How Do Real Estate Agents Get Paid?
When selling a property in New Zealand, the very large majority of home owners choose to hire a real estate agent to help them through the process. But how do they get paid? Real estate agent fees and commissions aren’t always straightforward to understand – this guide is here to help you make sense of the numbers.
The standard way for an agent to get paid is in commission fees, where the fee depends on the property sale price. The details of the commission and other fees are included in the contract between you and the real estate agency, known as the agency agreement.
Home sellers can have difficulty working out the amount they will pay their agents. Real estate commission rates vary from agency to agency and city to city, and are often tiered.
But while the fees the agent charges is important, it is not the only factor when choosing an agent.
A top agent may charge a higher commission but sell your property for a higher price due to a superior sales strategy and more successful negotiating skills. On the other hand, choosing a poor agent can cost you a small fortune if the property sells below market value.
So, what can you expect to pay when you work with an agent to sell your property? How much commission should you be paying? What is a fair amount of commission? These are all important considerations before you hire an agent to sell your property. Use the following sections and tables as a guide.
Real Estate Commission by Region in New Zealand
The average commission rates differ across the country, but are generally in the region of 2-4% of a sale price. In percentage terms fees are often lower for higher value properties. Accordingly, fees may appear to be lower in the larger cities, where property values tend to be higher, compared to the regions.
Types of Real Estate Agent Fees
Real estate agents charge different types of fees such as commission, administration fees and marketing fees (mostly advertising costs).
- Commission. Most agents charge a commission, where you pay the agent a percentage of the overall price the property sells for. A tiered commission is the most common structure, where different rates apply for each tier. For example, you might pay 4% on the first $300,000, then 2% on the balance.
- Flat fees or fixed fees. Some agencies charge a flat fee, or fixed fee, as a point of difference, but also to meet the preferences of some home sellers that would like know upfront how much the cost will be irrespective of the sale price.
- Marketing costs can cover a range of items including advertising costs, photography and home staging (home styling), so it’s worth asking for an itemised breakdown. Marketing is a critical part of the process that will help you achieve the best sale price, so take the time to understand the proposed approach and how it will attract the right buyers to consider your property. In New Zealand real estate industry, it’s usually the home owner that pays the marketing fees and these are typically paid upfront.
- Admin fee. Many agencies will also charge an upfront administration fee of around $500.
How to Calculate Real Estate Commission
The commission is a percentage fee of the house price you end up selling for. You can work this out by using an expected sale price to make sure you are happy with it. Many agents will provide tables to show you what the final commission will be based on the expected sale price.
If a tiered commission structure is proposed, the calculation will require two steps. For example, let’s say the commission is 4% on the first $300,000 and 2% on the balance. If your property sells for $800,000, the calculation is 300,000 x 4%, for the first tier, plus 500,000 x 2%, for the second tier.
Considerations when Choosing Real Estate Agents
Choosing an agent should not just come down to how much they charge for the sale of your property. Selecting an agent based purely on cost could lead to a disappointing result, if the agent turns out be a poor performer.
Other factors are important, such as their experience in the local property market, their understanding of potential buyers and what buyers are looking for, negotiating skills, their selling process and their ability to present your property in the best light, all of which can help to achieve a better price.
Of course, it’s also important to choose someone with a good reputation who you are comfortable working with and trust.
Find A Top Performing Agent
When it comes to selling property, hiring the right agent will go a long way to ensuring you get the best possible result.
At AgentIQ we track the best real estate agents and rank them for your individual property. To get started on the process of finding a top agent, enter your address above to see a shortlist of the best agents in your area.