Real estate agencies the big winners from hot housing market as commission revenues surge

Property

Real estate industry's estimated residential commission revenue up 24% in 2020 year-on-year to $1.92 billion

29th Jan 21, 10:00am by Greg Ninness

By Greg Ninness

COVID be damned - last year was a bumper year for the residential real estate industry, which is estimated to have earned almost $2 billion in residential sales commissions in 2020.

While many might have expected the industry to struggle due the effects of the COVID lockdown which severely hampered sales activity in the second quarter of last year, that was more than made up for by a surge in sales and property prices in the third and fourth quarters.

Interest.co.nz estimates that the industry earned $266 million in gross residential commissions in the second quarter of last year, down 32% compared to the second quarter of 2019.

But that situation was reversed as the Reserve Bank started forcing down mortgage interest rates to historic lows, leading to an outbreak of irrational exuberance in the housing market and rapid increases in sales volumes and prices.

That pushed the estimated industry sales commission up to $557 million in the third quarter of last year (revised from the earlier estimate of $568 million) and a massive $693 million in the fourth quarter. That saw estimated total 2020 industry commissions surge to $1.92 billion, up by $367 million (+24%) compared to 2019.

Those figures do not include any wage subsidies that individual agents may have received from the Government during the lockdown and its immediate aftermath.

Growth in revenue was mainly driven by particularly strong growth in the white hot Auckland market, where interest.co.nz estimates the industry earned $807 million in sales commissions in 2020, up 40% on 2019, although estimated commission revenue was higher in all regions of the country last year compared to 2019.

However commission growth was more modest in the rest of the country, coming in at $1.11 billion in 2020, up 11% on 2019.

That’s still not bad for an industry that was having a pretty grim time in the first half of the year. Several regions posted exceptionally strong growth including the West Coast +51%, Wellington +19%, Southland +18%, and Waikato and Canterbury, which were both up by 16%.

The figures highlight 2020 as a year of contrasts for the residential property market, with first home buyers the main losers as affordability went out the window, while real estate agents joined bankers in the queue for the winner’s circle.

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64 Comments

by xingmowang | 29th Jan 21, 10:14am 1611868476

great to see NZ's economic recovery and even booming based on selling houses from retired boomers to investors.

by Carlos67 | 29th Jan 21, 11:26am 1611872783

Yes its pretty sad while China continues actual manufacturing. Unfortunately NZ has never really had what it takes to build decent businesses and management has always been a horror show at just about everywhere I have worked. The key to success in NZ is the combination of buying a house and being self employed.

by Laminar | 29th Jan 21, 1:13pm 1611879182

Interesting that you are the common thread in that example. Good luck on been self-employed though...

by Pusheen | 2nd Feb 21, 12:50am 1612180212

Added there: buy land, leave it then watch the magic wand, leverage more for houses once the minimum threshold reached, self employed as landlord. Summarized quite right there. Only dumb healthcare young graduates/professional, usually with mark below average overall that usually stayed in NZ.

by itsme | 30th Jan 21, 7:56am 1611946605

While other countries buy our profitable companies from us, and send profits overseas, we are busy becoming wealthy by buying and selling houses to each other at a higher and higher price.
We have great economists and politicians running this country!!

by Pusheen | 2nd Feb 21, 12:57am 1612180622

You missed by miles the past 12 months what 'recovery means', OCR down, LVR gone, subsidy up, no TD guarantee, DTI whaat?, CAR gone, QE/FLP that dwarves UK, USA, Canada & OZ in comparison to country size, population & economic capacity. Felt great immediate recovery after the car crash, adrenaline rush kicks in bullet proof .. take a rest then until wake up the next day.

by Audaxes | 29th Jan 21, 10:27am 1611869250

Lend some thought, if nothing else to the impoverished: Families living in tree huts as New Zealand housing crisis bites

by youngdumbandbroke | 29th Jan 21, 12:05pm 1611875159

Out of sight, out of mind for decades has been the approach by successive governments. The juxtaposition of neglected communities with multi-million dollar seaside mansions is sobering to say the least.

