The real estate industry had an absolute stunner of a year in 2021, earning record sales commissions in spite of the challenges thrown down by the Covid pandemic.
Interest.co.nz estimates that the industry earned $2.34 billion in gross residential sales commissions in 2021, a 22% increase compared to 2020 and up a staggering 51% compared to 2019.
That suggests the real estate industry has been one of the main beneficiaries of the Reserve Bank's policy of slashing interest rates for much of 2020 and 2021, which sent the housing market into overdrive.
Although the growth in commissions has occurred across the entire country, it has been especially strong in the Auckland market.
Between 2018 and 2021 the estimated gross commissions earned on property sales in the Auckland region increased by 83%, while estimated commissions on sales in the rest of the country increased by 36% over the same period.
In 2018, property sales in the Auckland region produced 38% of the industry's total estimated residential commissions but by 2021 that had increased to 45% of the industry total - the graph below shows the trend.
The growth in Auckland revenues has mainly been driven by strong growth in the number of sales for most of the last two years, assisted by rapidly rising prices which have pushed up average commission levels.
Those two factors combined supercharged the estimated earnings in the Auckland region compared to the rest of the country, which experienced more modest growth.
But in the rest of the country (excluding Auckland) sales volumes have largely been flat for the last two years, so although prices outside of Auckland have also been on the rise, commission growth has been more modest.
However 2021 was a year of two halves for the real estate industry, with sales much stronger in the first half of the year than the second, which pushed down estimated commission levels in the second half of the year.
That trend was evident in most of the country and combined with other headwinds the industry is facing such as rising interest rates and tighter mortgage lending restrictions, could suggest that the industry's golden run of late is coming to an end.
Still, $2.34 billion is nothing to sniff at.
It would buy a lot of BMWs and Audis.
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67 Comments
Parasitic
We all know how this works - productive enterprises, savers and working class public get whacked by "stimulatory" policies.
The GDP growth numbers are largely gamed from the activities and economic rewards of asset owners, speculators, and ticket-clippers.
+1
Exactly.
The near horizon risk :
One of the most enduring conceits of the modern era is that the Federal Reserve acts to goose growth and therefore employment while keeping inflation moderate (whatever that means--the definition is adjustable). This conceit is extremely handy as PR cover: the Fed really, really cares about little old us and expanding our ballooning wealth.
Nice, except it doesn't. The Fed's one real job is defending the U.S. dollar, which is the foundation of America's global hegemony a.k.a. The Empire.
One thing and one thing alone enables global dominance: being able to create "money" out of thin air and use that "money" to buy real stuff in the real world. The nations that can create "money" out of thin air and trade it for magnesium, oil, semiconductors, etc. have an unbeatable advantage over nations that must actually mine gold or make something of equal value to trade for essentials.
The trick is to maintain global confidence in one's currency. There is no one way to manage this, as confidence in a herd animal such as human beings is always contingent. Once the herd gets skittish, all bets are off. Link
Real estate industry estimated to have earned $2.34 billion in residential sales commissions last year
"Earned"
It 100% is. It's a very tough job with long hours and sacrifices to be successful in the real estate industry.
If you think it's so easy, why don't you give it ago?
Yes, in the 'old days' a property would sit on the market for a whole month before selling. Now we hearing of cases when a property sells in 24 hours!
And choosing between a new BMW or Audi, must be very time consuming too. (wink ;)
I know one who 'invested' in a 2nd hand Maserati ... the repairs cost him a commission or two
Why don't I? I'm too honest.
I have no great love for RE agents but at least you can see them for what they are, rather than hiding behind some corporate entity. They have no fewer morals than any corporate management type I ever met.
I work in the corporate sector but have experienced far more blatant dishonest from times dealing with REA. Not to say there aren't shifty people in each, though. Especially in sales.
I have only had good experiences - they work for the vendor.
I have bought and sold.
I imagine the long hours are mainly associated with finding / competing with other agents for listings (which adds no value to the seller). Its a bit like the old days of Taxis in NZ. Too many of them, so most of them spent the majority of their day parked up at the airport waiting for their turn to fleece the next arrival.
Industry giants have worked hard to keep the barriers to new entrants up by crushing the little guy who tries to tread solo in the market. I've known property managers who tried to get into the REA scene but lost to the Goliaths running the game.
Also a reason for the long hours and sacrifices stems from not allowing enough new entrants to share the workload.
Even pimps work hard. This by itself does not make them useful to society.
Not necessarily an easy way to make a living for many.
Eg 30k commission on an average house sale.
15k to the listing agent if they also sold it.
That could mean 2 or 3 months of open homes, viewings, legal/building issues to smooth out, negotiation backwards and forwards on the sale contract, May cover the advertising costs themselves, - so 5k gross per month.
That’s less income than an Auckland Council Data Analyst on 90k salary.
You're assuming they only have one house to sell at a time, is this true? Incredibly inefficient if so - what are they doing with the rest of their time in between open homes?
