Given my role in this industry, I naturally often get asked questions about the state of the market and the activity on the website, this tends to provides a great opportunity to share the kind of information and statistics I detail on this blog with friends and colleagues.
But the other day a friend accosted me by saying “so .. what are the facts in real estate?” – I realised after a momentary hesitation that he was not looking for me to provide the “concise statistics to NZ real estate version 48″, but rather he was enquiring into the latest marketing campaign currently being undertaken here in Auckland by Barfoot & Thompson – they call it “facts in real estate” complete with its own micro-site.
The question got me thinking as to the level of awareness of “key facts” regarding real estate in NZ; so I thought I would share some of these here in a brief format to assist those who may be interested in the industry as a career or just out of curiosity.
The Market
2008 will be a very slow year for real estate – an estimated 60,000 residential properties will be sold by real estate agents with a combined sales value of around $20 billion. This compares to 2007 with 92,000 and a sales value of $37 billion. The current median price of property in NZ is $340,000, this is up from $282,000 3 years ago and $185,000 6 years ago.
The Companies
There are somewhere around 1,300 licensed real estate offices in NZ at this time. The number is declining as a function of reduced sales = reduced income = cut costs. A year ago there were probably around 1,450. The numbers are not published on a regular basis, but we naturally track our subscriber base which generally represents around 90% of all offices in NZ who use our site to feature their listings.
There are 10 what would be called major groups (all of which have over 50 offices) – they are a mix of public companies (PGG Wrightson), private companies (Barfoot & Thompson), marketing groups (Professionals, First National) and franchises (Harcourts, Ray White, Century 21, LJ Hooker, Harveys and Bayleys). Bayleys is a type of hybrid having both franchisees and company owned offices. These 10 groups account for around 60% of all the offices in the country.
The Salespeople
The average office in NZ has 10 salespeople, the largest has just under 100 and at last count there were just under 250 offices with less than 5 salespeople.
Based on the current market there are around 13,000 sales people, although this number is declining. With around 110,000 real estate listings at this time this means that an average salesperson handles around 8 listings at any one time. With just 60,000 sales this year, this means that the average salesperson is making only 1 sale every 11 weeks. Back at the market sales peak in 2003 there were 120,000 sales in total and the average salesperson was making a sale every 7 weeks.
Undoubtedly there are some sales people who are more successful than others, with the most successful individuals managing many sales per week. Whilst there are not many in this league, they do demonstrate the fundamental aspect of this business which is all about personal motivation. All the salespeople in this industry are effectively self employed and only earn income when they sell a property, the more you sell, as a function of your skill in providing top quality service, the more you will earn.
The Selling Process
The majority of property sold in NZ is sold through a real estate agent with private sales accounting for around 10% of all sales.
The costs of service provided by licensed real estate agents are predominantly based on a commission on the selling price. The individual commission is set by each office or group and does vary. This commission is for a full service which may not include advertising the property which is a cost incurred irrespective of successful sale or not, and that is why it is often a cost for the property owner when it involves main media.
There are marketing companies who offer services to assist you in marketing your property as you may try and sell your property yourself. These companies operate outside of the law regarding the legal requirements of real estate agents and cannot act in the transaction, facilitation or negotiation of a sale without becoming a licensed agent. They tend to package up a marketing services under a single fee which is charged regardless of successful sale of the property.
If considering a career as a real estate salesperson you may like to review these figures based on averages:
Current median house price $340,000
Possible commission $12,800 (exc GST) charged by agency.
Commission split between real estate agency and salesperson, on a 50:50 basis $6,400 each way.
According to Alistair’s figures above: one sale every 11 weeks, equating to 4.7 sales a year.
Possible gross annual earnings by the average salesperson = $30,800.
From this figure the salesperson then deducts their own business operating expenses such as use of vehicle, insurance, professional fees (eg accountants), personal promotion (eg letter box drops), telecommunications and professional development.
The most recent figures available from Statistics NZ for the average NZ wage (June 07 quarter) are $34,684. Hourly rate – $16.68.
I would estimate conservatively that salespeople work 40 hours/week, hourly rate – $14.45 before normal business expenses are deducted.
Minimum wage in NZ $12.00 per hour.
And then the vendor client asks why the salesperson is not prepared to pay for the marketing of their property.:-)
Sharon,
Thanks for adding this further piece of information. I think it is appropriate and valuable for someone like yourself who is firmly in the real estate business to provide people with vital information such as this to blow apart one of those ling held myths of the industry – the idea that real estate agents make loads of money for not a lot of effort.
I also know you will endorse the fact that many in real estate work well in excess of 50 hrs per week – split among the 7 days of the week.
Absolutely, selling real estate is not a job that you will succeed at by only putting in part time hours. The 40 hours working week is a myth to those salespeople who are committed to providing the best possible service to their clients. From my perspective 50 hours looks pretty attractive and my own hours are not in anyway unusual among my colleagues.
How often are salespeople called away from watching little Johnny play soccer on a Saturday morning to show a property to a less than serious prospect?
Hi Alistair,
Another great post – just a quick question. You mention above different categories of Real Estate Organisations.
How do ‘Marketing Groups’ differ from just a Real Estate Agent?
Jared
Thanks for the comments and questions. All of the companies i refer to are operated at an individual branch level by a licensed real estate agent, who holds the certificate to practice real estate with sales people working for them (be good to check out the post (Real Estate Agents – understanding their role).
As for marketing groups – they are a group of individual real estate agents that operate under a common brand, they leverage their scale for marketing benefit and cost savings. In terms of business model all the participant operators pay a marketing fee (usually based on number of offices) which collectively pays for a coordination function and marketing – this is as distinct from a franchise where a franchisee pays a fee based on sales value.
