Real estate agencies earning an estimated $1.6 bln pa in commission

Property

Our new Housing Market Activity Report shows business is booming for real estate agencies but those in Auckland may face a leaner winter this year

19th May 16, 9:55am by Greg Ninness

By Greg Ninness

Auckland’s residential real estate agents could be facing a lean winter, as falling sales make a big dent in the amount of commission the industry is earning in the country’s largest real estate market, according to interest.co.nz's Housing Market Activity Quarterly Report.

Although property prices in Auckland are at or near record levels, which has also pushed up agency commissions on individual sales, the number of homes being sold has been declining.

And that has had a much bigger impact on the total amount of commission the industry earns.

Figures compiled by interest.co.nz from the Real Estate Institute of New Zealand’s monthly sales data, show that the number of homes sold in the region has declined in each of the last two quarters, and in both quarters sales were well down compared to a year earlier.

In the fourth quarter of last year there were 7285 residential sales recorded by the REINZ, compared to 8138 in the fourth quarter of 2014, a 10.5% decline.

In the first quarter of this year there were 6692 sales, compared to 7798 in the first quarter of last year, a 14.1% decline.

Interest.co.nz also estimates how much total commission the real estate industry earns from residential sales commissions each quarter and this has also been declining in Auckland.

That's even though rising house prices have been pushing up commissions on individual property sales.

In March last year the REINZ’s median selling price in Auckland was $720,000 which would have provided a typical sales commission of $23,460 (calculated at 4% of the first $300,000 plus 2% of the balance plus GST).

By March this year, Auckland’s median selling price had increased by $100,000 to $820,000, pushing the typical agency commission up to $25,760.

However the number of homes sold usually has a much bigger impact on the total amount of commission generated by the real estate industry than movements in property prices.

Interest.co.nz estimates that the total industry commission from residential sales in Auckland increased dramatically from $140 million in the third quarter of 2014 to hit a peak of $224.8 million in the third quarter of last year.

That’s an increase of $84.8 million (60.6%) in a year.

But since then the trend has reversed, as the number of sales has declined.

In the fourth quarter of last year total estimated industry commission in Auckland declined to $177.7 million which was below the estimated $180.4 million achieved a year earlier.

Then in the first quarter of this year the total estimated industry commission in Auckland declined further to $165.7 million, compared to $178 million a year earlier.

An unfortunate irony for the real estate industry

It appears to be an unfortunate irony for the real estate industry that while property prices in Auckland have been hitting record levels and along with them commissions on individual sales, there is less money to go around all of the agents involved.

Figures from the Real Estate Agents Authority, which regulates the industry, show that the number of agencies and people working for commission in Auckland (this excludes administrative and support staff) has increased steadily from 6468 in March last year to 6894 in March this year, up 426 (6.6%).

That means that there are fewer sales per person working in the industry in Auckland and less commission money to go around.

The peaking of Auckland sales in the second quarter of last year and the subsequent decline, and its flow on effect on industry commissions, corresponds with the introduction of measures introduced by the government and Reserve Bank last year to help rein in the housing market.

These included requiring overseas buyers to provide their tax details, automatically taxing capital gains on homes sold within two years and increasing loan to valuation ratios on Auckland investment properties, which appear to have had have had some success, at least in the number of properties being sold, although the dampening effect they initially had on prices appears to have been temporary.

Different elsewhere

But around the rest of New Zealand it’s a different story.

In every region of the country except Auckland, sales volumes are running well ahead of the previous year’s sales and that combined with rising prices, means industry commissions are often at record levels in centres outside of Auckland.

In the Waikato/Bay of Plenty/Gisborne, the number of sales increased from 3355 in the first quarter of last year to 4115 in the first quarter of this year.

That combined with rising prices pushed the estimated total industry commission in the region from $49.5 million to $66.5 million over the same period, a 34.4% increase.

In Wellington the total estimated industry commission has risen from $35.5 million in the first quarter of last year to $44.1 million in the first quarter of this year, up 24.3%.

Up 28%

Nationally there were 21,866 homes sold in the first quarter of this year, up from 20,542 in the first quarter of last year.

That increase combined with rising prices has pushed the estimated total industry commission from residential sales to $386.8 million in the first quarter of this year, up 9.4% compared to the first quarter of last year, and up a staggering 28% since the first quarter of 2014.

There are unlikely to be many industries in this country that would have posted such impressive growth over the same period.

The following graphs show the quarterly trends in residential property sales and estimated industry commissions in each region and nationally since the beginning of 2014.

You can download a pdf version of the report and its graphs by clicking on this link.

