KEY POINTS:
Home buyers look set to benefit from a more aggressive real estate market, as traditional agents compete with a new breed of property-sales companies offering to sell your house for less than ever before.
The newest deals promise to save homeowners more than $10,000 on the sale of a $500,000 house through a fixed-fee scheme. Companies that offer only marketing packages, such as HomeSell, could save owners almost $16,000 on the same house.
But many real estate agents are also willing to negotiate their traditional commission fees, as the battle intensifies.
Agents' commission rates vary, although fees of 3 to 4 per cent on the sale price plus advertising and administration fees on a property are traditionally typical, especially in Auckland.
The battle between agents and the newcomers coincides with a review of the more than 30-year-old Real Estate Agents Act by Building Minister Clayton Cosgrove, who has been scathing about many aspects of the industry and in particular of the Real Estate Institute.
Peter Hammond, national co-director of marketing company Green Door, said the real estate industry had reason to feel threatened as the number of private sales of homes increased, up from an estimated 10 per cent last year to 12-13 per cent this year. With an expected overhaul of the industry in the wings, he said: "I don't believe we'll still see the existing system two years from now. The writing is on the wall."
However, Real Estate Institute president Murray Cleland denied that scenario, saying he wasn't scared of competition, and neither was his industry. "We have said that we welcome a review of the act, and we have no problem whatsoever. It's 31 years old. Reviewing the act totally is better than tinkering with it, and we look forward to participating in the review of the act.
"I enjoy competition; I think it's great," he said. "At the end of the day it'll come down to how well an agent does the business. I could tell you some horror stories of some of these low-commission people who say they don't charge commission but charge a marketing fee.
"There's add-ons and marketing fees and all that, and when you start to compare apples with apples, there's not a lot of difference."
He said those real estate agents at the top end of the market required "a fair bit of knowledge, skill and expertise to handle those types of sales". "Surprisingly enough, [with] a lot of vendors selling property, the commission is not the thing they actually focus on," he said. "It's the result of the sale that they focus on."
Cleland said traditional real estate agents had faced outsiders before.
"A few years ago, solicitors entered the competition, and they were going to do it all at 1 1/2 per cent. They consequently went broke."
A survey last year by the Consumers' Institute put the cost of selling through an agent on a median-priced house in Auckland at just over $17,000 in March 2006, up 25 per cent from $13,568 in 2003. Given almost monthly price increases since then in the median house price, a much larger chunk of cash would now go into the hands of a traditional agent.
Several property-sales newcomers have threatened to change that by undercutting agents with flat-fee charges, or DIY options to sell homes. Last month saw the latest arrival into the Auckland market, The Joneses, a full-service fixed-fee scheme launched into Wellington, Christchurch and Dunedin in September.
Chris Taylor, a founding partner and former director of Vodafone, said the company - whose agents rely on salaries and not on the 100 per cent commission typical in the industry - was determined to change New Zealand's "inefficient" model, which promoted "a deal at any cost". The Herald on Sunday compared various sales methods to see how much home-sellers could potentially save.
Our two sample Auckland properties for this study had estimated Quotable Value prices of $500,000 and $725,000.
The Joneses
The Joneses emphasises that its full-service fixed-fee scheme "doesn't cost more to sell a million-dollar home than a $200,000 home". Its flat fee of $7995 includes GST but not advertising, saving the owner of a $500,000 home more than $10,000, and a $725,000 home more than $15,000. Both savings assume, of course, that the property sells for the price the vendor wanted.
HomeSell
HomeSell is a 5-year-old private marketing company started by Buy, Sell and Exchange co-founder Rodger Searle. It charges an upfront package fee, from $895 to $2595 in Auckland and less in some other regions - regardless of whether the property sells. The fee includes internet listings and saleboards. Additional marketing costs more. Managing director Kirsty Gillespie said it generally took five weeks on average to sell through HomeSell, but twice as long for rural property. "We don't have big margins," she said. "We rely on the fact that we work well for people, and on volume." HomeSell recorded the biggest savings on both our sample sale properties.
GoGecko
GoGecko's fixed price commission varies, depending on the value of the residential property sold. Fees range from $4950 (for properties selling up to $199,999) to $15,950 (for properties selling at $1 million or more). GoGecko has a range of marketing options, which usually run on a six- to 12-week basis (any unused advertising is refunded). Like The Joneses, salespeople in 11 offices are licensed agents. REINZ affiliates who must abide by the Real Estate Agents Act of 1976. Master franchiser Phil Strong said GoGecko, which had been operating in NZ for two years, did exactly what conventional agents did for approximately 60 per cent of the price.
Green Door
Green Door originated in Nelson 2 1/2 years ago and now has 19 franchises throughout the country. It offers five GST-inclusive marketing packages, which include signs, advertisements and web links and range from $500 to $4500 on properties worth up to $300,000. For properties worth more, prices are based on a sliding scale and are generally less than 1 per cent.
WHAT OTHERS PAY
Australia:
Real estate agents' fees range from 1.5 per cent to 3 per cent of a property's sale value. In Western Australia, there is normally a flat 2 per cent total fee.
Britain:
Estate agents' fees vary between 1 per cent and 2 per cent of a property's sale value. The further south you go, the higher the percentage, and London has the highest. Some vendors use a sliding scale - the more money the agent secures for the property, the higher the percentage they get. This can help persuade them to work harder for their fee.
