Read on, too, for a thought-provoking response from a real estate agent - two letters down - on your point about your friend's experience.
The P. P. idea? I suppose it might have worked in the past few years, when buyers were really keen. But as the property market slows down I wouldn't advise sellers to use such an off-putting feature in their ads.
In any case, it's a bit academic whether the buyer or the seller pays the fee.
If it was customary for buyers to pay, they would simply offer sellers the price they are willing to pay minus the fee.
The sellers would be happy with a lower price, because they didn't have to pay a fee. It all comes out in the wash.
As for selling your own property, it sometimes works well. I did it once, years ago. It was a bit nerve-racking negotiating with two would-be buyers, especially when they got angry when I came back for the third time and said, "The other guy has raised his offer. What about you?"
But it was worth it for the savings we made.
Mind you, agents would say they could have squeezed more money out of the sellers. And presumably the good ones do have some skill at that. It's like anything else; practice makes perfect.
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The following is my own personal opinion, NOT the opinion of the company I work for.
I have been selling real estate for 20 years in a small coastal holiday town - lots of awards etc, owner/branch manager (I mention this for credibility purposes only).
I thought I'd break down your proposed $4000 fee. Nett fee at $4000 less GST = $3556. Less franchise fee (typical average 10 per cent) = $3200.
The "overpaid branch", which has to provide all the technology, premises, staff etc, takes 40-50 per cent, which leaves $1600.
If the agent who lists the property manages to sell their own listing, they really "cream" it and pick up the balance of $1600 less tax and operating costs - notebook computer, depreciation and running costs for the "Beemer", clothing, power, flash mobile phone costing an average $300 a month, presents, personal promotion.
Career salespeople would typically outlay a minimum of $20,000 a year, plus another $30,000 if they have a personal assistant.
However, it's more likely that another salesperson will find the buyer for the listing, splitting in half that $1600.
So ... based on a $4000 fee, actual commission paid to the salesperson, sometimes a month or so later, tops out at less than $800 less tax.
If this salesperson is WAY better than average, he or she manages one deal a week. (Most will do less than half of that. In my own supposedly booming patch, 30-35 salespeople shared 309 residential sales, including sections, over the 12 months to March 31.)
Also, I have allowed this overworked example two weeks to recover from 6-7 days a week, working an average of 50-70 hours a week (most weekends and several evenings included).
The gross income is $40,000, less the $20,000 salesperson's expenses = $20,000, less tax at say $4000.
Do you think we would do all that we do, getting paid only for the deals that go the distance, for $16,000 a year, or $5.33 an hour?
I believe the national average income for real estate people to be under $20,000 a year. It is one of the very few occupations where at least 80 per cent of work undertaken is not rewarded at all.
I guess this means I don't get my name and phone number published, as a $4000 sale fee is not going to cut it for me. Sorry.
I feel much better now! Thank you.
Happy to provide psychotherapy for angry agents. But will you stay happy after I've quibbled with you?
Are all those expenses really necessary?
Do you have to be in a franchise? Do you need all the technology, the premises, staff, presents and so on? And what about the Beemer, posh clothes and flash phone? Don't agents realise that many people resent that stuff?
What would happen if you worked alone, wearing jeans and making a thing out of operating from a bomby-looking (but reliable) car? Sure, choose the laptop and cellphone that you need, but drop the rest. Then tell the world that you, low fee Fred or Felicity, have done that so you can slash commissions.
You might even find that you can save on advertising. Money Matters and other news media may do the publicity for you.
I would be surprised if you didn't get swamped with business - eventually to the point that you must hire staff, I guess.
Yet staff could work in a cheap but cheerful office. And their costs would be spread over many sales.
A couple of other points:
* You might get only half the commission if you list a property but another agent sells it, but you also get half if another agent lists it and you sell it. Surely that cuts both ways.
* You say there are more than 30 salespeople in your area - no doubt that's why the national average agent's income is low. There are too many of you.
