NZ real estate commissions

When casually asking people recently how much they would expect to pay real estate agents to sell their home, I was surprised to find a variety of answers. I should point out I was looking for numbers as answers, not just the predictable answer of "too much"! 

I was equally surprised when the article on the influx of agents into the industry recently quoted a commission range from 3.5% to 5% of the sale price. 

So I set out to seek to get some facts on agent commissions. What I found was that no company charges 5% - but the fees charged do vary significantly. Most agencies seem to charge around 4% on the first $300,000 of the sale price and then around 2% on the balance with often an admin charge and of course GST applicable to all commission charges.

What I found most surprising though is just how difficult it is to find out what companies charge via their websites.

Of the larger groups only Barfoot & Thompson provide the fees in detail. They provide a table showcasing the price advantage they offer as compared to the other major groups, this is due to the fact, they state that they own most of their branch premises. Searching online across all the other major groups provided literally no details of commission fees. I did however find that the newest entrant into the market Mike Pero not only states their fee structure on the site of 2.95% up to $390,000 and then 1.95% for the balance plus GST, but it also has a handy calculator to allow anyone to compare Mike Pero commission with the fees of the major companies. Thanks to this feature of the Mike Pero site I developed this chart below: 

As I stated the commission charged and presented in this chart for the other groups is sourced from the Mike Pero website, as each of the other companies do not provide a commission structure online then it is not possible to separately validate those commission fees.

The blue bars represent the commission charged by each company for a property sold at the current median price across NZ  (REINZ Stratified price $385,275) with the red bars representing commission payable on the current price across Auckland (REINZ Stratified price $547,375) . All commission charges include GST.

These commissions are expressed as $ amounts as is now required by the Real Estate Agents Authority who stipulate that a listing agent must provide you with an estimate in dollar terms of the commission you would have to pay if your property sold at the appraised price. 

The commissions are surprisingly variable with a range at the NZ national sales price from just over $13,600 to $18,300 and in the case of Auckland sales price from just over $17,300 to nearly $25,000.

It is valuable to put these commissions into perspective when you consider the appreciation or lack of it of property prices across the country over the past 5 years. In that time period since August 2007 the average NZ house as measured using the REINZ stratified median price, has gone from $377,425 to $385,275 - an increase of just $7,850, the commission on the sale of that house today would be swallow up all of that appreciation. In the case of an Auckland property which at the stratified mean price, has risen from $510,400 to $547,375 - an increase of $45,975, then in this case the commission would be covered by the appreciation but could consume more than half of it.  

Now before I get a barrage of comments from those within the industry I thought for the sake of completeness that I would also highlight some alternative operators which are all licensed real estate companies who charge very different rates.

In Auckland The Property Market charges 2% - a flat commission irrespective of the sale price.

In Christchurch Total Realty charges 1% as a flat commission rate

There is also a unique online real estate company 200Square which charges $4,500 as a flat  fee - no commission

This is by no means an exhaustive list of alternative providers of services in the real estate market, I just happen to know of these companies and felt the need to include their details. I do not at this stage propose to analyse their services save for to highlight their consistent focus to the role of online in the process of  marketing property for sale. 

We are not alone when it comes to property prices

Election night crowd, Wellington, 1931 - 

Photographic Archive, Alexander Turnbull Library, National Library of NZ

Have a read, if you will of this article which was published last Saturday, the 15th September regarding the trend in house prices over the past 5 years.

"House prices have become so dull that it is tempting to think they are no longer the mainstay topic of conversation at dinner parties.

Since 2009, the two major yardsticks of house prices – QV and the Real Estate Institute indices – have been broadly flat, rising in mid-single digits in 2009, then seeing either small falls or rises in 2010 and 2011.

The lack of direction in the market has surprised many, not least the real estate industry and the banks.

At the start of 2009, there were those who predicted a 15 per cent fall in prices.

The REINZ Stratified Price index ended the year six per cent up. While market predictions proved closer to the mark in 2010, in 2011 the commentators expected a fall of more than six per cent. The index rose by 3 per cent.

But many commentators still predict dire falls. Sceptics say prices remain above long-term trends for affordability. The average house price on REINZ 2011 numbers was 4.7 times the average salary, against a long-term average of four.

The flat market also disguises two trends. Stripping out inflation, house prices have fallen. And there has been a well-understood divergence between prices in Auckland and elsewhere.

So where next? Analysts foresee a flat market followed by slow growth. This still means falls in real terms, but it is a lot better for homeowners than the nightmare predictions.

Mortgage availability is improving, though slowly, with lenders offering higher multiples of salaries and higher percentages of buying prices.

Meanwhile, with rents rising significantly, buy-to-let opportunities have become more attractive, bringing other buyers into the market."

Now having read this piece, let me tell you firstly that I did not write it.

This article was published in the UK last Saturday - it was not an article about the NZ property market. (I have ammended the article by inserting NZ stats and references).

The fact is that the original UK article which I have pasted in full below for comparison, was written about the UK property market. What is so striking is the similarity - line by line, fact by fact the parallels are uncanny. The UK property market would from this comparison appear to have gone through a near identical rollercoaster ride as the NZ market over the past 5 years. To be clear the article above has been changed by me to include the references to data sources (with links) and to the actual NZstatistics.

Now here is the UK original article.....

