Nila Sweeney

The largest expense that vendors incur - and therefore, the biggest opportunity to minimise expenses - is the agent's commission and related marketing and advertising costs.

Real estate sales commission is generally calculated as a percentage rate of the final sale price of the property, and is usually between 1.5% to 3%. Pamela Yardney, director of Metropole Property Investment Strategists' property management department, says that as a general rule of thumb, "more expensive properties will attract a smaller commission fee".

Sales commission
Potential savings: $500-$5,000

In real estate, everything is negotiable, Yardney says - "and yes, that includes the agent's commission".

"There are always exceptions, and if you happen to come across an agent who's not prepared to negotiate their commission, listen to their advice carefully," she says.

"Perhaps they are so good that they can confidently command a higher price. We've definitely paid above average commission to engage certain agents to sell some of our properties, knowing that we would be repaid by them achieving better results and a higher selling price."   

This doesn't mean that you should blindly pay any commission they ask, Yardney says, but it does mean that you should respect them as professionals, trust their opinions, and pay them fairly for the work you expect them to do.

"After all, you want the agent to work hard to sell your property, rather than concentrating on your neighbour's home because they're offering a better incentive," she adds.

An alternative to negotiating over the full commission rate is to offer an extra incentive, by setting their commission to a target price, with anything they achieve beyond that attracting a bonus commission. "This works particularly well if you're auctioning your property," Yardney says, "or if they appraise it at, say, $300,000, and you believe that you can achieve more."

For instance, you might offer them 2% up to $300,000, and then 5% for anything they achieve above and beyond that target. "We've seen this work particularly well in hot and rising markets, where agents will work hard to get that extra little commission for themselves," Yardney says.

 Flat-fee commissions
Potential savings: $8-10,000

If you're not comfortable haggling for a more cost-effective commission structure, you can consider listing your property with a real estate agency that offers fixed-fee commissions, such as Happening Real Estate and Impact Property in Brisbane, and national agency Go Gecko Property Sales.

"Research puts real estate agents down the bottom of the pile, in terms of trustworthy occupations, and one of the things that cropped up quite a lot was that commissions were too high," says Geoff Doyle, CEO of Go Gecko Property Sales.

"We thought, what would make it simple and easy for the consumer to understand? That's how we came up with the flat-fee commission, and it's great because people don't have to negotiate, and they know exactly what it's going to cost them upfront."

Go Gecko, which currently has 23 offices in Queensland, ACT, NSW, WA and New Zealand, has a fixed commission of $5,950 including GST, which saves their average client around $8,000-$10,000, Doyle says. Since launching two and a half years ago, Go Gecko has trimmed commission expenses for roughly 2,500 vendors by a total of $16m.

"We sold a property recently for $4.2m, and they still only paid $5,950 commission," Doyle adds.

Marketing and advertising campaign
Potential savings: $500

The advertising schedule will be devised by the agent and agreed upon by the agent and vendor prior to the commencement of the marketing campaign, and often makes up "about 1% of the final sale price of the property", Yardney says. This usually includes newspaper advertising, internet sites, window displays and brochures.

"You'll find a number of items in this proposal that you should be able to negotiate with the agent to save some money," Yardney says.

"For example, they'll sometimes charge you for internet marketing, however this isn't really a true justifiable cost to the agency. Once they have paid a one-off subscription fee to the various property portals, it doesn't cost them any extra to list further properties, so we recommend that you get them to throw that in for free."

Similarly, having 'for sale' boards erected at the front of your house can cost a minimal amount, so you can try to convince the agent to include these at no charge as well.

Lender expenses
Potential savings: $500-$2,000

Australian Mortgage Options managing director Robert Projeski says there are several factors that determine the cost associated with closing your loan - first and foremost being the loan product you have had.

"If you had a loan where you were charged an ongoing monthly fee, the cost of closing your loan may be a little less, as they collected their fees as they went along," Projeski explains.

"Generally speaking, though, if your loan term has been in existence for over five years, there should be very little cost associated with closing your loan."

