might be wondering why real estate fees are so high
if there are no obvious special skills required to
be a salesperson? One particular reason why the fees
are so high is that there are so many people selling
houses these days that if they didn’t charge
so much, none of them would make a decent living.
In days gone by, when there was a smaller percentage
of people selling real estate, the commission that
was charged in New Zealand was only about two percent
of the sale price. Yet many people in the business
got very rich because they sold a lot of houses.
These days, there are too many qualified
real estate salespeople trying to sell the limited
amount of houses available for sale. The average salesperson
would be lucky to sell six houses in a year. Of course,
many sell lots more, but then again, an awful lot
give up because they are unable to sell enough to
make a living. To compensate for this situation, commissions
have risen in many cases to around four percent of
the sale price plus five hundred dollars plus GST.
This is roughly two and a half times more than the
commission was in the old days. And on top of that,
most companies will only pay for a very limited amount
of advertising. They will probably advertise for free
on their company web sites and not charge you for
taking photos. But if you want to advertise in newspapers,
you will probably be required to pay for that cost
reason why agencies feel they need to charge
as much as they do is because for every property an
agency is successful in finding a buyer for; they
are likely to work on trying to sell several other
properties without success. Even in the case of exclusive
agencies, which usually last for three months, only
about 50% of properties sell within that time frame
under normal market conditions.
What you pay in agent’s commissions partly compensates
for the time and money spent on trying to sell those
properties they didn’t sell. However, most of
what you pay goes to compensate for the enormous amount
time and money the salespeople spend seeking out properties
to sell. Even very successful sales people spend probably
less than 20% of their time selling houses. The rest
of their time and effort is engaged in prospecting
for new properties to sell.
reason why fees are so high is that the commissions
are generally split two or more ways. Usually the
agency keeps about half the commission and the salespeople
who list and sell the properties get the other half.
Depending on the company policy, usually if one salesperson
lists a property but another one sells it, the person
who listed it is likely to get about twenty-five percent
of the commission and the one who sells it gets the
other twenty-five percent.
A few decades
ago, to qualify as a real estate salesperson,
one needed only to sit a very simple exam that required
no more than a few weeks of part time study. Then
if he, or she, passed the exam, that person would
be qualified to become a licensed salesperson and
be working from home. These days, competition is stiff
and overheads have skyrocketed because to get ahead
of the competition an agency needs to have smart offices
in prominent areas and spend a fortune in self-promotion.
The cost of this has to come out of commissions.
REAL ESTATE PEOPLE!
These days it takes much more study to become
a real estate sales person. One is required to learn
the most important real estate regulations and the
special rules of the Real estate Institute. They study
how to list properties for sale and how to advertise
them. They must know their responsibilities when handling
other people’s money. They study a few basics
on assessing property valuations, a few techniques
for negotiating between parties and other such matters.
But even so, what they study is based on nothing more
than common sense and fairness. Although the questions
in the examination papers they have to sit for, and
need to pass, might be difficult to answer, there
is nothing a sales person has to do in the normal
routine of house selling - apart from writing contracts
- that is difficult or that the average property vendors
are unable to do for themselves.
Notice that I am
talking about sales people, not agents. Agents are
the people who manage agencies; these are usually
the owners who hire sales people. To become an agent
in New Zealand these days you have to do a very comprehensive
study course. Agents don’t just handle the sale
of houses, they might also sell large buildings, blocks
of flats, businesses, forests and farms etc., and
might be involved in selling these to people in other
countries. They also need to know how to handle staff.
To be able to handle these kinds of things, not to
mention the money involved, you need to be fairly
well informed. But this is not the case when it comes
to selling your own home. The wiser you are, the better,
but you don’t need any special skill or knowledge.