All Agents Are…… Ben’s Barometer July 2017
Real Estate Agent Fees
A recent article published on Stuff once again put the spotlight on Real Estate Agent fees. This article, and topic, always generates great debate and outrage as the members of the “I hate real estate agents club” come out in full force.
Like all good journalism, the article was full of misinformation and factually incorrect statements. But hey, let’s not let the truth get in the way of a good story.
Let’s look at the facts.
The article stated “New Zealand real estate agent’s charge up to three times as much commission as those in Australia, the UK and US. Most real estate agencies charge 4 per cent commission for the first $400,000 and 2% after that.”
In America, the average fee is 6%. That is divided 3% for the listing agent and 3% for the selling. People looking to buy a property will pay an agent to find them one and negotiate with the sales agent on their behalf. These agents can work for any company and sell the listings of agents working for any company.
That model is quite different to the New Zealand and Australian models where agents can only collaborate with other agents in the same company. In most cases, it is free to buy a property, and the vendor pays the fee.
In the UK, due to the complexities of their legal system, lawyers take a much more hands on approach to the sale and negotiation of real estate. Agents are involved in the process providing assistance for advertising and introductions but not the same end to end management as of the sales process as here. While properties are brought and sold, a competitive sales process and skillful negotiator can add an enormous amount to your bottom line. Comparing New Zealand industry fees with those charged using this model is not comparing apples with apples. The fee for approach to sales is somewhere in the range of 1.6 -2.5%.
In Australia, the model is very similar to in New Zealand with the listing agent taking the lion’s share of the fee unless sold by another agent working within the same company. Commissions in Australia can vary significantly between agents and companies and will also vary depending on the market value of the home. They tend to fall somewhere in the range of 1.8 – 3.5%. What the article does not outline is that in Australia you are also subject to capital gains taxes when selling and stamp duty charges when buying.
In New Zealand, the overall cost of selling is much cheaper. Fees range anywhere from 2% – 4% with some companies also offering flat fees or cut price rates which tend to be around the bottom end of this range. Although a hot topic politically, aside from the bright line test, property owners are not subject to state or capital gains taxes so overall, significantly more goes back into the pocket of the person selling when compared on an international scale.
To flat-fee or not to flat-fee? That is the question
I was speaking with an agent who had recently changed to an established company after starting out in one who offered a flat fee. I was interested to hear his take on the experience.
His opinion was that the company was only attracting agents who were new to the industry and that because of the small margins in the model they offered little to no training, support, or exposure to senior agents. As in any job, the more training and support, the more knowledge and skill an agent will develop. By undervaluing what an experienced agent can bring to a sale, these companies are doing nothing more than clipping the ticket. Real estate has moving parts and as such can’t be done properly by adopting a paint by numbers approach.
This point was further highlighted in the article by an unnamed agent who has also left the flat fee model saying, ‘we weren’t charging enough commission’. “we would have to sell ten houses a month to make the model work, it was exhausting, it was terrible’ (sic). Real estate is a physically and mentally demanding job as it is. Agents required to sell this many houses a month, if that is even possible, would not be operating at the top of their game. Without a doubt, this would have an effect on your sale. Agent’s just do not have the time to manage that many listings effectively unless they are working in a team.
Commission rates too high?
In some circumstances, yes they are. But the reality is that commission rates have come down as the value of properties has increased. What the public may not be aware, is what is included in that fee may vary significantly between agents. So, when you are comparing agents, make sure you delve deeper into what you actually get for your money.
Some agents will have invested heavily in marketing tools, personal websites, databases and other ways to target buyers over and above the standard company offering. Also, fees in Wellington are lower than many other major cities, with some of the bigger local companies providing a larger split of the commission back to agents. With agents able to run a profitable business based on a lower commission rate, the market here has become more competitive, and our vendors receive the same service at a lower rate on average.
Boom or bust for agents;
Like any industry, there are good markets and bad. In the good times, it can appear that agents are making too much commission because the turnover of properties is high. That is when cut priced companies thrive because even inexperienced agents can deliver a half decent result.
But as the market flatlines so too does the business for the average agent with vendors valuing the skill of experienced agents who can draw on extensive industry knowledge to problem solve tricky deals. In tight markets, clearance rates can be as low as six houses in ten. Don’t let your home become a statistic for the sake of the saving of a few hundred dollars perceived savings on a cut priced agent.
We have started to notice a change in the overall mood of the market, even with low stock levels. In the upcoming data, which is yet to be released, this shift is likely to be quite evident and will be highlighted by average days on the market and auction clearance rates. If spring sees a return to normal stock levels, this rapid jump in supply may further dampen the market. It’s still a seller’s market, but that could change at any time.
Wellington Market Quick Facts
Average sale price by Ward:
July Fun Facts
This month you cannot walk anywhere in Wellington without hearing about or see evidence of the British Lions vs All Blacks tour. So, we thought it would be fun to look into a bit of history about the tour.
Did you know?
- The All Blacks first played the British Lions back in 1904!
- NZ won 9-3
- Since then there have been 39 test matches between the teams
- Of the 39 matches, NZ has won 30, Lions 6 and there have been 3 draws
Whether you follow rugby or not, I think we can all agree that those are incredible statistics. Go New Zealand!
Thanks for reading!
If you or anyone you know could benefit from a considered market assessment by Wellington’s only licensed agent and registered property valuer, please do not hesitate to call. We are always very happy to help.