Commission-based agent v fixed-price agent: who should you hire?

In a way, Mr Rigby wanted to empower investors through technology by giving them more insight into the process without having to worry about changing prices and commissions. Think of Uber and its price estimates.

However, some investors are reluctant to avail of such services, thinking that a fixed price may affect the behaviour of the agent.

They might say, “If an agent is getting paid $8,500 at an auction, you're probably not getting a good agent” or, “If it's a $2 million property, wouldn't you want to maximise the sale price and try and get $2.1 million, $2.2 million? Only an agent who's commission-based can achieve that.”

Are you still going to get a good service even if agents don’t hold the promise of commission?

Pricing and agent behaviour

Essentially, the flat-fee model used by Mr Rigby and his team entails the same processes as the commission-earning model.

The only difference is Upside agents are full-time employees who receive regular salaries like most workers in non-real estate roles. They are only incentivised if they achieve goals for the clients and the company.

“They still absolutely need to perform. We do give our agents a bonus based on results they get, and that can be every combination of things like satisfaction of customer, number of sales, etc,” the property professional highlighted.

Services fee

Seeing how the agents in his company continue to perform well under the fixed-price model, Mr Rigby believes that fixed pricing works both for the benefit of the client and the professional.

Therefore, the way the agents are paid does not necessarily have to influence the cost that the client has to shoulder.

He explained: “The real estate industry is quite unusual because it's a commission-only industry in sales. Most of sales in the world doesn't work that way and they still get great results.”

If you think about how the commission-based model works, the salary increase of the agent is merely a product of market movements, he said.

According to him: “Property has risen by 600 per cent, I think, in the last 20 years. Now, commissions have ridden the back of that. If you look at the salary increase over the same period, it's more like 200 per cent or 150 per cent."

“So, why are agents, for the same role and for the same job, getting a 300 per cent lift on salary over everyone else? Has the job become more complex? Are they offering better service? No, all of those things are not true.

“It's just a coincidence and a mechanism brought by the way the market has behaved,” Mr Rigby explained further.

Agents’ motivation

Investors tend to think that agents who get cuts from the sale price have better motivation to push harder and get the highest price possible for them, according to Mr Rigby.

However, based on the book ‘Freakonomics: A Rogue Economist Explores the Hidden Side of Everything’, agents usually don’t risk losing a buyer for the additional commission that they could earn by pushing the price up by around $10,000 to $20,000.

Mr Rigby explained: “They'd rather close the sale and guarantee themself their $20,000 to $30,000 commission, and then quickly move to the next potential, rather than try and push for another two or three weeks to get another $200,000.”

Unless they get a lot of potential buyers, they can’t keep the price point high and may, therefore, be more likely to sell the property at market value or below.

If, for instance, the agent insists on lifting the sales price to get you another $10,000 to $20,000, you risk having your property in the market longer. The longer your property is in the market, the less attractive it becomes to buyers.

Finding the best real estate agent

While commission-based agents have been around longer, fixed-price agents continue to prove that they are capable of offering the same value as their counterparts, if not even greater.

However, there’s no one definite answer to which of the two provides the best results for investors because, at the end of the day, the best agent is the one who will commit to working in the investor’s best interest.

More than knowing how they earn their living, it is important for investors to determine which part of the market the agent caters to in order to know whether they could be the right fit for your journey.

Mr Rigby said: “There's different services for different parts of the market.”

“For instance, I would suggest to you that Upside works really well between $500,000 to $3 million price points. It's the right amount of service, it's the right outcome for the buyers.

“If you're going to sell a $10 million- or $20 million-property, you need white-glove service. A very specific tailored approach to selling that property, which we're not set up to do nor do we want to. An agent who's on full commission, that's perfect for them and they need to do that,” he added.

The property professional also reminded investors that, in order to get the best results, they have to work hand-in-hand with their agents and the rest of their team.

His tips for selling a property at a good price:

1. Understand the market—from what it looks like to how it works.
2. Market in the right locations with the right materials.
3. Make sure the price is right.
4. Have genuine conversations with the buyers and make sure they are well-serviced.
5. Establish a seamless purchase process and be rightfully competitive.

Tune in to Adam Rigby’s episode on The Smart Property Investment Show to know more about the main points of difference between commission-based agents and fixed-price agents.