by Advisor | 29th Jan 21, 1:09pm 1611878986

Real estate sector is the winner here, making the 'real' economy the big loser in the equation. This is after-all a zero sum game!

by RickStrauss | 29th Jan 21, 2:26pm 1611883617

You can't make a property investment omelette without breaking a few eggs, and theirs is a sacrifice we're willing to make for a little bit more luxury.

by dago | 30th Jan 21, 6:39am 1611941976

Thanks for posting that article. I saw a similar situation in Noumea where the indigenous Kanak people living in squats by the river (within a very short distance from some upmarket properties) Living in substandard conditions is no joke, it is a catalyst for diseases to ravage a community. Sadly our government is ushering in similar conditions for our indigenous people and instead focusing on the rhetoric of social justice, Maori language week and so on, nice things but they mean little if people are dying

by Jonny.Foe | 29th Jan 21, 10:34am 1611869666

Sold a house in the UK in 2017 - sale price was around $900k. Our Estate Agent was fantastic - we staffed our own 'open homes', but the marketing was brilliant, service was excellent, and the whole process was managed to perfection. The TOTAL FIXED FEE was $1,900. Around ten times less than NZ?

by kiwikeith | 29th Jan 21, 10:51am 1611870675

Not sure what 10 times less means. Is that the same as ten percent?

by Pusheen | 2nd Feb 21, 12:44am 1612179862

think it's the 1900x10 aka around $19-20K in NZ - but what we forgot? RE agents pay a hell lot to the IRD.. right?.. right anyone?

by karl seastrand | 29th Jan 21, 12:34pm 1611876884

The whole of the NZ property industry should be burnt to the ground and rebuilt, together with the banking industry.

by Plutocracy | 29th Jan 21, 12:43pm 1611877399

Agreed. They're economic parasites.

by Mr Ed | 29th Jan 21, 1:04pm 1611878675

Bankers ,the biggest gang in NZ
RE fees are too high . That why there are some many in the industry, and dominated by dimwits who are unemployable elsewhere

by Te Kooti | 29th Jan 21, 1:24pm 1611879869

Is your definition of a dimwit someone who earns many multiples of what you do Mr Ed?

Many have tried to disrupt the RE industry and failed miserably. It's actually quite cut throat and you need a thick skin and sharp elbows, but the top agents make eye watering money. In my experience, EQ has often be a better guide to earning potential than IQ.

by Mr Ed | 29th Jan 21, 1:38pm 1611880686

No. They don’t earn multiples of what I do .

Your description of a thick skin is apt

by Te Kooti | 29th Jan 21, 1:44pm 1611881078

"No. They don’t earn multiples of what I do" - not all, but some will.

by Fluffybunny | 29th Jan 21, 9:33pm 1611909222

They don't do bugger all for their commission.

Anyone can sell a house if you have the time available. Particularly in this market.

Lazy parasites. Pushing endless auctions for the sole reason it's a more efficient transaction (for them).

Controlling a stream of MSM to continually whip up FoMO.

The RE industry (advertising MSM and all) need a re write and increased regulation.

We regulate the advertising of other areas that are bad for us. Why not this?

They are half the problem.

by Yvil | 30th Jan 21, 1:19pm 1611965996

Bitterness towards others, jealousy and envy won't make you better off

by Mr Ed | 1st Feb 21, 5:03pm 1612152196

I can assure you they don’t .

