I get asked about real estate agents/salespeople commissions all the time.

Are commissions in NZ fair or are they not? Why do you get charged a large fee when selling your home? Is it worth it in this current climate when things quite frankly are selling faster than hot cakes?

The short answer is - if you get good service, a great price for your property, and are happy with the outcome of both these elements then the agent probably did a good job and deserves their commission.

However, what is a fair commission rate to charge?

When we started www.proppy.co.nz a huge part in the product offering was deciding how much is fair? Should the consumer pay a flat fee or a flat commission percentage? After a week in a dark room we decided that a “fair flat 1.5%” feels right.

How did we get to that decision..

·       The NZ public understand they pay a percentage of a sale price and importantly it drives a desire to get the best possible price unlike a flat fee model where salespeople can really set and forget the rate. They are not motivated to work that extra 110% or harder especially as the financial outcome will be the same for them regardless of your sale price. Any extra $$ on top make all the difference to home seller so hence why we backed away from this blunt method.

·       So I hear you say percentage models are good, but why all of a sudden does it get weird and the pricing changes. For example 3.95% to $400,000 and 2% thereafter? It’s difficult to work out for owners and salespeople to be fair and why we moved away from this.

·       In the US & UK fees are ranging on average about 1.0 - 2.0%. Why in NZ do we have to accept paying more for a similar service? Granted we don’t have the population of the US and the UK but the job is the same. We are starting to see a change in this attitude and people deciding to look around and not just accept a high commission when selling their home. Let’s face it, paying $15k less in fees is the difference between possibly buying your teenager their first car, or you using it to put towards a better home, or a family holiday to Queen Charlotte sounds.

The hard numbers on commission...

Let’s say you sell a home in Northlake for $700,000. Assuming you use a traditional agency at 3.95% for the first $400,000 and 2.0% on the remainder of $300,000. Your total fee will be $15,800 (on the first $400k) + $6,000 (on the remainder) equaling $21,800 + GST + (administration fees and auction fees perhaps). Where does the money go?

Under the current real estate model, you need to understand why they charge vendors these types of fees. You need to delve deeper and look at where the money goes behind the scenes in these offices. Typically, the fees go something like this;

On this example the $21,800+GST will be split typically like this;

·       (8.0%-10%) Master Franchise will take approx $2,180 (10% of $21,800) = leaving $19,000+GST

·       50% of the remainder $19,000+GST is then split with the franchise owner and agent  = $9,500+GST goes to franchise - this pays for shiny offices, compliance, administration staff, photocopiers and the like

·      The remaining 50% goes to the agent minus fees. Let’s say approx. $9,000+GST in the hand.  By the way if another agent in the office then introduces a buyer it maybe split again 70:30 and the selling agent may only end up with 70% of the $9,000 or approx. $6,300+GST

Our www.proppy.co.nz sale price would be $700,000 x 1.5%+GST = $10,500+GST. Great technology and fantastic local agents allow us to get great sale prices but approximately half the fees. So how do we do it:

·       We make it easy for our proppy.co.nz salespeople so they get a flat 1.0%+GST of their sale price. Therefore, in this example they get 1.0% of $700,000 or $7,000+GST – you can quickly see there is next to not much difference. It just means you pay substantially less.

·       The other 0.5%+GST in invested into proppy.co.nz. The most technologically advanced real estate agency in New Zealand with a vast database that has been growing since 2015

·       So how can we provide the savings? Without the offices, overheads, and franchise fees we  pass-through that substantial savings directly to you. Our sales staff are incentivised to get you the absolute best price by receiving the same but on a % model.

·       We do not charge auction fees, as these are free on our online auction and negotiation platform.

These figures may seem high, but keep in mind agents would have to sell approx. 12 homes to make approx. $90,000 (plus GST). It’s a tough gig being a real estate salesperson but one that I am passionate about. We have great salespeople working for us that are hungry to get you the best price and provide a great level of service.

On a side note.. be careful that you are paying the same agent who appraises and markets your property for sale. If you are paying substantial fees, ask for the salesperson by name and make them do the open homes - don’t pay the high fees if their rookie is to sell your home on their behalf. Transparency and trust should be a key part to your real estate transaction and they are values we are extremely proud of.

Cheers,

Hannah