This article was published on 12 June 2004. Some information may be out of date.

QOh, I am soooooo looking forward to next Saturday’s column by you!

Hopefully you’ll get responses to your challenge to real estate agents to sell a house for $4000 commission or less!

I, for one, will be on his/her phone immediately, if only to avoid what happened to a friend of ours.

She’d phoned an agent to help her sell her house. It so happened that the agent had a buyer on his books who had been looking for ages for a lifestyle property just like hers. The agent still charged her $18,500 for his “service”!

Why is it that you can’t choose who’ll pay for the service of an agent? “P.P.” (Purchaser Pays) next to the asking price would also bring the agents’ prices down straight away!

If agents keep on charging those ridiculous fees in the next few months, we’ll be selling our small rural property privately. A “for sale” sign is easy to make, an ad in the paper doesn’t cost that much, even with a photo or two, and we’ll be glad to show people around.

AWill anyone rise to the challenge? Read on.

Read on, too, for a thought-provoking response from a real estate agent — two letters down — to your point about your friend’s experience.

The P.P. idea? I suppose it might have worked in the last few years, when buyers were really keen. But, as the property market slows down, I wouldn’t advise sellers to use such an offputting 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 it, they would simply offer sellers the price they are willing to pay minus the fee. And 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 wracking 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.

QThe 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.

(During last downturn/market correction, in 1997–2000, many small real estate companies closed their doors.)

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. Add 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 31st March.)

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 will do all that we do, only getting paid for the deals that do 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 pa. It is one of the very few occupations where at least 80 per cent of work undertaken is not rewarded at all.

Guess this means I don’t get my name and phone number published, as $4000 per sale fee is not going to cut it for me. Sorry.

I feel much better now! Thank you.

AHappy 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, have as good a laptop and cellphone as is necessary, 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 don’t need to spend much on ads. 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 would have to hire staff, I guess. But they could be 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. That’s the point of last week’s correspondent — and no doubt it’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 Freds or Felicitys and wipe out most of the rest, the better off we’ll all be.

QYes, Mary, I’d gladly sell a property for a $4000 fee to me. 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 goes in 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 data base of clients to deliver a result as quickly and satisfactorily to all parties 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 — actually mine took a whole month — does not qualify one as an agent, but as a salesperson. Salespeople must work under the auspices of a real estate company, the agency. To manage or own a real estate office requires added qualifications.
  • If all the Nelson “shining star” worries about is signatures on listings, I’d suggest her star will fall eventually. She will need to back that up with superb service and total integrity or she’ll not get repeat business.
  • 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!

ANice try. And what you say sounds reasonable.

But, again, we have the overheads taking big bucks. Again, is that really necessary?

On training, salespeople, agencies and so on: That’s the current system. But does it serve customers well?

I’m probably opening a can of worms here, but why does real estate sales have to be so regulated?

To keep unscrupulous agents from taking off to South America with sales proceeds, couldn’t the buyer’s money go directly to the seller, with the seller contractually obliged to pay the agent?

QI 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 guess that many fees and prices are a result of tradition rather than being cost-related. In the end it is what the customer is willing to pay for the service.

ACan’t argue with that.

That’s what this is about, I guess — questioning tradition.

QYour readers may like to hear of 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) per say 10,000 people. A second office could only start 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 any 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 sales-support staff and branch manager, fees associated with holding a license, 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 $4000 commission. Advertising and GST will be extra. I will re-evaluate the situation after that.

GO property, MREINZ, phone: 443 6255, email: [email protected], mobile: 025 822 322.

Guido.

AGood on you!

About selling privately, 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.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.