The identification of thick skin and sharp elbows being reflective of an acceptable EQ is interesting . It would seem you don’t possess the first characteristic however .

by Whatwillhappen | 29th Jan 21, 2:00pm 1611882047

Sold my house myself, during level 3 lockdown. Beat all real estate agents' pre-COVID "assessments" too for price, with over $110,000 over RV. Wasn't hard. Nothing I did, including my own Facebook promotions, pamphlet/flyers/conducting open homes was hard, let alone worth the $23k or so most agents would have taken for the sale. I'm not saying I'm awesome or anything, I'm saying cut out the leeches who don't earn these commissions doing basic stuff while making it sound like what they do is complicated. DIY.

by Fluffybunny | 29th Jan 21, 9:35pm 1611909329

Nice work. Most people are just too lazy.

by Solve_it | 29th Jan 21, 11:19pm 1611915549

Similar story here. Example 1 - 3 years ago, was suggested my home (townhouse) in Northland would sell for 400 max, sold it for 450 via private negotiation. Piece of pi**. Hardest thing was all the cleaning for the open homes. Still would have had to do that with an agent.
No.2 more recent sold a villa I had renovated on 3Ha
(lifestyle property just out of town) via private auction. Valuation was 660 and was told it would go for 620. Sold it at auction for 720 with only 1 bidder, but we needed it gone quick so I could take maternity leave shortly after. Auction was good for that as the buyer knew they needed to be ready for an unconditional sale on the day. Both sold in just under 6w.
There is zero suave or talent I have observed that is needed to sell a house both from the buying through an agent experience (x3) and the selling privately experience (x2). All that is required is honesty and an effort to respond to interested parties in a timely way.

by Pusheen | 2nd Feb 21, 12:35am 1612179315

That's not kind.

by Pusheen | 2nd Feb 21, 12:38am 1612179527

The govt, rbnz & ird don't see it that way.

by WellingtonInvestor | 29th Jan 21, 2:49pm 1611884979

People use real estate agents in NZ because of the high prices houses go for, and the chance that agents will get higher prices than selling using a more DIY approach. But it is the buyers that end up paying, as the selling price often has all costs built in when people sell their house. eg They would often ask a bit more than if selling privately.

by linklater01 | 30th Jan 21, 8:55am 1611950117

I last sold a Uk property in 2010 and before that 2003. In both cases, the agent's commission was 1% of the sale price, with no other costs.

When i had previously sold a house in 1981, the commission rate was 2% and inthe intervening years, competition had forced the rate down. I simply cannot get my head round the sheer stupidity of Kiwis in tolerating the absurd levels of commission here. I hope to live in my home until they take me out feet first, but if not and i need to sell, then I will certainly make the effort to sell privately.

by karl seastrand | 29th Jan 21, 10:42am 1611870160

So where is the "vice-like pressure" from Grant Robertson and the MSM for every single sales person in the REI to repay the subsidies. It is our money, it is not fair and we want it back, every last cent of it.

by mikekirk29 | 29th Jan 21, 11:36am 1611873393

You are assuming that ALL and EVERY Agent has bene making hay since July.
That is an unwarranted assumption.
See calculations of commission further down in feedback comments, by me.

by karl seastrand | 29th Jan 21, 12:40pm 1611877205

mikekirk... thought that was the nature of commission based jobs? If the total industry commissions has risen (substantially) then no agent should be entitled to a cent. The wage subsidy was meant for workers financially disadvantaged by Covid. If the pie was bigger they weren't. If an agent did not get their fair share of the pie that should be on them and the onus on them to step up or find another job.

by Pusheen | 2nd Feb 21, 12:40am 1612179652

No, it's not I've checked my banks account - it's the phantom money from future NZ tax payers - that's how clever the scheme is matey.

by kiwikeith | 29th Jan 21, 10:53am 1611870837

I do wonder if the big estate agencies handed back the wage subsidies. The press hounded the listed companies and law firms about handing back the subsidies but never mentioned estate agencies. Probably due the amount of newspaper advertising that real estate agencies do.

by transactional | 29th Jan 21, 11:03am 1611871434

kiwikeith, you can check yourself, if they have paid it back their name will not come up on the search below. It was last updated 27th Jan:

https://services.workandincome.govt.nz/eps/search

by brisket | 29th Jan 21, 11:35am 1611873319

That search suggests $4m to Barfoot & Thompson. Hmmm...

