Paying Agent Commissions - Selling Guide
A real estate agent earns their keep through commissions rather than a fixed fee.
Paying your agent a commission is something to expect when selling your home through a real estate agency in NZ.
Here's some advice on how this works, and what you should look out for, from the agents themselves.
How much commission do real estate agents take?
Under the Real Estate Authority’s Code of Professional Conduct and Client Care an agent has to give you an estimated cost of the commission and how it will be calculated. An agency agreement will say what the agent will do to sell your property and how much commission you’ll pay them if the home is successfully sold.
Each real estate company has their own approach to how they charge commission.The REA recommends working with real estate agents that use the REA’s approved standard clauses in their agency agreement, which will will clarify when the agreement ends and when you need to pay a commission. According to the Real Estate Authority, the agent usually charges an administration fee of $500, plus commission based on a percentage of the selling price.
The commission is typically negotiated on a tiered system, for example the vendor might be charged 3% of the first $400,000 of the sale price and then 2% of the balance of the sale price.
There are some agencies that will do a flat fee commission rate so do your research on the various options before you list your property.
The commission is generally paid out of the 5% or 10% deposit the buyer pays to the agent when the sale and purchase agreement is signed. It can be paid upon settlement in certain cases.
Different agencies have different approaches to agent commission.
You get what you pay for
Don’t choose an agent based on a low commission, cautions Joe Nidd, head of independent Dunedin brokerage, Nidd Realty. You choose an agent based on skill and trust. If commission is at the top of your list, you’ll find someone cheap. What’s more important is how much you save or how much you get at the end of the transaction,” he says. With a highly skilled agent you’ll end up with $50,000 more on the price, he estimates. The Nidd Realty director says that in his market of Dunedin, real estate firms have been moving away from the tiered commission system, a number of agencies making its commission a straight 3% all the way through, perhaps 4% if it’s a property at the lower price level.
Costs for agents have gone up and he thinks sellers appreciate more what agents do for their money in a tougher market. Median days on market are up at around 46 days for homes in Dunedin in November 2022. “That means that it’s six to eight weeks before the salesperson is paid,” he says. “It’s in a market like this that a real estate agent’s skills are really tested.” Debi Pratt, business owner of Tall Poppy in Christchurch, says the agency has a tiered commission system, starting at $11,100 plus GST for homes up to $500,000, $13,900 plus GST for over $750,000 and so on. With the Tall Poppy’s commission, marketing expenses are included, incorporating the Trade Me Gold package for the agency nationwide, and this sustains a home’s marketing through 90 days, she says.
Sellers don’t haggle with the Tall Poppy commission, adds Debi. “Our fee is fair and includes marketing so we don’t discount. We say if other firms are discounting then they’re charging too much in the first place,” says the Tall Poppy agent.
Commission won't be the only cost
Be prepared for other costs on top of commission when going to sell your home. With most agencies, you’ll also be asked to pay for marketing costs known as VPA (Vendor Paid Advertising) on top of commission which will include things like marketing the open home, professional photography and advertising.
You’re likely to be asked to pay for advertising costs on real estate websites, specialist property magazines and social media. You’ll have to pay for these before the agent starts marketing the property and they are to be paid even if your home doesn’t sell.
“When I do an appraisal, I’ll talk about the target market for the marketing campaign. In a certain area, there might be a huge trend for people who are looking to retire there. In that case, you’ve got to invest in the media where they are. I look at this on a case by case basis,” says Cody Mitchell from Bayleys Tauranga.
Make sure you understand the additional costs on top of commisison.
Top tip: Make sure you get an itemised breakdown of all the VPA extras from your agent. Some of the marketing will be provided without charge by the agent so find out what they plan to offer you.
This could include sharing the details of your property with their network of agents, advertising it on the agency’s website and putting up the for sale sign, for instance. Some agencies have their own magazines or e-zines so ask about this with agents when getting close to signing on the dotted line.
Ask your agent if their business is open to "conjunctional sales," suggests the Bayleys agent. This is when the agent allows the buyer to come through the home with their agent from another brokerage and the vendor’s agent then shares their fee at the property sale with that buyer's agent.
Some real estate firms won’t allow their agents to do this but Cody sees this as a major plus for the vendor so doesn't see why agents should veto this.
“At the end of the day, an agent should be working to get the best outcome from the best buyer, not just the best price from the best buyer that their agency can provide,” he says.
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