The sooner a few of you set up as Fred or Felicity and wipe out most of the rest, the better off we'll all be.
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Yes, Mary, I'd gladly sell a property for a $4000 fee. But I am employed by a real estate company which actually charges the fee then pays me my share of it - usually less than $4000.
To clarify a few points:
* The company I work for would charge around $17,000 to sell a $450,000 home. From that, about $1900 is GST, then half the balance goes to the company and a quarter each to the listing and selling agents. As one of those, I would get about $3750.
* I use my eight years' experience and database of clients to deliver a result to all parties as quickly and satisfactorily as possible.
I often ask vendors if they would rather sell in a few days and pay the (HUGE!) fee or sell after three months of stress and open homes and offers they don't want, then pay commission after I have REALLY earned it.
* The two-week training course does not qualify one as an agent, but as a salesperson. Salespeople must work under the auspices of a real estate company. To manage or own a real estate office requires added qualifications.
* We are not all sharks and tellers of half truths. Some of us are honest to a fault and enjoy good reputations and excellent relations with our clients long after the sale has been completed.
My phone number is (censored), if you want to give me some promotion!
Nice try. And what you say sounds reasonable.
But, again, we have the overheads taking big bucks. Again, is that really necessary?
Does the current system of training, salespeople, agencies serve customers well?
I'm probably opening a can of worms here, but why do real estate sales have to be so regulated?
Why not have the buyer's money going directly to the seller, with the seller contractually obliged to pay the agent?
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I am currently selling properties in England, and the standard rate in most areas is 1.5 per cent for sole agency.
No doubt NZ agents will argue that English agents earn a higher income because of the much higher property prices, but the costs of business and living in general are significantly higher too.
On the other hand, letting agent fees in NZ are typically 7 or 8 per cent, compared with 10 per cent plus in England.
Agency fees for share brokers are typically much less than 5 per cent, and many internet share traders offer fixed fees.
I suppose many fees and prices are a result of tradition rather than of being cost-related. In the end it is about what the customer is willing to pay for the service.
Can't argue with that.
That's what this is about, I guess, - questioning tradition.
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Your readers may like to hear about the Dutch real estate structure. I arrived here 24 years ago and seem to remember a strictly regulated (trust the Dutch) industry.
They have one registered licensee (sales persons do not exist) for, say, 10,000 people.
A second office could start only if the population had reached a certain level, or the first licensee had died. To sell your house, simply call the agent. No time was spent "getting listings".
Often the licensee had a secondary income, like an insurance broker, to carry him over lean periods. It worked well in Holland.
Now for the NZ system: The NZ offices earn and deserve their fee. The cost of leasing (prime) premises, advertising, telephone, wages for receptionist, wages for support staff, fees associated with holding a licence, insurance, staff training, signs and costs for running an office add up to a considerable amount overlooked by the public.
Selling privately can be disappointing. The first thing a purchaser does is deduct the "commission" from his offer. You may as well sell through an agent and receive free advice, expertise and many other advantages.
I have just set up a real estate office in North Shore City. I take up your challenge for you to publish my contact details.
In return I will, as an opening special, accept the first 10 "normal" listings I receive through your publication, at a $4000 commission. Advertising and GST will be extra. I will re-evaluate the situation after that.
GO property, MREINZ, phone: 443 6255, email: mail@goproperty.co.nz, mobile: 025 822 322.
Guido.
Good on you!
On the subject of private sales, I don't see why such houses should change hands for less.
If I, as a buyer, like two houses equally, I'll be willing to pay the same for each one, regardless of whether an agent is involved. Sure, I might try to push the private seller's price down. But the seller should hold out for what the house is worth.
Mind you, as I said above, an experienced salesperson's negotiating skills can make a difference.
More importantly, you've got the guts to try $4000 commissions, despite your long list of expenses.
Good luck, and let us know how you GO.
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