How many hours of work involved in a single house sale? I find it hard to imagine a typical house taking more than a 40-hour work week all up, albeit stretched over a couple of months.
Ok, let’s say 3 sold per 2 months.
Similar to a middle salary after all expenses.
Without agents, vendors could not sell easily. And buyers would be more vulnerable.
Yes, the top 10% make a high income.
Many struggle to make a steady good income & often are supported through a few income troughs by their salary-earning partner.
Yes, I wouldn't trade for my regular salary. My main point of confusion is why there are so many agents selling so few houses each for such high commission, compared to other markets? Seems like a bad situation for agents and vendors alike.
As I posted on here the other day, I'm selling a house in the UK at the moment and will pay under $3k all up, tax included, no sale no fee. NZ has around 15k estate agents vs the UK's 55k, so we have more than three times as many per capita. Very strange.
https://www.stuff.co.nz/national/126470732/more-real-estate-agents-than…
https://www.statista.com/statistics/319823/number-of-estate-agents-and-…
Yes - maybe it’s historical in NZ.
Apparently some mainstream companies are offering 2.5% commissions to get more listings from the big boys.
There is an argument that good reputation companies with excellent results are worth it in the end for the vendor. Would you rather pay 3% commission and get 1.4m for your house, or pay 1.5% and get 1.3m?
I'd rather pay $3k commission and get 1.4m.
It's only in the last couple of years the worldwide trend in reducing share broker commissions/EFT management fees has started to really take off in NZ, hopefully the estate agents will be next to come down to earth.
Hopefully the same will apply to Consultants, pr spin Doctors etc
I don't think the agent influences sale prices in most cases (in AKL at least). Except at the very top end, its usually just a case of advertising on trademe / homes and then relying on an auction.
Many advertised with a price or by negotiation now.
So selling 3 houses every 2 months is about 100 hours a house, if you were to equate it with a full time salary job.
What on earth are they doing all that time? I was thinking ~10 hours work chatting to vendors, arranging pictures + writing the listing, ~10-20 hours of viewings including travel, a few hours of back-and-forth negotiating, no doubt a few hours paperwork. What am I missing?
What they are doing is using your money to promote themselves and garner future listings
I’m not an agent but some friends are. I was surprised by how much work is involved, for an example it took 3 in person visits to get the photos the vendors were happy with then about 4 hours going back and forth on the script and explaining how chattles work. This is before 50 fhb’s call asking what the process is etc. I would hate to be doing that as a gig for no guaranteed dollars.
Imagine how much work they could save themselves by listing an asking price.
3x10-15k=30-45k every two months
30-45x5(two months off)=150-225k before expenses.
20%? Expenses= 30-45k
120-180k
Houses have been selling easily/quickly for quite some time now......
Thus, I'd question how much time and effort real estate agents actually put into the selling process.
I hear that agents spend a good deal of time consuming crushed avocado and lattes - particularly on Ponsonby Road.
TTP
Then comes 2022/3 and a big slowdown. It is feast or famine.
Yeah hope agents are putting money away for the rainy days on the horizon (actually already arrived).
Mortgage Belt,
A number of points occur to me.
The vast majority of agents do not have the skills of a Data Analyst, so why should they earn as much?
There must be far too many in the business if they can't earn enough despite the absurd level of their commissions.
The model is clearly flawed.
The last time I sold property was in the UK where the standard commission rate is 1%, with no additional costs.
Soft skills are more valuable than the tech ‘skills’ of playing with Power BI so that WaterCare for Eg can tweak their rates on new usage patterns (which is hardly productive for NZ).
M B,
(which is hardly productive for NZ) And the work of RE agents counts as productive for NZ? Really?
I have met a few and they were perfectly nice people, but the bar for entry is set very low. As I said, the model is flawed. It should be much harder to become an agent and that would significantly reduce the numbers. If i was an agent, I would want to sell a property as quickly as possible and move on. It's a nonsense that they are trying to get the best possible price. There is very little incentive to do that.
The worlds’ financial reward system is not logical or linear. E .g. Professional sportspeople earning millions, Instagram teenagers with millions of followers, CEOs of govt depts, etc all earn far above a realistic reward for their labour.
I guess houses are a highly coveted object hence the reward structure?!
M B,
You are right about the financial reward system being unfair. In my last full year as a partner in 2001/02, I earned the equivalent of NZ$360,000. What would that be today? Twice or three times that? I am under no illusion that I was contributing as much to society than say a nurse or teacher or many others. I was just very lucky.
However, that still doesn't justify the commission structure of the RE industry in NZ. I am equally, if not more scathing of the insurance industry. Commissions should be banned entirely.
Fair enough.
But why pick on REAs? Many sales sectors pay by commission.
Average REA income is around 80k. Fairly average for most professionals.
http://www.salaryexplorer.com/salary-survey.php?loc=155&loctype=1&job=6…
It is high time that a fee based on % of sale price is abolished.
It made sense in the distant past when agents had to talk up prices, but I doubt agents had to put in 30%+ more effort last year to make the same sales.
