Worked Cost Examples and Checklists
Flat fee vs percentage vs tiered commission: which costs less? (worked example)
Percentage, flat-fee and tiered real estate commission compared in dollars at three sale prices, with the agent's incentive and a method to set a fair target price.
Which commission structure costs less depends on the price you end up getting. In the illustrative example below, on a home expected to sell for about $1,000,000, a flat fee of $16,500 is cheapest once the price passes about $957,500, a percentage of 2.2% including GST is never the cheapest, and a tiered fee (low base rate plus 11% of everything above $950,000) is cheapest if the home sells below target and dearest if it sells well above it. The tiered fee is the only one that gives the agent a strong reason to push for a higher price, so it can still leave you better off if that push works. The deciding question is how much extra price the agent's effort is likely to add.
This guide belongs to the net sale proceeds worked example section. For the rules that apply in each state, see agent commission by state.
The three offers
All figures are illustrative and include GST.
| Offer | Structure |
|---|---|
| A: percentage | 2.0% + GST = 2.2% of the sale price |
| B: flat fee | $15,000 + GST = $16,500, whatever the price |
| C: tiered | 1.5% + GST (1.65%) up to $950,000, plus 10% + GST (11%) of the amount above $950,000 |
Marketing is the same in all three and is left out so that only commission is compared.
Commission at three sale prices
| Sale price | A: 2.2% | B: flat | C: tiered |
|---|---|---|---|
| $900,000 | $19,800 | $16,500 | $14,850 |
| $1,000,000 | $22,000 | $16,500 | $21,175 |
| $1,100,000 | $24,200 | $16,500 | $32,175 |
How C is worked out at $1,000,000: $950,000 x 1.65% = $15,675, plus $50,000 x 11% = $5,500, total $21,175. At $1,100,000: $15,675 + $150,000 x 11% = $32,175.
What the seller keeps
| Sale price | After A | After B | After C |
|---|---|---|---|
| $900,000 | $880,200 | $883,500 | $885,150 |
| $1,000,000 | $978,000 | $983,500 | $978,825 |
| $1,100,000 | $1,075,800 | $1,083,500 | $1,067,825 |
On these numbers, the tiered fee leaves you most below target and the flat fee wins at and above $1,000,000. But this assumes every agent achieves the same price, and that is the real question.
The agent's incentive in dollars
What the agent earns from each extra $10,000 of price:
- A, percentage: $10,000 x 2.2% = $220, or $200 before GST
- B, flat fee: $0
- C, tiered, above $950,000: $10,000 x 11% = $1,100
Under a percentage fee, holding out for an extra $20,000 is worth $19,560 to you and $440 to the agent. An agent juggling many listings may reasonably prefer a quick sale. The tiered structure narrows that gap, but you give up 11% of everything above the target.
Break-even: when does tiered beat flat?
Tiered C costs more than flat B once the sale price passes the point where C = $16,500:
$15,675 + 11% x (price - $950,000) = $16,500, so price - $950,000 = $825 / 0.11 = $7,500.
Above $957,500, C costs more than B. For C to leave you better off than B at, say, $1,000,000, the agent's extra effort under C would need to lift the price by more than the extra commission: at $1,000,000 C costs $4,675 more than B, so the effort needs to add more than about $4,700 compared with what B would have achieved. If you believe the tiered agent will get $1,020,000 where the flat-fee agent would get $1,000,000, C leaves you $1,020,000 - $23,375 = $996,625, against $983,500 under B.
Setting a fair target for a tiered fee
The target should be what the home would sell for without exceptional effort:
- Collect at least five comparable sales from the past six months, adjusted for size and condition.
- Compare the agents' estimated selling prices with those sales.
- Set the threshold at or slightly above the midpoint of the realistic range, not at the bottom.
A target set too low pays the high rate on money you would have received anyway. In example C, setting the threshold at $900,000 instead of $950,000 would add $50,000 x (11% - 1.65%) = $4,675 to the commission at any price above $950,000.
Other variations you may be offered
- Minimum fee: a floor, for example "2.2% or $12,000, whichever is greater", common on lower-priced homes.
- Fixed fee plus bonus: a flat fee with a bonus above a target.
- Fee inclusive of marketing: compare carefully against fee-plus-marketing offers.
- Upfront fee from online or fixed-fee agencies, payable whether or not you sell.
How to use the calculator for these offers
The selling costs calculator handles A directly. For B, set the rate to 0 and put the flat fee into the marketing field. For C, work out the commission by hand as above, then enter it into the marketing field with the rate at 0.
Frequently asked questions
Is commission calculated on the price including GST?
Residential home sales are not subject to GST, so commission is calculated on the contract price, and then GST is added to the commission.
Can I negotiate after signing?
Only by agreement. Once signed, the agency agreement binds both of you. Negotiate before signing and get any change in writing.
What if two agents are involved in a conjunctional sale?
Agents sometimes share a commission with another agency that introduced the buyer. That is between the agents; your agreement should say you pay only one commission.
Is a cheaper agent a false economy?
Not necessarily. Compare the services listed, the agent's record of results against their own estimates, and the campaign. Use the agent selection checklist.
Official sources
- NSW Fair Trading — commission and agency agreement requirements in NSW
- Consumer Affairs Victoria — sales authorities and commission in Victoria
- Australian Competition and Consumer Commission — misleading conduct and price representations
