As house prices skyrocket, so has the amount you’ll typically pay a real estate agent. We found agencies charging $10,000 more than others – even for a median-priced house. But negotiating commission rates can save you money and boost the ultimate sale price. We've calculated standard commission fees charged by major agencies and reveal how you can hammer out a better deal.
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Choosing a real estate agent requires a balance between four factors: anticipated or “appraised” sale price; fees; marketing costs; and professionalism. One agent may charge half what another does – but then the second may achieve a higher sale price (they’ll always be quick to assure you they will).
To uncover commission rates and marketing costs, our mystery shopper arranged for property appraisals of a Wellington home from Bayleys, Century 21, Harcourts, Mike Pero, Professionals, Ray White, Tall Poppy, Tommy’s and 200 Square.
We also looked at the commission rates of three major agencies based outside Wellington.
We recommend arranging at least three (ideally more) written property appraisals from different real estate agents. The more you get, the better informed you’ll be about your property’s worth.
It’s not uncommon for competing agencies to give you vastly different estimates.
In our mystery shop, 200 Square estimated our Wellington property’s value as $635,000 to $685,000 while Tall Poppy’s agent gave a “recommended selling range” of between $690,000 and $757,000. Professionals thought $750,000 to $800,000.
Agencies base their valuations on the same information – the basic details of your home (the number of bedrooms and bathrooms, the neighbourhood) and recent sales data in your area, which can be cherry-picked.
Your eye may go straight to the upper limits or the highest estimate – many agents have anecdotes of properties selling well over their appraised values – but forget these figures.
Instead, compare the midpoints of the appraisals. Look for any that are outliers, either much lower or much higher than the rest. Low estimates may signal the agent isn’t prepared to do much legwork to find buyers.
Overly optimistic estimates can indicate you’re being baited into signing. If you like an agent but their appraisal isn’t lining up with the others, ask them to explain why.
Request the details on the past three houses an agent sold – both the sale price and the appraisal range.
You can set your minimum sales price at whatever number you choose, but it’s a good idea to base it on all the appraisals (not just that of your chosen agent) while still giving the agent something to aim for.
During negotiations, your agent may ask you to consider offers below your minimum price. You’ll feel more justified in rejecting a $450,000 offer on your home if you have three appraisals saying it’s worth at least $500,000.
Has your agent offered you a competitive commission rate? Even if you negotiated or received a “just for you” deal, it’s not easy to be sure.
In our mystery shop, we asked the nine agencies to include their standard commission (and their proposed marketing costs) in the written property appraisal. Harcourts was reticent to put these in writing until we reminded it of its obligations to disclose information under the Real Estate Agents Act rules.
For the house in our mystery shop, which had a mid-range price of $720,000, fees ranged from 200 Square’s standard $4500 to $33,695 with Harcourts.
All agents (except 200 Square) told us their rate was negotiable. To get the best deal, especially if you’re not confident in your bargaining ability, pit agents against one another.
Make sure agents know you’re talking to others and ask each for their best commission rate. Then see if the others will beat it.
Don’t be put off negotiating an agent’s fee if your property is at the lower end of the scale. Real estate is a highly competitive market and agents will keenly remember the last time a competitor snatched a listing off them.
You could also consider structuring the commission in the agency agreement to give the agent an incentive if they get close to or beat your sales goal. If you think $600,000 is a good price, a tiered rate of 2.45% for the first $590,000 and 9% for any dollar over that amount may provide more motivation than a flat rate of 2.5%.
Consumer members tell us that even agents offering set fees, such as Tall Poppy, may negotiate if they know you’re considering another agent. If they offer to sell your house for $12,500, you could counter-offer $10,000 – with a $2500 bonus if they meet your $600,000 goal.
No matter what price the agent gets you in negotiations, you can’t be compelled to sell. If you’re unhappy with how things are going, you can sign with another agent once the agency agreement expires – though be careful you don’t end up paying two lots of commission.
Fees can be re-negotiated at any point. If you’re being told to compromise during negotiations, ask the agent to cut their commission so the pain is shared.
We calculated the standard commission charged by major real estate agencies based on properties at $400,000, $550,000 (the median price in December 2017) and $800,000.
|Agency||Location||$400,000 sale ($)||$550,000 sale ($)||$800,000 sale ($)||Base fee ($)|
|Barfoot & Thompson||Auckland, Northland||15,927.50||19,377.50||25,127.50||No|
GUIDE TO THE TABLE STANDARD COMMISSION FEES based on online prices, inquiry to agency or our mystery shop in Wellington in February 2018. LJ Hooker’s and First National’s commission rates based on a mystery shop in Auckland. Agencies’ standard rates can vary across the country. Professionals’ data based on Wellington and Auckland rates. Total is for a residential property and includes the base fee and GST. Amaximum. BTommy’s Wellington City does not charge a base fee.
We also contacted the companies to see how transparent they were about the fees they charged. Century 21 and First National didn’t reply to our message, and Harcourts refused to give its charges.
Agents must inform you of their commission rates before you sign an agency agreement, or work for free.
