Agency fees? How to determine what's right.

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A couple of months ago, we got into talks with a firm that was interested in a joint venture property listed on our www.jvpulse.com. Negotiations went well, and at the end of the meeting an “agreement-in-principle” was reached, subject to some “tidying-up” on the part of the developing firm.

Fast forward to some days before a subsequent meeting was to be held, the developing firm offered to pay the brokers of the JV a commission to the tune of 5% of the premium to be received by the landowner.This was of course at variance with what the brokers’ initially request of 10%. A bout of negotiations followed, tempers flared and closing the JV was threatened.

Long story short, all parties were able to reach a truce and agreed to an agency fee of 5% of the subject property’s value.

The brokers were not happy but had to accept in the circumstance

 

What really are Real Estate Agency Fees?

 

 

The business of real estate is widely believed to be one of the most lucrative worldwide, this perhaps explains why many Nigerians seem to be tapping into the real estate sphere, either as a main source of livelihood or as a side hustle.

A real estate agent is an individual who connects people who are in need of property, to property owners. They ensure the smooth transfer of the rights/interest in such properties between parties involved in the transaction. A fee popularly referred to as agency fee or commission, is usually received as reward for the services of the agent, for the successful completion/closure of a real estate transaction.

How Real Estate Agency Fees Work in Nigeria.

 

A quik glance through the professional scale of charges of the Nigeria Institute of Estate Surveyors and Valuers (NIESV), the umbrella body for estate surveyors and valuers in Nigeria will reveal that services that mostly fall under the purview of agents i.e., sales, purchase, letting, leases etc. are not specified in the NIESV schedule of charges.

However, most professionals consider it standard practice that commission chargeable/receivable for facilitating the sale or lease of a property be between 5% to 10% of the value or price of the subject of the transaction.

What happens if the agents disagree on fees, whereas the JV partners are able to reach an agreement?

Imagine a scenario where the agency fee being offered the facilitators of a joint venture transaction falls below what the agents involved consider “acceptable threshold”, even though the JV partners have reached an agreement.

While the extent to which such a scenario can escalate – should a common ground not be found – is better imagined, it is worthy to note that these are times when top-notch negotiation skills come in handy.

Such a situation may, however, be prevented if the agents ensure that the developer commits to paying an acceptable fee in writing, before being introduced to the property owner.

In most cases once the developer and landowner have reached an agreement, the agents could likely be forced to accept whatever is being offered as agency fee.

This is why it is critical that the agent has a strong relationship/buy-in with the owner, to be able to protect their interest.

What Should Be Considered to Determine Agency Fee for Joint Ventures.

As with the facilitation of sales and other kind of real estate transactions, a professional who oversees a real estate joint venture transaction to the point of agreement and closure is expected to receive a commission or agency fee. How should this fee be determined?

Owing to the fact that there is an absence of a generally accepted or legislated standard commission saddled with the responsibility of regulating real estate charges and fees, there seem to be a lot of debacle surrounding what should actually be charged/received as agency fee for real estate transactions, joint ventures inclusive.

We personally subscribe to the school of thought that puts agency fees for joint ventures at between 5% and 10% of the value of the subject of the joint venture property. Some people consider this to be too much, because of the popular misconception that all a joint venture facilitator does is connect a developer to the landowner after which he “cashes-out”.

This is however, not a true reflection of the factors that combine to determine/justify the JV facilitators fee.

At JV Pulse for instance, a lot time and resources are expended into the marketing and advertising of joint venture listings through email marketing and other platforms. We also have a process of thorough screening and verification to confirm genuineness.

Network building is another aspect of our role as a joint venture brokering firm. The logistics involved in ensuring hitch-free inspections and meetings, as well as being more often than not involved in crunch negotiations which may take months of back-and-forth discussions are some of what it takes for broker to close a deal.

Here are some of the agency fee requests we have come across

5- 10% of Property value

10% o. total JV project value

2% of property value

For Land Clearing JV’s – 5% of ‘’entry fee’’ onto the land plus 5% of Land being given to the developer

Let’s know if you have come across anything different from these

Cheers