead of paying a commission, we decided to spend $8,300 on strategic, cosmetic renovations on our unit, which prior to the renovations looked very much like the unit next door. It is fair to assume that if we hadn’t renovated the unit, we could have expected to achieve a very similar sale price of $265,000 as our neighbour. On that basis, if we take that price as the pre-renovation value, it is safe to say that the extra $25,000 we achieved was a result of the $8,300 we invested, which translates to over three Dollars return for every Dollar spent.

By comparison, not only did our neighbour not receive a return ON her ‘investment’ in the agent’s commission, she never even received a return OF her investment. From her sale of $265,000, she pocketed $257,700 after spending $7,300, while we pocketed $281,700 from our sale of $290,000, after spending $8,300. Not all properties need renovations to increase their market value, but this still does not justify spendig money on commissions. In this rapidly changing industry, real estate agents are no longer the best way to market your home. You are far better off engaging a property marketing mentor, who can help you achieve the same sale price as the best agents, at a fraction of the cost.

To achieve the best outcome from your property sale, you must consider every dollar you spend as an investment and if you do, you will find that a real estate commission is the most terrible investment you can make. How much you sell for is very important, but the most important figure is how much you keep after all expenses. You can never optimise this figure if you are paying a commission, whether your property needs renovations or not.

For more information, please go to: www.revolutionaryrealestate.com.au

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