TAKING STOCK: Slow growth coming but house prices are set for real-terms fall

By ALEX HAWKES

PUBLISHED: 21:43 GMT, 15 September 2012

House prices have become so dull that it is tempting to think they are no longer the mainstay topic of conversation at dinner parties.

Since 2009, the two major yardsticks of house prices – the Halifax and Nationwide indices – have been broadly flat, rising in mid-single digits in 2009, then seeing either small falls or rises in 2010 and 2011.

The lack of direction in the market has surprised many, not least the City.

A report by niche broking firm Redburn this year highlighted the fact that the futures markets, set up to enable people to bet on the direction of house prices, had got things badly wrong.

At the start of 2009, futures traders predicted a 15 per cent fall in prices.

The Halifax index ended the year five per cent up. While market predictions proved closer to the mark in 2010, in 2011 the City expected a fall of more than six per cent. Halifax’s index fell just two per cent.

But many commentators still predict dire falls. Sceptics say prices remain above long-term trends for affordability. The average house price on Halifax’s 2011 numbers was 4.4 times the average salary, against a long-term average of four.

The flat market also disguises two trends. Stripping out inflation, house prices have fallen. And there has been a well-understood divergence between prices in the South East, particularly central London, and elsewhere.

So where next? The Redburn analysts foresee a flat market followed by slow growth. This still means falls in real terms, but it is a lot better for homeowners than the nightmare predictions.

Mortgage availability is improving, though slowly, with lenders offering higher multiples of salaries and higher percentages of buying prices.

Meanwhile, with rents rising significantly, buy-to-let opportunities have become more attractive, bringing other buyers into the market.

The trend for Auckland property prices is clear

It is often said that a trend needs to be established for at least 2 quarters before you can start to define it as a trend - that is certainly the official wisdom with economic recessions. As for the property market it is often safer to hedge your bets and look to 3 or 4 quarters before saying a trend is definitely a trend.

In the case of the Auckland property market and the movement in property prices I would be confident to say we are seeing a significant and enduring trend of price increases.

The most recent statistics from the Real Estate Institute for August shows that across the wider Auckland region prices set a new high of $505,500 when judged as a median sales price in the month and $547,375 when judged on the more accurate measure of Stratified Price. These prices were up respectively 12% as compared to August 2011.

The media is certainly alert to this trend and I was asked to comment on this subject in the TV One news segment on Sunday. 

I thought I would take the opportunity to present the sales price data in a little more detail to show the trend over the past 3 years and in segmenting Auckland into the main 4 regions.

Just to be clear around the source of property price data. The Real Estate Institute (REINZ) is in my opinion the most valuable data to use as it is collated from actual transactions of unconditional sales in the month making it the most timely data. The data is most often presented as a median price to ensure that extreme priced sales (ie for example $10+m) do not skew the data. In addition and with the assistance of the Reserve Bank they have developed an excellent and far more accurate measure called the Stratified Mean. This price index uses a statistical model to remove the influence of more of one price range of property in key suburbs do not skew the data.

Looking at the wider Auckland region to start with the chart below shows the trend of prices measured as both median and stratified going back to January 2009.

The solid blue line presenting the stratified price shows the first strengthening of prices across the region late in 2010, this trend really became established in July of last year when since then prices have consistently risen by 12% over the period to the current peak of $547,375. The pure median price as shown by the red line shows a slightly earlier take-off point of May of last year when from that period prices have risen a total of 9% to $505,500.

Turning to each of the 4 regions within Auckland the one showing the greatest appreciation in property prices is the North Shore. As shown from the chart below prices have risen by 16% from the starting point of 12 months ago - well ahead of the regional growth of 12%.

The new peak of sales price on the North Shore of Auckland is now $625,173.

Auckland central suburbs is where the majority of interest has been shown in recent months and in this region property prices have certainly been on the move. The August median price peaked at $590,500 up 14% from the start of the trend back in March of last year. The year-on-year comparison for this region does show a very alarming 23% increase but this should be taken cautiously as the chart below shows that August 2011 saw a very significant one-month fall in median price.

South of the city in Manukau property prices have seen a strong trend of increase starting back in March of last year. Over the 17 months prices have risen 8% to $493,000 with a new peak in June at $495,200.

Out in West Auckland the trend in property prices has been somewhat more subdued than in the central and North Shore area. Here in the Waitakere region prices are reaching new levels although August did not see a new peak month. The trend over the past 11 months since the upturn began is a more modest 5% increase to $410,000.

Property sales pass another key milestone towards recovery

The month of August saw 6,035 unconditional property sales across the country as reported by the Real Estate Institute. This represented a 16% increase as compared to August last year and continues to fuel a stronger property outlook as all of the 8 months of 2012 have seen year-on-year sales up between 14% and 37%.

The chart below tracks the annualised total of sales volumes and transaction value since 1993.

This total for the 12 months to August tips the annualised total of sales past the milestone of 70,000 sales. The last time the 12 month moving total sales was at this level was way back in May 2008.

The property market did witness a rebound in 2009 and edged very close to 70,000, with an annualised total sales of 69,629 in December 2009 before falling again down to the low point of April 2011 at 54,829. Since then the growth in sales has been consistent running a 17 month unfaltering trend to see an overall increase of 28% in total annualised sales top the new level of 70,065.

It is, as ever, important to recognise the difference between the current sales levels and those heady days of 2004 when sales were exceeding 120,000 on an annualised basis, equating to 10,000 sales a month - a long way removed from the current level of still just under 6,000 a month.