As house prices grow, so too does the commission charged for selling them.
As house prices grow, so too does the commission charged for selling them.

Real estate agents’ income has soared on the back of a hot housing market.

Real Estate Institute data shows there was $90.09 billion of residential property sales, across 100,267 properties, in the year to June.

That is up from $69.6b in the year to December 2020 and $53.3b in the year to December 2019.

The amount charged in real estate commissions can vary a lot and different firms use different formulas to calculate how much is charged. But at a rate of 3 per cent, which is roughly the industry average for a mid-range property sale, that means the industry pulled in $2.7b in the year to June, compared to $1.6b in the year to December 2019.

How High Commission Affects Real Estate Agents

The real estate market seems to be broken when it comes to agents and high commissions.

There were 16,254 licensed salespeople in the year to June, up from 15,153 in the year to June 2019. That means each agent made an average $166,000. But they would not have received that amount each because the commission is split between the salesperson and the agency and some salespeople sell significantly more than others.

On an average sale value of $898,466 in the year to June, sellers would typically have paid anything from $27,000 to $35,000 for one of the big agencies.

Consumer NZ spokeswoman Jessica Wilson said her organisation would encourage people to “shop around” and play salespeople off against each other to get a better deal. “We’re not seeing any significant difference in service from real estate agents but their commission has increased just because the housing market has been so hot.”

She said Consumer NZ inquiries had shown that New Zealanders paid more in commission than people in Australia or the United States.

Jen Baird, chief executive at the Real Estate Institute, said calculations of commission paid were only ever an estimate because there was no record kept of what was charged.

“Ultimately, consumers have choice. There are a variety of commission models used by agencies including flat fees and tiered scales, and a choice of service levels across companies. People can also choose to sell their homes on their own and not have to pay commission,” she said.

“There is a misconception that all agents earn six-figure salaries, however, according to the latest MBIE data available, the average income for real estate agents is $84,500 a year.

“There has also been increased competition for listings with the last two months having some of the lowest levels of inventory we’ve seen. This has meant that some agents are competing on commission and others are offering incentives such as free marketing packages in order to secure listings in this tightly held market.

“With the government and most economists predicting the rate of house price growth will slow in the coming months, it’s likely that total sales commissions will decrease in the coming months too.”

Professor Graham Squires, at Massey University’s school of economics and finance, said the price rises that had happened regionally and nationally would have led to more being paid in commissions.

“I think the market will accept what sellers are willing to pay agents. It will be interesting to see how sellers adapt to more innovative and technical solutions to DIY selling, to cut out the agent and avoid a 2 per cent to 4 per cent charge that could be a significant sum for a high value sale.

“Fixed fee services such as Purple Bricks is one example in the United Kingdom. This private sale approach does come with other complications, though.”

University of Auckland head of marketing Bodo Lang said there was no incentive for the industry to reconsider the way it remunerated salespoeple.

”My sense is that culturally New Zealanders have come to tolerate the extremely generous commissions that are being enjoyed by real estate agents. It is difficult to find another industry where one can earn as much money with as little required qualification and with the negligible risk that agents carry.”

Infometrics chief forecaster Gareth Kiernan said, while the sales in the first half of this year were strong, the figures for the second half of 2021 were likely to below those of a year earlier because sales volumes were tracking lower.

“We’re picking they’ll be down about 20 per cent from the second half of 2020. However, the effect on commissions will be mostly offset, if not totally, by the fact that prices are well up on a year ago.

“Some of the biggest month-to-month price increases in the second half of 2020 will start to fall out of the numbers and should mean that price growth slows from its current rate of 30 per cent a year to 10 per cent to 15 per cent by the end of this year.”

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