The Property Dashboard

Understanding the property market is not complicated. It is however confusing; as it is rife with data - median price / valuation / inventory / asking price / CV / GV / stratified price / truncated price / affordability index / sales volumes?

No surprise that all I ever hear from people is - "how can I make sense of all this data?"

I have studied the property market for more than 6 years and I believe there should be a simple indicator - a simple picture that, like a dashboard indicator helps you see what the market looks like today. 

That is why I have developed The Property Dashboard which provides a visual cue as to the state of the market. The pointer reflects in which of 3 states the market is in - a balanced market, a sellers market or a buyers market.

The dashboard indicator shows a single number which is the available number of properties on the market for sale relative to the number of sales measured in number of weeks of supply. What determines the position of the indicator on the dashboard is dictated by calculations based on over 5 years of data sourced from REINZ and Realestate.co.nz. It is the relative position of the indicator to the segments in green, orange and red that are key to understanding the state of the market.

What about price I hear you ask? The market price of property is a 'backward looking indicator" which is the result of a buyers market or a sellers market.

When there are too many properties on the market relative to sales the market favours buyers, these smart buyers negotiate hard and drive prices down. The opposite situation in a sellers market is where demand from buyers is strong and the supply of properties on the market is in short supply, this situation leads to buyers aggressively competing to push up property prices.

Each month the Property Dashboard will be updated to reflect the most current data. The Property Dashboard has its own header on the Properazzi website - easy to find, easy to interpret. Data will be updated around the first week of the month and accompanied by a monthly summary. The detailed dashboard comprises an individual indicator for each of the 19 regions of the country as well as an indicator for the whole of NZ. 

How much does a real estate agent earn?

This question usually generates a variety of responses – “vast amounts of money based on the late model cars they drive!” or “must be easy money as anyone seems to be able to be an agent” to the more knowledgeable “it’s tough, those at the top earn fortunes, whilst the majority need to a second income”.

The fact is real estate in average is not the highest paying career, but you can make it become a very high paying career – its up to you. There are agents albeit a small number that earn in excess of $1m a year, many more earn over $100,000 however as with any industry the majority don’t!

Enough of the subjective assessment. I have undertaken a detailed analysis of the real estate industry in NZ during 2012 to come up with a series of insightful analyses of the industry. Using public information from the Real Estate Institute and generally available information from a number of websites as well as information gleaned from discussions with real estate agents I have come up with information on agent average earnings across the country.

In 2012 the industry was paid in commission fees by sellers over $1 billion (inc GST). The industry supported just over 9,300 active agents. That though did not result in each agent earning $100,000 – the income from commission does support quite a considerable infrastructure before it is divided up amongst the selling agents.

In 2012 the average income for an agent in NZ was $43,372.

Across the 19 regions of the country the average income though varied considerably – largely a function of average house prices. That is one of the first very strange matters regarding the industry. The % commission rate to sell a $200,000 house in Otago is pretty much the same as to sell a $800,000 property in Auckland and ostensibly the task is no more complex or challenging to sell these two properties yet one agent shares in a commission fee of $6,000 and the other shares in a fee of $20,000+

As a function of this, the top earning agents are naturally in the top prices areas of the country with interestingly Wellington taking out the top spot with an income of just under $94,000, compared to Auckland at $76,000. Part of the reason behind this is the fact that there actually less agents per property sale in Wellington.

Interesting to see the Taranaki grab the 3rd place spot at $58,000 ahead of Central Otago, which of course benefits from Queenstown prices to deliver an income of just under $52,000. The next 9 regions all have income above $40,000. The bottom 4 regions though struggle to deliver a reasonable income; all below $25,000 with the West Coast delivering the lowest income of just below $20,000 – barely a quarter of the income of Wellington agents.

It is important to be aware before you judge these incomes against the median NZ salary of $42,000 that this is gross income. As self-employed contractors agents have to support their business before they can regard this as take home pay.

Costs include their REAA license, compulsory training, the necessary car and travel costs as well as marketing. Conservatively this is likely to be around $10,000 a year.

