KEY POINTS:
As the property downturn starts to bite, mainstream real estate agents are following the lead of now defunct rival The Joneses, offering fixed-price flat-fee sales commission discounts. Russell Malcolm, licensee of Kiwi Real at Orewa, is offering a $6999 (plus GST) package which he reckons is clear evidence
that the mainstream agency business is heading towards a big shake-up.
Other licensed agents who are Real Estate Institute members are following, he says. As fields of "for sale" signs bloom in the suburbs and sales hit a seven-year low, agents are finding times harder and Malcolm believes more agents will discount commissions.
The Kiwi Real package includes appraisals, photos, signs, internet listings, buyer inquiry service, open homes and viewing by appointments, sale negotiation, agreement/deposit collection, processing and documents delivered to solicitors.
In a move almost unheard of through the heady days of this decade, Malcolm's promoting the cheap "signed-sealed-delivered" technique as the shape of things to come.
He is even handing out fake $1000 bills carrying his Albany phone number.
Printed on the front: "This note may save thousands of dollars."
Malcolm is a bit of a heretic among the mainstream world of licensed agents. He reckons we're paying far too much to sell our houses. And times are changing fast, with a sudden quiet descending as sales volumes and prices take a dive.
People are rising up against fat fees in an industry where about 20,000 agents pull an estimated $1.2 billion annually.
Real estate's fortunes have been changing fast lately. Property investment business Blue Chip is being scrutinised by the Serious Fraud Office and the Commerce Commission and its founder Mark Bryers said on Thursday the brand was finished.
This week's voluntary liquidation of flat-fee rebel agency The Joneses highlighted the costs of selling real estate, as well as the market downturn. Since 2006, and after opening offices in Auckland, Wellington Christchurch and Dunedin, the chain sold only about 400 houses, lost $6 million and had an excess of liabilities over assets of $860,000.
But that didn't dent optimism. The Joneses still spent a whopping $3.2 million on a blitzkrieg marketing campaign.
Auckland's mammoth Barfoot & Thompson spends about $10 million on marketing annually - and its agents earn only commissions, never salaries like The Joneses.
The newcomer was poised to list on the New Zealand Exchange's alternative market, a move thwarted by the biggest market slump this decade.
A Joneses ex-staffer said the bosses were actually the real victims.
"The directors were very kind to their staff. We were all paid last Friday and the announcement was on Monday. The biggest losers or investors in this company were the directors and their close friends and family members who invested large amounts of cash into the business in a genuine effort to make a go of it."
Peter Thompson, Barfoot and Thompson managing director, is sceptical about discounting commissions and says to Malcolm: "Good luck to him! He's got to make the sales to really survive."
Vendors get what they pay for and good service doesn't come cheap, he says. Selling a $350,000 house with Barfoots will cost $12,300 including GST. And you'll pay $24,187 to move a $1 million place, costs Thompson defends strongly at the 65-agency business which employs 1800 staff and lists about 1600 properties a month.
"My personal belief is The Joneses' business model didn't allow them to survive, with high salaries for salespeople. It's harder to survive when the market goes down and you get a lot less sales and income, yet your overheads are not going down. So it's a flawed formula." He predicts fewer agents in the industry and part-timers could be the first to scamper. Getting the listings won't be the challenge but agents will have to work harder to keep in touch with buyers.
Thompson reckons the sector doesn't have any hard evidence that the market is going pear-shaped. Sales figures from December and January are never any true indicator because of holidays and it won't be until March when February numbers emerge that a pattern will be established, he said.
Investor activity is down but Thompson said this only accounted for a third of the firm's business, most being "the everyday people ... the average purchaser buying a roof over their family's head, buying and selling in the same market, whatever the market conditions are at the time".
The country's largest realtors, Harcourts, released monthly figures yesterday showing sales volumes plummeting but average prices rising. In the Northern region which includes Auckland, prices rose from $438,000 last January to $506,000 last month but written sales dropped 51 per cent from 531 to 259.
Bryan Thomson, chief executive, noted this showed a slow start to the year but emphasised it was the holiday season.
Buyers had more selection so vendors had to promote their properties and bring "realistic price expectations" to the market, he advised.
Martin Evans, president of landlord lobby group the Property Investors Federation, said the downturn in the past six months was sharper than people realised. The institute had stressed annual figures, which showed an artificially rosy picture, he said. He advised buyers to hold their nerve and sit tight, predicting prices will continue falling.
"We're certainly not at the bottom of the market yet. The market goes down quicker than it goes up. Wait until the end of this year, maybe even the next."
Murray Cleland, REINZ president, is also taking a less optimistic tone, and is worried about turnover hitting prices.
"The abnormally low sales figures are more of a concern than the median prices, in some ways, because they tell us that the market's liquidity has reduced significantly and logically this will impact on prices.
"People need to be prepared for prices to move back in 2008 which may have consequences for those that are heavily geared, especially those with multiple rental properties in that situation, at a time of rising interest rates," Cleland says.
A new book out next month from Empower Leaders Publishing concludes: "A downturn in the market creates both risk and opportunity. Whether you suffer or profit depends on how prepared you are for the inevitable fall in the market."
JUST HOW BAD?
* Quotable Value: Average national house sale price increased to $390,636 last month from $388,253 in December. But said growth had "slowed rapidly" and noted more reports from its valuers of properties going to mortgagee sale.
* Real Estate Institute: Sales at a seven-year low. Number of deals sank to 5186 - the lowest since January 2001 and down from 7566 sales in January 2007 and 5597 in December. Prices also down, from $345,000 in December to $340,000 last month, compared with the peak price of $352,000 in November 2007.
* Barfoot & Thompson: Volumes well down, from 1033 sales last January to just 604 sales last month. But average prices up from $475,461 to $517,613.
* Harcourts: Northern area (includes Auckland): Prices up from $438,000 last January to $506,000 last month but volumes halved, from 531 sales just 259 sales.
TIPS FOR BUYERS
How to Survive and Prosper in a Falling Market ($39.95, out in March from Empower Leaders Publishing) says:
* Aim to get places at "bargain" prices.
* Stay close to agents.
* Get finance pre-approved so you're able to buy swiftly.
* Add value to property through decorating, additions or extensions.
* Consider adding bedrooms, minor dwellings or developing.
* Watch your cashflow - timing is everything.