Q1 volumes and commissions

Q1 volumes and commissions ;

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40 Comments

by head_down_bum_up | 19th May 16, 10:03am 1463608997

Parasites

by bigbunny | 19th May 16, 10:41am 1463611267

Hopefully parasites about to lose their hosts.

by Ralph | 19th May 16, 1:35pm 1463621741

(shrug) It's a free choice, no one has to use them.

by Zachary Smith | 19th May 16, 10:56am 1463612182

Sometimes parasites are a necessary component of an ecosystem.

by Independent_Observer | 19th May 16, 11:11am 1463613090

I've been trying to figure out whether a landlord/investor is more of a parasite than a real estate agent but after consideration I've concluded they are both wolves in sheep's clothing....

by Zachary Smith | 19th May 16, 11:33am 1463614405

In touch with the ground
I'm on the hunt down I'm after you
Smell like I sound I'm lost in a crowd.
And I'm hungry like the wolf

by SmoKey | 19th May 16, 12:18pm 1463617095

What about the interest earned by lenders ?

by notaneconomist | 19th May 16, 4:08pm 1463630927

So right Zachary....there are the beneficial bacteria and then the one's that give you the s^*ts........

I just love rocking up to open homes......a quick hand shake and intro.......pleasant smiling face (well theirs is) I just keep the irritable scowl on mine......and then their mouth opens........."Are you looking for yourself or as an investment?" .......pondering the answer......"does it make a difference" I reply..........a shocked look with how rude upon their face envelops the room......how dare they think my answer rude I glare back.........does this REA have no manners that they should pry into my reason for viewing on their open invitation....they are acting for the vendor right.........the next day......one gets a phone call........."what value would I put on the property"............."Oh sorry I am not a qualified valuer you will need to get a value from them" I reply......."you must have some idea" ......."absolutely none as I stated I am not qualified to provide a valuation" trying not to sound titchy........"but you must have some idea of a price range or what you would be prepared to pay"........"sorry but do you have a hearing impediment or perhaps a comprehension issue" I reply.....by this time my other half is giving me the look........." it will be sold for what someone is prepared to pay and that is an entirely different issue to the value" I reply while multitasking a scowl back at the other half......."well I'm just wanting to get back to my client with a price"........"really and you want me to solve your problems for free" .....another scowl......and the reality is most buyers actually answer the REA questions exposing themselves and their private details.........buyers need to learn to keep their mouths shut and stop exposing themselves........Parasites need a host and many buyers are often very willing to be the host.....It seems Debrett's ettiquette, style and manners are frequently absent in the world of RE.

by ObeseBallerina | 19th May 16, 4:39pm 1463632744

Surprised you got the phone call the next day. I would of picked you for a tyre kicker from the Open Home.

by Zachary Smith | 19th May 16, 4:51pm 1463633463

We should all have a bit more sympathy for REAs after reading notaneconomist's comment.

by notaneconomist | 19th May 16, 5:13pm 1463634796

So which RE Agency are you from OB? Trolling around on interest is similar to tyre kicking I would have thought!!

by Noncents | 20th May 16, 7:53am 1463687601

They always ring. That's how they scam...ooops I mean justify their fee to the client.

If you want to be a tyre kicker you just leave the last digit off your phone number.

by Justice | 19th May 16, 5:46pm 1463636786

lol, classic

by Kate | 19th May 16, 10:12pm 1463652731

LOL. I once attended an auction by phone. The property was advertised as "bidding will begin at $350,000 dollars". There I was on the phone, listening to the spiel about the house - and finally, the auctioneer opened the bidding - and HE (the auctioneer) quickly put in a vendor bid for $350,000. The agent on the other end of the phone said to me, okay the bids at $350,000 - what would you like to bid? I said, I wanted to bid $350,000. The agent said, but the bid is already at $350,000 - what would you like to bid? I said, $350,000. There was some hesitation - and in the background, of course, the auctioneer is repeating the bid is at $350,000, do I have another bid - and obviously looking at the guy on the other end of the phone to me. Who then launches a big explanation about there already being a bid for $350,000, so I can't bid that, I have to bid something higher. And I said, well the thing is your auctioneer took my bid price - that was what I wanted to bid and I didn't want to bid anymore. Again, some hesitation and I could just imagine the auctioneer standing on the stage in front of whatever crowd was there - looking like a total idiot. I said to the guy on the phone, look if you want to sell the house, tell your auctioneer to withdraw his bid and I'll buy it. Again some stuttering - and then the house was passed in.