LJ Hooker, Professionals and Tommy’s told us their commission rates varied in different areas. Ray White said the same, though all offices offer a 10% discount to SuperGold Card-holders.
In contrast, Bayleys and Tall Poppy provided us with their fees when asked. Barfoot & Thompson, Mike Pero and 200 Square all list commissions on their websites.
Some agents make it difficult and time-consuming for sellers to discover what they’ll pay, which discourages consumers from shopping around.
Agents must inform you of their commission rates before you sign an agency agreement (the legally binding document that allows the agent to work on your behalf), or work for free. But as our mystery shop found, they can make it challenging for sellers wanting to compare.
We think every agent should be required to list their standard commission and range of marketing costs on their website and in every property appraisal to promote transparency and competition. These can still be negotiated before you sign the agency agreement, but such a rule would help consumers navigate the market.
The code of conduct for real estate agents prohibits them from withholding information that should by law or in fairness be provided to a customer or client. We’d like to see the requirement to publicly list an agent’s fees and costs included in the code.
Even adjusting for inflation, the amount you’ll pay for a real estate agent’s services is rising. A seller with a median-priced property in February 2014 forked over $20,350 to a real estate agent on a 4% standard commission rate. Four years later, this had risen to $24,950.
GUIDE COMMISSION FEES for the average house price is shown in yellow and the median house price shown in red. Average house price data is from QV and median house price data from the Real Estate Institute of New Zealand (first quarter of each year). Fees are inflation-adjusted, and based on Harcourts’ commission rates of 4% plus $500 base fee plus GST.
When comparing fees, also contrast agents’ marketing strategies. Sellers now bear most – or all – of the costs to market the property and most of the time you’ll pay upfront.
If one agency includes complimentary Trade Me listings or signboards, ask the others for this as well.
In our mystery shop, Bayleys and Harcourts charged $136.85 for a standard Trade Me listing, while Mike Pero quoted $89. It was complimentary with Century 21 (as was a realestate.co.nz listing). If our seller arranged the sale privately, they’d pay $529.
The suggested marketing spends ranged from between $774 (200 Square) and $6100 (Bayleys).
Tall Poppy and 200 Square advised our seller to focus on digital marketing. In contrast, Bayleys, Century 21, Harcourts, Professionals, Ray White and Tommy’s encouraged some print advertising, in either Property Press or local newspapers. Mike Pero suggested TV advertising at $340 for two 15-second spots on TV3 or Prime.
All agents admitted the majority of buyers first spotted a property online. When more people want to buy than sell, motivated buyers will be hunting and a digital-only approach may be sufficient. In a buyers’ market, more effort may be required.
Ideally, advertising will bring in more than one committed buyer – and give those buyers a sense of competition. Our mystery shopper was told that when buyers spotted a house on different types of media, including digital and print, they felt under pressure to make a higher offer.
Facebook and Google advertising is a relatively new approach in the real estate industry and can target interested buyers – including those who’ve viewed your web listing – in a way static marketing can’t. In our mystery shop, fewer than half the agents offered these ads. Packages ranged from $100 to $700.
One agent’s marketing plan included $300 for web listings and promotional cards for a mailbox drop in the area. These cards may find you a buyer – but they may also help find your agent (whose picture is likely to feature) a new client. If any of the marketing promotes the agent as well as your property, they should be the one forking out or at least sharing the costs.
Asking friends, family, neighbours and colleagues for an agent they’d recommend can be a good way to find someone you feel comfortable with and who’ll go the extra mile.
Selling a home is stressful, even when things run smoothly. If you find an agent too pushy or secretive early on, this can be magnified when you’re in the midst of intense negotiations.
The agent who clicked with your friends might not be the right fit for you – so make sure you talk to several agents. Ask about their experience and see if they have former clients to whom you can speak.
Always check the Real Estate Authority’s public register and complaint decisions before you sign with anyone. There you can check if they’re a registered agent and if they’ve had any complaints upheld against them.
There’s no obligation for you to stick with the same real estate agent once the agency agreement has expired (60 to 90 days). But be careful if you decide to switch.
The agency agreement may state you have to pay commission to the first agent if a buyer who discovers your home when it was listed by them makes an offer to the second agent.
All agency agreements must make clear what happens in these circumstances. Look for this before you sign – don’t sign any contract that requires you to pay a commission once it’s expired.
Kiwi real estate agents can charge a higher percentage to sell a home than their overseas counterparts.
UK agents charge between 1% and 3.5% (including sales tax). Based on the 2017 median house price in England and Wales, this is a commission of NZ$4241 to NZ$14,845.
Australian agents charge between 2% and 3% (typically sales tax is extra). Based on the 2017 median house price, this is a commission of between NZ$17,723 and NZ$26,585.
If the commission is tiered, typically there’s a higher commission on the upper tier than the lower – for example, 2.5% up to $500,000 and 6% above that. Here, agents traditionally tier the other way.
By Olivia Wannan
Buying a house can be a daunting process. Whether it’s your first home or your fifth, we’ve got what you need to know about making one of the biggest purchases in your life.
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