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. But we have attempted to do so. Commissions mentioned on the Kenekt platform would generally be ‘inclusive of GST’.
The base commission mentioned in Kenekt 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’.
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 $30K. Most investment builds sold nationwide would be below the $1M mark - the total price, including commissions.
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 if this happens.
A few retail builders in our partner network have an extensive internal B2C sales function. These can be considered outliers, and commissions and practices with these become complex and difficult to understand.
Commissions are almost always paid in stages. This is primarily because builders receive funds from buyers in stages. Most builders pay commissions in two stages (50/50%), and most pay on unconditional contract when the buyer has paid them 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 followed up and paid by us: We help follow up with builders on commissions. You need a marketing agreement with Kenekt to get commissions paid to you.
Commissions must not be added to the client price unethically; transparency is key for legal compliance, especially under ASIC and FIRB scrutiny for investment marketing.