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Taboo Topic – Real Estate Agent Commissions

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Brian Dalley
Brian Dalley

Little wonder when you have some Real Estate agents charging 1% commission whilst others are changing 4%.

Often I hear people scolding real estate agents for the commission they charge without really knowing what they are talking about.

For starters, the person that sells your property is unlikely to receive all of the commission.

Part of the commission goes to the company that holds their licence so not all of the commission ends up in the salespersons pocket.

Sitting with a friend at Starbucks the other day enjoying a coffee I could not but help over hear the people sitting next to us bagging real estate agents because of the commission they charge. I am not the type to sit and listen to other people’s conversations but it was a little hard to block out this couple, as it was quite apparent that they were in a hate session on real estate agents.

Ironically, it sounded like the agent had negotiated a settlement price they were happy with, but that wasn’t the point.

When most people judge others it is usually by their own standards, for example the amount they are paid. As most people are on set wages or salary it can appear outrageous when you are charged thousands in commission for the sale of your home but one should remember a good percentage of agents don’t earn any more than the average income. Not all drive around in the latest BMW.

I think there are a number of factors to consider but to me the end result is the important factor. How much money (you) receive when the sale is made.

Look at Ralph Norris head of the Commonwealth Bank in Australia. It was reported last week his salary package is $16,000,000 a year. Being a shareholder, the bank is making record profits so I don’t have a problem with that.

I have been on the other side of the fence and worked as a real estate salesperson and believe me it is not an easy job.

Is the commission they charge justified? Maybe, maybe not.

There are several new players entering the market and setting up boutique style operations with less overheads allowing them to reduce fees to as low as 1%.

This type of agency does not appear to have much longevity. There have been plenty of start-ups that have crashed and burned, but one must wonder if the timing is now right for the market to head in this direction with the huge shift towards internet marketing becoming quite apparent.

I am not saying this because most of my business is done online. I firmly believe the writing is on the wall for print media in regards to property searching.

So let’s hear what some of these new players have to say when faced with a few questions.

Is it a case of you get what you pay for?

Marc Fibbens and Wendy Waltenberg -Total Realty Ltd – Christchurch

“Some people equate a cut in commission with a cut in service, but with the company we work for this certainly is not the case. We offer the same level of service as we did when we were working with a 3.95% company. Good service is provided by good agents no matter what level of commission they are paid. Being a 1% company, we work extra hard to show to our clients that you can achieve a high level of service at a realistic commission rate. Every client of ours is surveyed when we have completed their sale and the common theme that comes through is the "personal service" that people appreciate as much as the results and the savings.”

Layne Sorensen from Budget Real Estate in Auckland a relatively new player in the market had much the same to say. Although Budget Real Estate has set their fee a little higher at 1.95% it is still well below many if not all competitors.

Layne actually made a good point, “as my overheads are a lot lower than the larger companies I can afford to offer a lower commission than some of my competitors without it having a huge impact on what I earn”.

Marc from Total Realty in Christchurch went on to say, “Based on the median house price in Christchurch ($338,000) the saving in commission to the purchaser would be in excess of $10,000. This puts more money in the hand of the vendor, and also allows the vendor to out-price the competition in a buyer’s market”.

So were to from here, are we going to see these boutique real estate companies crash and burn like others that have gone before them or will we see more and more of the larger companies cutting overheads and heading in a similar direction?

One only needs to look at the growth in Trademe statistics and the launch of the iPad by apple, (a shop window in its own right) to realise the world is changing and to keep doing the same thing day in and day out and expecting to keep up is simply absurd.


Whom should we lean towards when thinking of selling? The company with the lowest fee, or the company with the higher fee and the bigger profile?

In most situations, the salesperson you have employed will work just as hard selling your place regardless of what commission they are charging and remember it is the salesperson that will end up selling your property not the company they work for.

Most salespeople work on a commission only basis, with no base salary or wage. NO sales, NO pay! They are just as keen as you to make a sale.

Some salespeople are worth the extra commission they charge. I emphasize SOME. It can be hard to know which salespeople are worth their weight in commission, but how to choose an agent is a completely different blog post!

Brian Dalley is a former NZMBA Mortgage Broker, Property Investor, and Real Estate Agent with over 15 years experience in the industry. You can read more of his and other professional’s views and opinions on his website  

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