Of course, about half an hour later I get the phone call stating I could now buy the house for $350,000.

Told him to forget it and that I wouldn't buy a tent off them - even in the pouring rain.

by Justice | 19th May 16, 5:49pm 1463636973

Explain. Explain how REA's are somehow a necessary equivalent to a parasite in an ecosystem?

by linklater01 | 20th May 16, 6:56am 1463684165

Not in this case,or certainly not at the price they charge. I remain astonished that Kiwis are prepared to meekly hand over such a high proportion of the selling price. I sold property in Scotland within the last 10 years and paid 1%.
I would happily pay an agent that here, but otherwise I would make the effort to sell it myself. My son did that recently and sold the property within 3 weeks through Trademe.
The only conclusion I can reach is that too many Kiwis are financially ignorant and lazy.

by Justice | 19th May 16, 11:51am 1463615487

I can't believe anyone uses them, or ....is it the other way around? Either way pure and utter charlatans.

by CJ099 | 19th May 16, 12:04pm 1463616244

Yes I'm still astounded how much sales cost the Real Estate Agents are charging here, with an average of: 4% of the first $300,000 plus 2% of the balance plus GST. That's just day light robbery!!

Over in the UK the average home sale commission is: 1.25% and that includes all the marketing costs. Well at least when the market starts to decline, the Real Estate Agents will have to be more competitive and drastically reduce their rates.

by Ngrrk | 19th May 16, 12:08pm 1463616484

Words cannot express my disdain for real estate agents

by Justice | 19th May 16, 5:44pm 1463636643

Ditto. Some of their marketing ads etc are just disgusting. One guy here in Nelson seems to think that just a photo of him on a few buses in a suit with his arms out like he wants to hug you is a real statement of some kind? To me he would be better off marketing for Destiny Church!

by Kakapo | 19th May 16, 5:50pm 1463637057

One thing you can say for used car salesmen - at least they don't put up ridiculous billboards of themselves.

by Esprit | 19th May 16, 12:17pm 1463617062

Why don't people just sell privately? Christ, I'd hate do deal with a REA when selling. Given that Trademe encompasses 95% of the market at the moment....

by mspace | 19th May 16, 12:53pm 1463619206

FOMO. Generally speaking, sellers seem to believe that a REA will get them a higher price, and therefore more money even net of fees.

Arguably they may even do so under certain circumstances, but you'd think more people would be doing the sums and figuring out the $40k they're paying the agent isn't value for money...

by Conrad | 20th May 16, 10:30am 1463697055

FOMO = Fear of missing out (to save those like me who needed to google it). I'd also add a lot of people are irrationally averse to selling stuff and the dealing with other people that it involves.

by CJ099 | 19th May 16, 12:28pm 1463617707

Well the report mentions that the decline in housing volume is due to recent measures introduced by the government and Reserve Bank last year to help rein in the housing market, such as requiring overseas buyers to provide their tax details, taxing capital gains on homes sold within two years and increasing loan to valuation ratio on Auckland investment properties, have had some success, at least in the number of properties being
sold.
Remember one main reason why the NZ and in particular Auckland's property prices have dramatically increased over the years is due to these exorbitant Real Estate Agent commissions. Perhaps it's time to rein them in too and get them to reduce their commissions.

by gordon | 19th May 16, 12:38pm 1463618325

Unbelievable that we pay them what they want. In Auckland there will be agents who earn well over a million and in doing that they earn more than medical doctors who keep us alive. All we do is give an agent a key for a while, they talk to people who buy the house and then they give us the key back. What special skills do they need to achieve that? And the reported cases in Auckland where they have bought from their principals, sold to family and friends or bought privately off unsuspecting and naïve people will only be a tip of the ice berg. When commissions are involved in an industry it gets dirty. Personally I would be ashamed to be one. They are paid by the vendor but work for themselves and the purchasers. Over 30 years I heard agents say regularly "the purchasers will get it for that price or I will get that price for your clients."

by head_down_bum_up | 19th May 16, 1:14pm 1463620451

Work for the purchaser? you must be joking. They work for themselves, no one else. They have no loyalty, nor should any be expected, to a purchaser in this market. All they want to do is grease everyone up and get them in to the auction room to fight amongst themselves.

You should also think of the math involved, if an agent gets say 3% of sale price, it is hardly in their interest to scrap for that other 10k on the asking price as it is a few hundred bucks in their pocket but a lot of wasted time. They want the sale wrapped up as quickly as possible so they can focus on the next one. This is why auctions suit them perfectly. Run some open homes, give out some flyers, then bang auction day and an unconditional sale that they don't need to be a part of any more.