by ham n eggs | 29th Jan 21, 1:12pm 1611879133

harcourts, mike pero, Bayleys, pgg, premium, ray white etc ... hand outs a plenty

by Pragmatist | 29th Jan 21, 9:26pm 1611908773

Oh, property brokers got $1.9m, well, just over $2m if you include the other two that look like related entities to me. Going to make any comment Tim?

by karl seastrand | 29th Jan 21, 12:44pm 1611877455

kiwikeith... I do not wonder at all. Of course they didn't pay it back and no the media will not raise it because of the all money they spend advertising, which is obviously paid for by us via their extortionate commissions.

by mikekirk29 | 29th Jan 21, 11:34am 1611873255

The estate agent industry is NOT same thing as the agents.
Some agents take a lot of listings compared to others
Leaving a lot fewer than the average listings for those not favoured as much.
Also, the Agency gets between 30-59% of commission. Agent gets rest, after tax.
So, in Auckland for example, there were 27,000 sales in 2020, about 17% up on 2019.
There are 6500 Agents roughly.
Assuming that each Agent gets same number of sales (an inaccurate assumption) that means 4.15 sales per Agent.
On an average sale price of $1,000,000 at 3% commission, the commission is $30,000
Of that, say the Agency takes 40%. That leaves the Agent with $18,000 and after tax, about $14,400
So, IF the Agent in fact sold 4.15 properties in 2020, his pay would be $64,080.

But that is not what happens.
About 25% of agents, due to popularity and rep, take about 55% of the sales.
That leaves, in Auckland, the other 75% of the Agents with 45% of the sales.
This sort of calculation can be done by looking at a sample of listings and doing the donkey work of counting.

Which corresponds to the 75% (majority) of agents getting not $64k pa, but more like 2.5 sales.
Which comes to $35,890 pa per Agent.

If you divide that by hours done by the Agent, it is not so flash.
Averages are highly misleading.

by karl seastrand | 29th Jan 21, 12:54pm 1611878076

mikekirk...yes I think most readers were already well aware of the way the system works. But again, the wage subsidy was meant for people financially disadvantaged by Covid. If Covid had never happened then the agents in the bottom half would not have struggled any less and are therefore undeserving of assistance. If the total pie has increased no agent deserves assistance. Agents who did not gain their fair share of income last year need to look at their own performance as well as natural variance, which must be far higher than most think. I am absolutely fine with salaried admin REI staff who were unable to work keeping the subsidy but all agents are , at a minimum, morally obligated to pay it back.

by rastus1 | 29th Jan 21, 1:24pm 1611879897

No it wasn't meant for people financially disadvantaged. It was for those who could show a 40% drop in REVENUE.
I think you will find the big boys qualified on this basis and had the data to show it.

by Fluffybunny | 29th Jan 21, 9:37pm 1611909465

Most people don't get this. It was just a controlled money dump.

by WellingtonInvestor | 29th Jan 21, 2:53pm 1611885199

If some are only selling 4 properties a year, that is hardly even a part time job. At the moment many houses are selling themselves anyway.

Also not only are sales up 17%, put house prices in NZ are up about 20%. So that is a lot of extra commission being paid out in total

by karl seastrand | 29th Jan 21, 9:08pm 1611907692

with their ridiculous commissions selling 4 houses probably gives them around the average NZ salary.

by Spectators | 29th Jan 21, 12:17pm 1611875864

Not a bad clip for opening a door, nailing up a 'for sale' sign and posting it on Trademe.

by Mr Ed | 29th Jan 21, 1:07pm 1611878847

Never mind the opening door training they have to undergo

by Anzac888 | 29th Jan 21, 2:25pm 1611883516

In my experience, flashier dressing used car salespeople. And nicer cars.

by CWBW | 29th Jan 21, 2:26pm 1611883601

The tall poppy syndrome and crab mentality in this country is astounding! It's only okay if they themselves made the money but when others do, it is foul play.

Some ideas are so bigoted that it makes Hitler, Stalin, Mussolini and Amin heros of our times. They try to reduce hard working real estate agents to scums not worthy of being paid to giving money to good for nothings whilst they plot who else made money to target next.

