A real estate agent helps property owners by promoting their property, and once a buyer is found and an acceptable offer is made, the agent works to facilitate a smooth transaction.

The commission they receive is a fee for providing these services.

Remax outlines how commission rates are determined, who is responsible for paying it (the buyer or the seller), how it is calculated, other potential costs, and when the commission is due.

In South Africa, estate agent commission rates are not fixed, it points out. Typically, they range between 5% and 7.5% of the sale price, plus VAT.

This rate is negotiated when the seller authorizes the agent to market the property, and it is documented in a mandate agreement, which is a legally binding contract between the agent and seller. The rate is locked in before the property is sold.

It’s helpful to remember that real estate agents primarily earn through commissions, which motivates them to get the best value for your home. Experienced agents with strong track records, established client networks, and marketing resources may charge higher rates than less experienced agents.

External factors also play a role. For instance, higher-value properties often have lower commission percentages. If there’s a shortage of sellers in a given area, agents may be more willing to negotiate lower commission rates to secure the listing.

Additionally, agents might follow specific internal guidelines, which can vary between agencies or even individual agents.

In some cases, agents might charge for additional services like advertising or administrative tasks (such as preparing contracts or hiring a professional photographer).

Some agreements may also include cancellation fees if the sale falls through. These charges can vary, so it’s important to clarify them before signing any agreements.

How is the commission calculated?

The commission is calculated as a percentage of the final sale price. For example, if your property sells for R1 million with a 6% commission rate, the base commission would be R60,000.

However, VAT at 15% is also applied to the commission:

This means the total commission payable is R69,000, and the seller will receive R931,000 from the sale.

The commission rate is agreed upon when the seller signs a mandate with the agent, and it’s typically outlined in the Offer to Purchase (OTP). If either party breaches or cancels the contract, the party at fault is generally responsible for paying the commission.

The commission is usually paid once the sale is finalized, meaning all conditions in the OTP have been met, and the property has been transferred to the new owner. The transferring attorney will deduct the commission from the proceeds of the sale and pay it directly to the agent.