It can seem irrational when a property developer gives an agent an unusually large commission. Why fork over a big chunk of the sale price in the first place when buyers might be interested anyway?
The answer is simple: developers are paying for more than just introductions. They’re paying for speed, access and certainty.
Why speed matters
A finished development ties up huge amounts of capital. The developer may have borrowed money to buy the land, build on it and pay interest. Every house unsold, every apartment unsold, is money that has not yet gone to work.
So a fast agent can be worth more than a slow one with lower fees. The commission is a cost of acquisition; like advertising or finance or construction; and it’s measured by developers against the cost of holding unsold property.
Consider a simple example. A developer sells a N50,000,000 flat in Maitama and pays an agent 5 per cent. If the agent can secure the sale several months earlier, the developer can save interest, service charges, staff costs and marketing expenses. The commission may be less than the cost of delay in acting.
Agents offer distribution
Very few developers ever get to meet all possible buyers directly. Agents provide databases, local knowledge, international networks and established relationships with mortgage brokers, relocation companies and wealth managers.
This is particularly relevant in the luxury and overseas markets where the buyer may be spread over several countries. A well-connected agent can place a development in front of people who would never see a conventional advertisement.
Agents also understand how to package a scheme: which features to emphasise, how to price units against competing projects and which properties to release first. That expertise can affect the entire sales strategy, not just individual transactions.
High commissions can be strategic
Large payments are often used to launch a development. Developers may offer enhanced commissions for the first few sales to create momentum, attract attention and generate evidence that units are moving. Some schemes use tiered bonuses: the more an agent sells, the higher the rate becomes.
There is also a practical reason to reward agents for difficult stock. A penthouse, ground-floor unit or poorly positioned house may be harder to sell than a popular mid-market property. Extra commission can persuade agents to prioritise it.
In competitive markets, developers may also pay more simply to win an agent’s attention. Agents tend to focus on listings that offer attractive earnings relative to the work involved.
The risks
Generous commissions can create conflicts. An agent may push a particular development because it pays more, not because it best suits the buyer. That is why consumers should ask how an agent is paid, whether alternatives were considered and whether the commission is disclosed.
Regulation varies by country, but transparency is a recurring principle in property and consumer-protection rules. Buyers should also examine the development independently, including the contract, service charges, planning history and developer’s track record.
A large commission is not automatically evidence of a bad deal. It is evidence that the developer considers the sale, especially a fast, difficult or strategically important sale, worth paying for.