But we are the fools for relying on them, we are the fools for accepting their fees and either telling them where to go or negotiation. Agents are a product that society has created.

by J.C. | 19th May 16, 2:00pm 1463623212

That's what you get when property trading is the crux of your economy (don't kid yourself if you think it's dairy. That's simply a sideshow and is likely to have less impact on consumer spending).

I prefer REAs to mortgage brokers. What value do they really add that could not be handled by technology? The whole brokerage industry is simply outsourcing of responsibility by the banks.

by Zak | 19th May 16, 3:48pm 1463629731

Well if there wasn't a need there wouldn't be any. My agent is fantastic . I haven't got the time to source property so I trust him to do the work and he does an amazing job. I suggest you don't bag the messenger as there are a lot of slippery sellers out there don't tell the whole truth.

by Zak | 19th May 16, 3:48pm 1463629735

by Northland Hippy | 19th May 16, 4:06pm 1463630770

True that Zak. If the belly aches don't want to use an agent then don't use one, its called freedom of choice. People use agents on 90% of property sales as they want the service. There are lots of price options but yeah, you risk getting what you pay for. As for no agent, good luck with that, you are a small fish swimming in a big ocean when you go it alone.

by gordon | 19th May 16, 4:19pm 1463631576

I presume you are agent Zak.

by gordon | 19th May 16, 4:18pm 1463631510

Spoke to a valuer today and he said that a proprietor of one of the big RE firms in our city had told him recently that he had noticed an upsurge in private sales. The valuer said he was not surprised as houses were generally taking a week or less to sell currently, some even sell virtually the day they are listed. One problem you have when you sell privately he said is that the buyers try to get discount for no agent being involved. Some people cannot handle such bargaining and therefore use an agent who is more dispassionate.

by Zachary Smith | 19th May 16, 4:27pm 1463632067

Banks like purchasers to deal with RE agents as well. I have always found agents to be nice people. There is a lot of money involved and buyers can tend to be stressed out at times which may account for the negative feelings.

by notaneconomist | 19th May 16, 4:54pm 1463633699

There might be a lot of money involved but buyers should know their maximum range at any one time.....maximums alleviate stress.......REA can and do play with people's emotions....if someone really wants a house to perhaps live in......then an agent will coax that buyer to a price range to secure the property that scratches the itch........there is a huge amount of goading going on in both the language and delivery.......REA are very challenging and most people who are buying a house are not used to dealing with the culture inside the RE industry......whatever negative feelings a person may have I don't think it is the money that causes the feelings but rather experiencing the culture of the industry.

by Averageman | 19th May 16, 4:48pm 1463633310

Have sold several houses myself. Not that hard especially when its a buyers market its child's play. Some agents are awesome, some are not. It is commission based selling...next stop used car sales.

End of the day dont like em, don't use em. Would be good if you could hire an good auctioneer for a fixed fee but pretty sure they are restricted from engaging direct with the public by the agencies.

by CJ099 | 19th May 16, 6:45pm 1463640310

I have seen some private property sales who have used on-site auctioneers (Mainly in Titirangi, Auckland), so yes they are around. Fee wise for an Auctioneer I think it's around $500 per sale.

by Justice | 19th May 16, 5:36pm 1463636192

Those friends of ours who recently purchased a property and have borrowed more than they wanted too and are paying more than they budgeted for got a lovely present from their REA.

They were given the choice of two different tubs of ice cream! Wow, Lets just say they were less than impressed with the gesture if one could call it that.

by Carlos67 | 20th May 16, 4:47am 1463676436

People are lazy, you can sell your own house. Must be the dollar signs in their eyes thats blinding them. Some people have to work a whole year to get the money the real estate agents make in less than a few weeks and they are not even working full time on your property. Still if they can charge this and get away with it why not ? no point complaining. Personally I sold a house easy in this market, you just negotiate with the buyer and then put it across to a property solicitor and they do the rest. It cost less than $1000 from memory.

by 2 Tooth Bora | 20th May 16, 10:58am 1463698727

To be expected when a basic human need is turned into an investment and is in critical short supply due to central and local government failure.
The news has proven real estate agents serve the vendor and are generally un-trust worthy due to their conflict of interest (income reliant on sale price – commission, exploiting rules and ripping of unsophisticated vendors) pushing up prices supported by banks.
First home buyers need to be able to buy appropriate quality property at affordable price linked local income real economy ratios. Purchasing of the shelf property eliminating un-necessary real estate commission cost is the way to go decreasing the burden of debt and instability.