Then again, as someone else said it's feast or famine. My wife used to flat with an agent who had to scrimp and save just to cover his rent and food back in the late '90s. Looks like he hasn't been active since about 2003. The churn among unsuccessful agents could be quite high.
So that's roughly the size of the sales of NZ's kiwifruit export industry ($2.5 billion in 2020).
Who needs exports when you can just sell houses to each other?
We've sold our house ourselves twice before. Is is quite a straight forward process but it still comes with legal fees, but not impossible for those with half a clue. We have also bought once in the same way which came with a few fish hooks, but nothing we couldn't work through.
I, like many of you, am waiting for the post-covid dip so we can buy again. I'd like to see a minimum 20% decrease, preferably 30%, over a 12 month period. Has it already begun (Dec 21 = -1.6%)?
The size of falls will depend on how high the OCR goes.
If it goes to 3% as ANZ forecast the falls could easily be 25-30%.
If it rises to no more than 1.75% as I expect, I expect the falls to be circa 5-10%.
I would be interested to know why only a 20% decrease or 30% would you then look at buying? It would only take us back to roughly pre Covid. Back then before Covid everyone was still saying house prices are "too high" and it was a "bubble" and "your mad" to be buying. Why not just buy now? Trying to predict the market or sit on the fence and "wait and see" is crazy. Look at how many did that over the years and see where the market went.
If people cannot sell for the price they want then they wont sell, unless they really have to. CCCFA will be reviewed and also immigration will come into play at some point. RB and Govt will do everything they can to keep it steady.
What will RBNZ do to keep it steady?
Not raise the OCR nearly as much as people are predicting? In line with my consistent forecast over the last 6 months that the OCR will go no higher than 1.75%?
I would agree with you on that. It might get to 2% OCR but I would then say it will be held at that level for as long as possible before going back down. CCCFA will be revised but it will depend how quick the Government will be to act on this will also help determine what happens next. If businesses start to suffer on top of what they have already had to endure over the last couple of years we could see a huge fall out as NZ is built around SME's and if they go under along with no tourism it will be hard to stop... then again the government will just borrow billions to keep everything afloat and pretend everything is roses
And what wage subsidies were collected?
Yes. Wife works for one. 100% they all took the maximum.
Thats 2 billion dollars of debt we've created so a bunch of people who can't hold down normal jobs can drive expensive cars.
The follow up to this should be - what's the impact that follows on the profits earned through real estate advertising? Perhaps that has also been significant.
And there we have two of the groups who will fight with all the tricks they can muster to push for lower interest rates, lower barriers to borrowing and extending the housing mania. It could well be a year of tough but desperately needed medicine for the housing market, and some groups will be desperately arguing to re-start the party of easy money.
I've seen young people advocating for en masse clicking every real estate ad they see (in which case they get shown more) as a form of technological protest against the housing crisis. This would obviously cost the RE industry and reward the advertising industry.
Going to be hard yakka for the bottom 90% if the market really does slow down like they say. The good ones (top 10%) always get the bulk of the listings and the rest fight over the scraps. Shock horror they may have to really work to earn a living. Zero sympathy from me.
Its time for a new entrant to the market that doesn't charge on a % of sale price basis.
The crazy part is agents are totally unnecessary. We ve sold 2 homes without them hassle free. Ads in the paper and TMe. You need a solicitor anyway so why introduce another person to clip the ticket. Just another driver for absurd prices. "Nah, do it yourself mate" as those boys said.
Good for real estate industry for working hard and trying to help Kiwi.
Bigger thanks to Jacinda and Orr for supporting and promoting housing market unlike any any in the past in NZ - better and bigger than John Key and his team.
no winder we have Empathy Queen as our PM.
In the words of Daggy Boy:
as things stand at the moment if you’re not a real estate agent, then you’re probably being a fool to yourself and a burden to others.
The agents see a small proportion of those fees....the LREA however creams it....and those new recruits are expected to bring in listings from friends and family and when those dry up their income does too and they exit.
Great lark all round for the licence holder.
Stepping into a house that you can truly call your own- there's no price for it.
Absolutely.
Actually, in Auckland it's averaging around 1.4 mil
What he means is that the scumbag agents don't list a price.
No one group of people more responsible for this absolute mess we are in.
Dishonest, self-serving, barely regulated compared to other industries. Pushing propaganda on a daily basis and largely only maintaining thier relevance by paying for MSM saturation.
And manipulating market data. I had no idea this was going on. I thought the data algorithms were tied to the results of settled sales. Ah, no agents 'estimates' are fine too. Shameful; https://www.stuff.co.nz/business/127537672/homesconz-criticised-for-all…
Gross
“Just imagine that a bond is a slice of cake, and you didn’t bake the cake, but every time you had somebody a slice of the cake a tiny little bit comes off, like a little crumb, and you can keep that. […] If you pass around enough slices of cake, then pretty soon you have enough crumbs to make a gigantic cake..."
Bonfire of the Vanities, Tom Wolffe
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