You will pay statutory are government costs that can not be avoided, which relate to the registration of discharge of the mortgage. These usually amount to a few hundred dollars.

The preparation of the discharge of mortgage and loan settlement fees may also cost several hundred dollars.

"However, if you're paying out the loan to purchase another property, it would be advantageous to ask that particular lender what they are prepared to do if you were to go with them for the new loan," Projeski explains.

There might also be some room for negotiation if you are closing one loan, but keeping one or more other loans open with the lender

Those investors who have taken out lenders mortgage insurance (LMI) could also have an opportunity to claw back some expenses when it comes time to sell.

"Generally, if you have less than 20% deposit, mortgage insurance is applicable. If mortgage insurance has been taken out and the loan is repaid in full in a relatively short time, there are provisions in the lender mortgage insurance policy that borrowers could be entitled to a rebate on their premiums," Projeski says.

"That can vary from one mortgage insurer to another, but generally up to 40% of the premiums that have been paid could be repaid if the loan is paid back in full within a 12 month period. Some insurers will even pay a 20% rebate in the second year. Generally, there are no premiums paid back after the initial one to two year period."

Remember that if you have had a loan which you have taken out and paid back in a relatively short period of time, you might be liable for lender-imposed charges such as deferred establishment fees and break cost if you've taken fixed rate loan.

Depending on your lender and the size of your loan, the costs associated with paying out your mortgage early - within one to five years - can be anything from a few hundred dollars to several thousand dollars. Check your loan contract carefully or speak with your lender or broker to understand how these fees might impact your situation.  Your Mortgage magazine regularly features practical advice when terminating your loan contract.

Potential road blocks

Although minimising costs is the aim of the game, it is important to base your decisions on a range of criteria, and not just the fiscal elements.

The cheapest option isn't always necessarily the best, Yardney says, and often, who believes that attempting to save too much on the marketing of your property is "a false economy".

"You want to start your campaign with a bang so that all potential purchasers on the hunt for their new home will find out about your property early on," Yardney says.

"You don't want to negotiate yourself out of the chance to sell you house for the best possible price, so try not to be too frugal."

Doyle also believes that it's important to look for value and service above all.

"More people are looking for ways to save money... and people assume that because our fees are lower, the service is lower - but that's really not the case. We still provide the same full level of service as full-fee agencies," Doyle says.

"We believe the price is really attractive to the consumers, but it still needs to allow our offices to make a quid, and with our fixed price structure, we've achieved that."


Real life: Freebie turns pricey

When Gold Coaster Rachael Patrick got offered a job in South Australia, she decided to sell her investment property as she "didn't want the hassle of trying to manage an investment property from afar".

She contacted three different real estate agents for an appraisal, and they each came back with similar prices and marketing suggestions.

"One agent I didn't like, and the other two seemed equal. However, one of the agent's was offering free advertising, while the other one wouldn't budge on advertising costs at all," Rachael says.

The "more expensive agent" - the one who suggested a $2,000 newspaper advertising campaign at full cost to Rachel - had previously sold a property for Rachael's sister, and had achieved a great result. However, Rachael was keen to minimise expenses, so she listed with the agent who offered free advertising.

"He was a lovely guy, but the property sat on the market for seven weeks without a bite," she says.

"On the eighth week, I ended the listing with him and moved it to the other agency. She commenced an aggressive advertising campaign straight away, and the property sold two weeks later."

The irony was, the first agent's policy of offering free advertising was only valid if the property sold - so Rachael was slugged with a $900 advertising fee from him as well.

"My gut instinct was to go with the aggressive agent, but when you're faced with the possibility of what looks like saving thousands of dollars, it's hard not to be swayed," Rachael says.

"In the end the agent achieved a great price, so I wasn't devastated, but I could have saved a lot of time and hassle if I'd just gone with initial feeling. Next time I'll look at their track record before I make a decision. You live and learn!"

This article was first published on Your Investment Property magazine October 2008 issue. To subscribe go to www.yipmag.com.au

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