How is commission paid for a house and land product, and how do I know how much will be paid?

The commission is a complex topic because every builder would like to incentivise a sale differently. Commission payment is a lever that builders use to differentiate themselves from others and attract sales. Understandably, some of the ways commissions are paid and the commission amount itself can be a ‘secret sauce’ for the builder. Moreover, builders tweak the amount based on the region (project), market conditions, and other factors. The way commissions are paid can also change over time, but generally, it does not change that often.

Commissions can vary from project to project for many builders. Also, builders change commissions at the package level. There are instances when builders do a commission boost for a package to sell it faster. Moreover, land commissions could sometimes be added on top of build commissions. Commissions are generally for the building product and not the land.

If the land is sold without the build, it can be assumed that comms are different. Land commissions are low and can be assumed to be $5K in most cases. By default, builders give us the total price, including commissions, and want us to ask what the commissions are for the package we sell.

Understandably, it is challenging for us, as a listing system, to record the exact commissions for each package. However, there is a ‘base’ commission recorded in the marketing agreement from the builder, which we can display or tell you about if you call us. Commissions mentioned on the Kenekt platform would generally be ‘inclusive of GST’.

The base commission mentioned in your Marketing Agreement with the builder is what the builder promises to pay on the sale. But there could be an additional commission for a package on top of the base. It is important to note that builders can reduce the base commissions for a project without notice. It is rare, but there are instances when this has happened. Many builders have a clause in the marketing agreement stating that the agreement ‘may be terminated without notice’. We want our agency partners to know that and check their marketing agreement.

Commission in house and land sales are generally better than in the regular real estate market - e.g. more than 2% of the product. They can be 5% to 10% of the package price. Commissions in house and land are mostly not a percentage but a flat amount. At the time of writing this article, it would be safe to assume that a wholesale builder would pay an average commission of about $20K in and around Sydney. The average around the country is $30K. Most investment builds sold nationwide would be below the $1M mark - the total price, including commissions.

Moreover, mid-tier builders are likely to negotiate commissions with you. We also do so on your behalf to see that the builder is at least paying the market average, if not more. Larger wholesale builders with large networks understandably do not prefer to change the commission amount from agency to agency because it becomes an accounting nightmare for them.

We work with wholesale builders who understand how to create an external network of agencies. Some of them would not even have an internal B2C sales function. However, even if they do, they know how to structure a process and practice so that the two are not in competition. Kenekt actively works with the builder to see that this happens.

A few retail builders in our partner network have an extensive internal B2C sales function. These can be considered outliers—commissions and practices with these become complex and difficult to understand.

Commissions are almost always paid in stages. This is primarily to do with the fact that builders receive funds from buyers in stages. Most builders pay commissions in two stages (50/50%), and most builders pay on unconditional contract when the buyer has paid the builders 10% of the total build cost.

Here are a few scenarios with a couple of our builders:

• Commissions paid 50% at unconditional exchange & 50% at settlement.
• 50% paid on Slab and 50% on frame. See: Various Stages of House and Land Building
• 25% at slab down, 25% at plate height, 25% at roof cover, 25% at lock up: this is not a common occurrence and can be considered an outlier.

Note that single-contract properties are mostly funded 10% at unconditional contract, and 90% at settlement; thus, the commissions could be paid accordingly.

Commissions are paid directly to you by the builder. Kenekt would help you follow up on commissions payment. However, we do that out of goodwill and do not guarantee that we will be able to help you in all regards. Note that commission management is a service that many intermediaries/aggregators help out with and charge you for. Kenekt does not claim to do that and does not charge you for it.

Kenekt helps you find the right options for your client and understand the build and the commissions. We charge the builder a service fee for doing that. We try to get that paid as a service fee, factored outside of the commissions. However, many builders refuse to do so, in which case the small service fee will be deducted from the commission.

Please enquire with us about when and how a builder pays commissions.