Making an adjustment for the tax offset of these costs the equivalent annual average salary of a real estate agent in NZ would be around $35,000 which is interestingly below the recently championed “living wage” of $38,000 (18.40 per hour).

Where is the best place to be a real estate agent?

If Wellington agents earn the top income in the country at over $90,000 then the answer is simple – go work in Wellington!

Not quite, the fact is that real estate is not a 9-to-5; Monday to Friday work for which you receive an identical monthly bank credit. Real estate is a self employment option and as with any sole trader business, the more you work the more you should be able to earn.

Whilst we all know this adage is logical but not always right, the fact is people in real estate tend to work longer hours than your average employee.

Taking extensive information from the real estate industry together with insight gained from my role in the industry over the past 6 years I have for 2012 tried to examine the workload of agents around the country to see who are the most productive, who work the longest hours and how do these factors effect the true hourly rate of real estate agents.

I have examined the workload on the basis of the number of sales managed by agents matched to the data for average days on the market. The number of new listings matched to time spent prospecting for business and finally the available inventory on the market during the year and the associated workload in supporting those clients. Add the usual self- management time and office time and I have come up with a total hours per agent per region.

Here are the findings.

The average annual workload of an agent in NZ is 2,033 hours. This compares to a traditional employee working 9 to 5, 5 days a week with holidays and stat days working 1,840 hours.

Agents work 5% longer in a year than most employees.

This drags down their average hourly income for agents to $22.14

Across the regions the scale of the workload is incredible. The most industrious agents are in the Central North Island they on average work 2,775 hours per year. At the other extreme the agents in Nelson seem to have it made; appearing to work a total of just 1,420 hours.

This measure of workload is only really meaningful when evaluated as an effective hourly rate given the diversity of regional incomes as presented in the analysis of how much an agent in NZ earns.

The conclusion is that the best place to work in real estate in NZ would by this measure of effective hourly rate appear to be in Auckland where agents work an average of 1,557 hours per year for an effective hourly income of $48.88.

Closely following on the heels of Auckland is Wellington and Nelson. Eight of the 19 regions have an effective rate in excess of $25 per hour, or put another way, the majority of regions have an effective income at an hourly rate below $25 per hour.

Alarming is probably the fact that 5 regions have an effective hourly rate below the minimum wage of $12 an hour with agents in the Wairarapa working an average of 2,314 hours per year for an effective hourly rate of $9.36.

Again as mentioned in prior analysis these incomes are gross and have to support business costs, which have been estimated at around $10,000 per annum.

Real estate in New Zealand the hard numbers for 2012

In 2012 the NZ real estate industry sold exactly 74,000 properties for a total sales value of $33.954 billion. These transactions of residential property were undertaken by an average of 9,400 active agents who listed 132,494 properties in the year and shared amongst themselves and their business owners and franchise companies just over $900 million in sales commissions.

2012 was by recent year comparisons, a good year for the real estate industry – the year saw an increase of 12,731 in the number of properties sold, a 21% increase. In terms of commission an increase of $175 million a 24% increase.

In the past few years the number of agents actively involved in the industry has not change that much, which means most agents enjoyed a significant rise in salary as compared to 2011 – far above the raise most employees would enjoy. That though is the nature and challenge of real estate – you take the rough with the smooth on a commission-only salary as a self employed contractor. The years of 2008 to 2010 were lean years for many in the industry.

Now when it comes to how much an agent earns it is not possible to simply divide the commission value of the sale by the 9,437 agents to say each earned on average $96,000 – that average would likely incite hoards of people to start applying tomorrow to be an agent given that is probably 2.5 times the average salary of NZ’ers.

For the full detail of agent income in 2012 check out this analysis by region as well as the question where is the best place to be a real estate agent?

Whilst the agents themselves may not have benefited from all of this $900 million, one direct beneficiary is though the government. The GST on commissions alone amounts to $136 million plus an income tax benefit of around a further $115 million makes a tidy quarter of a billion dollars in tax benefit to the government.