The property market is feeling the effects of a tough economic climate. With high interest rates, limited job opportunities, and a rising cost of living squeezing wallets, potential buyers are finding it harder to stretch their budgets. To adapt to this shift, a staggering 70% of real estate agents in Prop Data’s recent poll reported cutting their commission rates this year. This trend suggests that industry professionals are recognising the need to be more competitive and cater to the financial constraints of today's property hunters.
Economic pressures shaping the property market
Commission rate cuts may be the new normal and considering current economic conditions, it’s no surprise. 2024 has been challenging for property practitioners, impacting their bottom lines. “We've seen fluctuations in property values, increased caution among buyers and, in some cases, a longer time to close deals,” shares Lelo N, Director at Lelo N Co Real Estate. “However, it has also driven innovation and a more strategic approach to marketing and selling properties. While the market is tougher, there are still opportunities for growth by focusing on high-demand areas and providing exceptional service to clients.”
Magda Stoffberg, Owner/Principal at REALGLEN Properties, has also seen some buyers holding off on buying due to financial worries and banks exercising stricter control over lending. However, she says there are still silver linings for property practitioners who embrace a can-do mindset over commission cutting. “There's still a market for buying, selling, and renting homes. We've seen an increase in rentals, leading to our best year in rentals. Properties that are well-priced and marketed properly still attract buyers. During uncertain times, people seek value and trust reliable agencies that deliver.”
A necessary evil but not the only way to go
While the commission-cutting strategy might seem crucial in a tough economic climate, industry experts are cautioning that it could be a double-edged sword. “The overwhelming percentage of property practitioners lowering their commission rates is concerning,” says Lelo N. “While it’s understandable in light of market realities, I believe that lowering commission rates can undermine the value of our professional services.”
“Our expertise, market knowledge, and negotiation skills are worth the standard commission rates, and compromising on this can set a precedent that may be hard to reverse,” she adds.
On the same page, Stoffberg believes cutting commission might seem easy, but it often compromises service quality. She says that upholding the same commission rate has actually helped her business succeed. “We maintain our rates to ensure top-tier service, emphasising the value we provide. Even in tough economic times, our success proves that quality over discounts is the right strategy. The result is that we’ve had great success in rentals, turnover, commission, and units by focusing on service and value.”
Setting commission rates that reward good service
The economic climate may push property practitioners towards lower commission rates, but some are taking a different approach. They're prioritising their value proposition and setting rates that reflect the expertise and service they bring to the table.
“At REALGLEN Properties, our commission is fixed and non-negotiable for rentals to ensure exceptional service without compromising standards,” highlights Stoffberg. “We charge a fixed percentage commission, excluding VAT, for sales. We list properties at slightly higher prices to allow for negotiation, ensuring sales within 90% or more of the asking price.”
Lelo N says she also sets commission rates based on the value and expertise she brings to each transaction. “While I am open to negotiation, I take into account several factors, such as clients who are downgrading and still have bond settlements to consider. I also think about the purchasers' financial positions. My goal is to ensure that we all meet each other in the middle, maintaining fairness and professionalism without devaluing my services.”
How to bounce back from commission rate cuts
The decision to reduce commission rates is a strategic one, but it doesn't have to be a permanent setback. “My advice is to reassess the value of your services,” urges Lelo N. “Rather than competing on price alone, focus on differentiating yourself through exceptional client service, deep market knowledge, and strong negotiation skills. Remember that clients are willing to pay for quality and expertise that ensure successful transactions.”
Stoffberg says real estate agents who have lowered their commission rates this year must stay confident and professional:
- Keep your composure: Clients can sense a desperate agent. Stay confident in your abilities and services.
- Value your work: Communicate the worth you provide clearly to clients.
- Maintain a quality service: Build a strong reputation and offer the best service possible.
- Educate your clients: Help clients understand the complexities and value of your work.
- Stay adaptable: Be prepared to adjust your strategy as the market evolves.
Staying profitable while offering competitive commission rates
Striking a balance between competitive rates and healthy profits is a constant challenge but it is possible says property experts. “Albert Einstein's advice, in this case, rings true,” notes Stoffberg. “He said success means working hard, playing hard, and knowing when to keep your mouth shut. This can be applied to the situation."
“At REALGLEN Properties, for example, we focus on delivering exceptional value to maintain profitability without compromising our commission rates. For rentals, our high-quality services justify our fixed rates. Our comprehensive service package, including advanced systems for landlords and tenants, ensures efficient and professional property management.
“For sales, we confidently uphold our commission rates by clearly communicating the full scope of our services. We emphasise the costs and responsibilities involved in selling a property independently, illustrating that our commission covers advertising, legal expertise, viewings, and more, providing a hassle-free experience. This strategy reinforces our value proposition and attracts clients who appreciate comprehensive support,” she says.
Lelo N encourages property practitioners to emphasise the quality of service and results they deliver. “To do this, I leverage technology and data to provide clients with in-
depth market analysis, use innovative marketing techniques to attract buyers, and ensure transparent and effective communication throughout the process.
“Additionally, I focus on building long-term relationships with clients, which often leads to repeat business and referrals. By demonstrating the tangible value of my services, I maintain a competitive edge without compromising on commission rates,” she says.