Consider value, not cost

Real estate agents sometimes take umbrage at the idea of commission being negotiated down. Photo / Getty Images

Real estate agents sometimes take umbrage at the idea of commission being negotiated down by a potential client.

When a property investor recently posted on a Facebook group asking for advice about how to negotiate commission with agents he received a frosty response from those working in the industry.

Sales trainer/auctioneer John Abbot, who runs Sales Development Group, says engaging the right agent to sell your property is more important than the fee the agent charges when the property is sold.

"Selling a property is about making money, not saving money, so focus on which agent adds the greatest value to the process of selling, not one who will do it the cheapest," says Abbott.

"A better agent will in all likelihood achieve a higher sale price so the net result in your pocket will be better," he says.

"Remember that agents get paid only upon a successful sale at a price you are willing to accept. Otherwise they are working for free, so the fee is relevant only when you have an offer on your property."

Abbot says when interviewing agents to act on your behalf you should discuss their fee structure with them because it's a great test of their sales ability.

"You're effectively interviewing them to be your negotiator in the sale process so an inability to secure a fair fee for themselves may be a reflection of their skill, or lack thereof."

The argument that agents in the UK and other major western markets charge far less than New Zealand agents, isn't a good comparison. In the UK some online agencies charge as little as £500 (NZ$960) plus 20 per cent VAT for a house sale.

The agents there, however, do far less of the work involved to negotiate and sell a property. For example, a solicitor would handle much of the negotiation around the contract — here real estate agents do that, which means agents here carry a greater risk.

In addition there are fees in the UK we don't have here, such as stamp duty which starts at 2 per cent once a purchase price is more than £125,000. According to the UK Office for National Statistics the average house price in Britain is £226,000.

Property blogger Alistair Helm analysed New Zealand's agent fees in 2014 and found that of every $100 paid in fees $37 went to the agent, $24 to the government in taxes, $18 to the local real estate company, $9 to the franchisor, $7 in marketing, and $5 in office overheads.

Agents say in a slow market it's easier to negotiate than a busy market.

That said, agents are paid only if they get listings and sell, and as a result work in a competitive environment.