Despite the record run-up in house prices over the past decade in New Zealand, real estate agents continue to charge the same percentage fees.
— Regional home prices continue to track higher throughout New Zealand, and Auckland is also beginning to trend up after a two-year pause. Interestingly, most real estate agencies are operating with a commission rate structure unchanged from a decade ago.
Home prices have risen by more than 200 percent in some parts of New Zealand, resulting in some of the least affordable housing in the first world. But despite these huge increases in home prices, agencies continue to charge high percentage fees, which effectively doubles the agency’s earnings for doing the same (or less) work than was required to sell a house ten years ago.
Sellers take a dim view of real estate agency rate practices, noting that their incomes did not double in the past ten years. Consequently, many sellers, feeling helpless to avoid the high fees, have chosen not to list their properties. This has created a stalemate of sorts in the housing market, as a direct result of shrinking listing volumes.
Recently, we have witnessed the emergence of low-fee agencies, such as Total Realty, who see this rate issue as an opportunity to stand out from their competition. By offering commission rates as low as 1 percent in selected areas, they hope to attract higher numbers of listings, making their profits through volume while offering sellers a fair go. Total Realty grew out of their home base in Canterbury and have now established offices in Nelson and Dunedin as the idea catches on.
High commission rates seem particularly hard to justify given the affordability crisis in New Zealand and the struggle many first-time buyers go through to enter the market. It’s harmful to both buyers and sellers to have agent’s taking a disproportionate share of the sale price in fees. NZ has extremely high home prices relative to household income—the economists refer to it as the median multiple, which is the ratio that results from dividing household income into the price of the home. Economists agree that a ratio of around 3 or less equates to affordability, while the higher the median multiple rises above 3, the less affordable the home becomes. Spoiler alert—New Zealand’s average median multiple stood at 6.2 in January, 2020 – and an incredible 9 in Auckland.
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