There are several alternatives to a commission based structure – for e.g. fixed price services, hourly rates etc – operating in the Auckland market.
But none has, in my view, satisfactorily aligned the vendor’s need to extract the highest possible price from a sale with the agent’s incentive (as a rational economic actor) to earn the most money.
If the industry were to charge by hourly rates, I doubt any vendor would be too pleased about paying the agent by the hour without any guarantee of success (i.e. finding a buyer). In such an instance, the agent may likely drag out the transaction to your detriment, and there’s also no guarantee of a great price or even a sale.
The fixed-price model vs full-service model
One model that has recently popped up is a fixed price service where these providers charge a fixed price for any real estate transaction regardless of the sale price. You would have seen those advertising a ‘fixed price’ (regardless of the final sale price) and how you can save money compared to ‘traditional real estate models’.
In such cases, marketing money is paid upfront to cover the marketing and the rest is paid upon the sale. That does seem like a good deal on first glance.
But if you look deeper, the problem is that the incentives of the agent and the owner are not aligned.
This is because regardless of what price the property sells at and regardless of how long the agent works for the listing, the agent receives the same amount in remuneration. There is absolutely no incentive for the agent to push the buyer for a higher price. Would you blame them if you were in their shoes as a rational economic actor?
The only thing you are relying on, as a vendor, is the agent’s own professional pride (and don’t get me wrong – I absolutely think that there are many such agents around) to achieve the best price for you.
And to make up for the fixed remuneration, what is necessary is the volume to support it.
Selling real estate successfully about attracting buyers and agents with buyers; and it may take time. Consider this question: is a full-service agent or a discount broker more likely to do a bigger, better, LONGER job to sell your home? A full-service agent can risk MORE and upfront marketing/ads cost and find more “eyeballs” and possibly competitive offers to drive prices up. Discount brokers, by virtue of the business model, need to take what works/enough and crank out sales.
Selling real estate has many moving parts, is largely a relationship business and as such can’t be easily done properly by a factory-line approach.
More importantly, real estate is a physically and mentally demanding job. Real estate agents required to sell many houses a month would simply not be operating at the top of their game for every listing. This risks having a negative effect on your final sale price. Individual agents just do not have the time to manage that many listings effectively unless they are working in a team.
Full service agents therefore will crank out higher net profit and is in the game for as long as it takes for your success. In short, we push FOR YOUR success ONE AT A TIME. The volume is not critical to us, as it is to discount brokers.
DIY culture in New Zealand
Please don’t understand me wrongly. I think there’s absolutely a place for private sellers or cheaper real estate agencies, just like there’s a place for DIYers in painting or for you to hire cheap labour to do it etc.
Would you cut your own hair or service your own car? Most of us would not. Sure you can paint your own house, but after factoring the cost of supplies, time taken to prepare and do the actual work etc, have you really saved much and is the outcome as good as someone who does this on a daily basis and does this consistently well?