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With the real estate market red hot, sellers could be forgiven for viewing real estate as a money printing machine right now.
More properties were sold in November than at any other time in the last decade. Median sales prices have increased by $ 24,000 in just over a month. The most successful agents at Homes.co.nz, Yvenna Yue and Craig Annandale, have sold 297 properties worth $ 209 million in the last 24 months.
Some homeowners on the market are questioning the value of real estate agents in a world where it seems easier to sell a home than ever.
Jane is one of them. She doesn’t want her last name published, but recently she had to go through an agent to sell a house that she and her ex-partner owned jointly. The agents’ fees were $ 26,000.
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“In this climate, I think we should all be thinking ‘do we need an agent’? Everything goes to Trade Me and anyone looking for a property is always going to Trade Me anyway, ”she says.
“I have a sister, she sold her property a couple of years ago without using an agent. He got more than he was asking for and sold in the first few weeks. “
Real estate agents make their money through a commission formula that has stayed the same through booms and busts.
Typically it is a percentage of between 2.5 percent and 3.95 percent on a sale amount of up to $ 400,000 with 2 to 2.5 percent on the amount paid above that. If an agent works for a large real estate company, this commission can be divided 50% between the agent and the agency they work for.
There are some alternatives, including the flat-rate model, but they are in the minority.
The formula means that agents get more cash as house prices rise. Advertising costs are usually added to this as an extra to be paid by the seller.
However, when realtors get more money in their hands, they usually don’t sell more houses.
David White / Stuff
Real estate commission rates have stayed pretty much the same even as home prices have skyrocketed.
The American economists Chang-Tai Hsieh and Enrico Moretti found that when the price of land increased in major American cities, it caused an increase in the number of realtors and a decrease in their productivity (houses sold per hour worked).
Between 1980 and 1990, the number of real estate agents in Boston doubled relative to land prices, but the number of properties sold was unchanged.
The other complaint sellers like Jane have is that the agent’s costs of selling a home have not increased at the same rate as home prices.
“It doesn’t cost $ 26,000 to sell a house.”
A 2019 Brookings Institute report compares real estate to other professions that charge a percentage commission and notes that its rates have stayed the same as others in similar industries that have fallen.
The average commission for trading a stock on the US stock market fell from 1.2% to less than 0.2%. The percentage fees charged by the mutual fund industry were also cut in half between the early 2000s and 2018.
‘Many officers are starving’
Realtor Mark Honeybone runs the NZ Property Podcast and is faced with these kinds of arguments all the time.
Agents earn $ 84,500 a year, on average, according to figures from the Ministry of Employment and Business Innovation.
That was $ 40,000 a decade ago, Honeybone says, and he admits that the increase is likely due in large part to how home prices have risen in that time.
However, he points out that the relatively low average salaries recorded in census entries are proof that there is a large gap in the industry between successful and unsuccessful agents.
“There are 50 or 100 people in New Zealand who win [over] $ 1 million selling real estate. If the average is $ 80,000, that shows that there are a lot of agents who are not earning anything and are about to leave the business. “
ROSA WOODS / Things
Mark Honeybone says that many agents are making a lot of money in a rising market, but many are not.
While the market is booming and some agents are making a lot of money, others are abandoning or discounting their prices as rising home prices lead more agents to compete for a limited number of properties.
“There are a lot of officers who are starving right now.”
The number of registered real estate agents fluctuates over time. There were more than 1,400 fewer between the 2006 and 2013 census. A 9 percent drop.
This trend is forecast to reverse with the number of real estate agents in the industry growing by 3.2% each year through 2023.
The executive director of the Real Estate Institute of New Zealand, Bindi Norwell, notes that the average amount that agents earn depends on many factors, including the number of people who compete with them for listings.
In places like Auckland, the number of ads held steady for several years, reducing the amount of money agents could earn even if their commission rates didn’t change.
John Bisset / Stuff
REINZ CEO Bindi Norwell says there are many factors that determine what an agent actually earns.
“We’ve had several years where the volume and number of listings have decreased. Sometimes 20 percent year-on-year.
“So the whole pool of properties to be sold is down, but the number of agents in the industry has not.”
This is important because negotiating the highest price will not earn them as much as if they could get an upsell.
“The number of properties sold. That is the key factor in a real estate market.
“A percentage on a small price difference? That is not a massive impact. “
Get rid of risk
Norwell argues that the commission model is very risky for agents. They can spend a lot of time and energy trying to sell a property and not get paid if it doesn’t sell.
So charging the same commission in a booming market is, in part, compensation for all the sales that fail.
People selling homes often value selling a property quickly rather than squeezing in a better price. And properties with a high attached commission rate often sold faster because agents prioritized them, according to the Brookings Institute.
Many sellers are risk averse when it comes to keeping a home once they have made the decision to sell.
BRADEN FASTIER / Nelson Mail
Properties with a lower commission attached may take longer to sell.
Some need their home to sell quickly so they can put down a deposit next time, while others believe that listings that are open longer sell for less in the end.
Norwell says the best agents are very good at maintaining their networks, often keeping in touch with unsuccessful buyers and chasing after them when a new home goes up for sale.
Honeybone says there are also some buyers who simply won’t buy a property through private sale. So by paying a commission and going to a real estate agent, you also get access to these buyers.
He argues that a high commission rate also allows you to gain inside knowledge of weekly price movements in your area.
Private sellers could make a profit on their initial sale, but would not be as aware of the most recent price changes.
The costs
Honeybone says there have also been cost increases. Mainly in the form of compliance requirements that did not exist several years ago.
Real estate companies can take up to two weeks to list properties in some cases because of this.
Agents now have to run checks to comply with things like anti-money laundering rules before posting a listing (a home cannot be listed until it is listed by an anti-money laundering officer from a real estate company approved).
Virginia Woolf / Stuff
Honeybone says there is now a lot more compliance work involved in real estate, too.
“You have to identify who the owners are and how they got their money when they bought the property,” says Honeybone.
“People think it’s a nuisance, but it’s a really important step in the process and you’re potentially stopping a lot of bad things going around the world.”
Entering the profession can also see you without income for a while until it is established.
Honeybone says it takes at least three months to enter the profession. Much more than I used to. After logging in, you can’t really do anything as an agent without supervision.
‘An agency can run away with that amount of money’
Many of those arguments don’t wash out with Jane.
From their perspective, every buyer searches for listings on sites like Trade Me and is not convinced that people actually skip a listing on the site just because the sale is being done privately.
And in your case you didn’t see much evidence of a big commitment on the part of the agent who sold your property.
She says her agent didn’t seem to be doing much more than listing on Trade Me. Charging for it. Then charge a commission on top of that.
“You only see the city [houses where] the for sale sign has gone up and the next day there is a sold sign.
“And then the agents are running away with $ 20,000 or more, what for?