This is precisely why this country never really progressed after the 80s, everyone hates an achiever, wishing him ill, while demanding things for nothing.

Over the years I'd learnt the truth of a joke; if you wanna scare someone in the country, tell them you have work and ask them if they're interested.

by RickStrauss | 29th Jan 21, 2:30pm 1611883814

On the contrary, Kiwis celebrate people who have built up a business or achieved something great.

Not so much clipping the ticket on selling houses back and forth for ever increasing amounts while the government pumps in subsidies and the Reserve Bank props up prices endlessly.

Kiwis don't rush to celebrate fund managers who clip a too-high percentage of balances regardless of their performance each year either.

by Anzac888 | 29th Jan 21, 2:45pm 1611884713

Spoken like a true REA.

by Amokk | 29th Jan 21, 4:14pm 1611890079

Hahahahaha great story mate

by youngdumbandbroke | 29th Jan 21, 4:17pm 1611890260

Lol "work". What exactly are you REAs producing?

by karl seastrand | 29th Jan 21, 6:25pm 1611897948

CWBW... nobody needs to reduce hard-working REA to scum. They do a pretty good job themselves. I admire achievers and talented people but only a tiny % of REA could be described that way. I have bought and sold several houses and have used an agent exactly three times. All the big agencies in NZ collude on fees so yes I do term it foul play. Was actually gunna be an agent in the early 90s but I decided I didn't want to lose my self respect. Work? You got me there. At the ripe old age of 53 I couldn't think of anything worse and the abortion we call NZ real estate is why I don't need to.

by Fritz | 29th Jan 21, 8:16pm 1611904581

From what I have seen RE agents add jack shit in value. Real ticket clippers.

by karl seastrand | 29th Jan 21, 9:20pm 1611908410

I have never had a problem selling privately. To me it is common sense that the agents would not risk a sale by telling the buyer to hold out for a better offer. In fact they have incentive to attempt to convince the seller to accept an offer, even when they know the seller can probably get more.
In my experience buying privately can be a lot trickier mainly because the house you want is usually already listed with an agency.
It is good to see Tall Poppy massively undercutting the big agencies. I wish them well.

by Solve_it | 29th Jan 21, 11:25pm 1611915913

Yup

by twoturntablesa… | 1st Feb 21, 5:22pm 1612153351

Tall Poppy Syndrome in New Zealand is problematic, and is one of the reasons why some people move to greener pastures to get ahead.
I don't see where people have accused RE of foul play; rather, criticism is based on commissions that they earn. These commissions are high, especially in comparison to other countries such as the UK.
Yes, there are people in New Zealand who choose not to work; however, there are also those who are not scared of it.

by Squishy | 29th Jan 21, 7:14pm 1611900871

Seems like a high fees service begging for disruption. A digital platform could make a killing.

by karl seastrand | 29th Jan 21, 9:25pm 1611908700

digitally based financial consultancy (using AI) is already here and becoming popular quickly. Although it is trickier with viewings, contracts, price negotiations etc I doubt if it will be too far off for the REI. Trade Me is a good start.

by CJ099 | 30th Jan 21, 5:49pm 1611982194

Yeah I agree and it's already being developed (AI REA digital Avatar) lets face it they don't do much. The days of REA's overinflated commissions rates are numbered, if they had any sense they would adopt the UK commission flat fee of 1% and drive their buyer to the open home if requested (Yes UK REA's actually do that). And that 1% commission fee includes marketing costs so no hidden extras.

by Whatwillhappen | 1st Feb 21, 8:52am 1612122732

There is one out there. They have a fixed commission way lower than Tall Poppy, and their angle is they don't have offices etc, and a digital platform. Looked into them when selling our house but wasn't impressed by the Wellington salesperson's techniques (which involved deception in a bid to rouse interest). old privately instead.

by Pusheen | 2nd Feb 21, 12:31am 1612179074

For every big winners, there'll be looser a bit like lotto. Now, let's name those too.. to balance the report.