Hi,
‘Given my role in this industry’ – what is your role in the industry? I’m slightly curious.
cheers
Max
Max,
A good question, and to avoid repeating details; here is my profile in the about section.
I am the sole author of this blog by the way, if ever in the future I decided to have invited authors / contributors I will be sure to be clear in this regard.
Real estate agents in the market at the moment are also taking short cuts and not working with vendors, they are just out to get their commission. There goal “sell it, don’t worry what price the vendor is targeting”. What I mean by this is if they have 5 properties under there hood on the market they are trying to sell then they will only invest/money the time in the “ones” they think will sell while the others suffer. Time we also started to really assess the real estate agents we use.
Hi guys
I know how closely some folk are following the UK market (particularly those with high hopes for an imported piece of the ‘Pommy pound’). Here is the latest update:
The UK housing crash is gaining momentum. Halifax tonight report the worse falls since their records began (thats a 25 year period), a staggering 25,000 pounds off the national average in a year, for a y-o-y fall of 12.5%.
http://www.guardian.co.uk/money/2008/sep/04/houseprices.property
There are mounting fears that more UK banks will go to the knackers yard with the Financial Times highlighting the risks to Bradford and Bingley.
Hi guys
I know how closely some folk are following the UK market (particularly those with high hopes for an imported piece of the ‘Pommy pound’). Here is the latest update:
The UK housing crash is gaining momentum. Halifax tonight report the worse falls since their records began (thats a 25 year period), a staggering 25,000 pounds off the national average in a year, for a y-o-y fall of 12.5%.
There are mounting fears that more UK banks will go to the knackers yard with the Financial Times highlighting the risks to Bradford and Bingley.
Bob,
Your comment interests me and I am sure others will equally comment, possibly more from personal experience (which I cannot do – neither having been a buyer nor a seller for a few year; and not being an agent).
The point I would make is that an agent does need to make a sale to earn a living and it is tough and to a certain extent they will focus on properties that they have a chance of selling. but ask yourself this question before you make that change to agents:
- who sets the asking price of the property? – do you think a vendor just leaves this to the agent? – of course not, so if the vendor has unrealistic expectations and despite this the agent takes the listing, you can begin to see how potentially an agent could actually loose credibility trying to market an overpriced property.
As this industry rapidly changes I suspect we will begin to see a scenario where vendors will be calling around agents saying “please sell my house” because after being politely turned down by a few smart agents who say “why should I spend my time (which had opportunity cost for which i don’t think I will get paid) when I could be better using my time to sell something that is marketed to meet the market – emphasis here on “marketed” as opposed to just priced! A key component to this future scenario is better informed buyers and sellers.
I’ve been an agent in Hamilton for the last 10 years.
Lets have a look at the fundamental process of how Real Estate Agents put prices on property.
Agents research the market to see what other properties are selling for. They look for similar properties in similar areas that are selling at that particular time. We do this because that is exactly what our buyers do as they go around looking for property to buy.
A house that is over priced soon stands out to buyers as it doesn’t compare favourably with other similar properties on the market.
We are all looking for value for money and none of us want to over pay for a property. There is a fair price range for all property. If the price listed is above this range then the property won’t sell.
Quality marketing usually gets a sale price at the top end of the range, an urgent sale price is usually at the lower end of the range. In most cases all the advertising in the world won’t sell a property which is over priced.
A property is only worth what someone will pay for it. When you ask me to sell your property I assume that you want a result. I want to get a result for you, because I have to feed my kids. If a vendor doesn’t accept what the market is saying his house is worth, then an agent will concentrate on other vendors who will accept what the market is saying about their property.
In this current market, if your house has got last years price on it, then you will have great difficulty selling it.
>>There are mounting fears that more UK banks will go to the knackers yard with the Financial Times highlighting the risks to Bradford and Bingley<<
Yep, I hear B&B are dead meat. But thats hardly new news.
The real issue for NZ is how much further does the downturn in Aotearoa have to play out.
Probably through into 2009 I’d guess if as I suspect the current spring/summer sales season delivers more falls off the back of high listings and low buying demand.
What you reckon guys/girls?
[...] Other discussions of general real estate statistics are on the Rates Blog, and the Real estate site. [...]
Hi Alistair, interesting reading as always. had to comment though about the figure that gets bandied about quite often re “10%” of sales being private sales.
One thing that no-one who quotes this statistic seems to (be able to) qualify is how many of these transactions are actually owners “selling” their properties sideways – eg into a Trust or LAQC – which are recorded as genuine sales & title transfers and account for a heck of a lot of property transfers every year.
It would be interesting to see these ‘claytons’ sales split out – have a feeling the genuine private sales figure (ie owners marketing and selling their home privately to an unrelated 3rd party) could in fact be far lower than recorded. Anyone have the means to do this?
Margaret
It is a good question however whilst the scale of “non real estate transacted sales” could be ascertained through the data from land registry as compared to REINZ stats. The fact is that a title transfer / ownership change would not stipulate as you say the difference between a private sale and a sideways transfer. Would certainly be interesting to know.
All we do know is that it is harder in a buyers market to sell privately and the sellers out there recognise it. The research from May of this year from the Nielsen Online survey showed a fall in the % of people who would definitely sell privately from 17% in 2007 to 14% in 2008.
Hi guys,
Do you think it is worth to start a career in real estate?
Katja,
Thanks for leaving this comment / question. I am not a real estate agent – I am responsible for this website, but I guess in my role I get a view of the industry. Others may like add their thoughts. But anyway here are mine.
Let me lay them out pros and cons:
Pros
1. This is an industry where anyone can be successful if you have the right approach, skills and capabilities
2. You are effectively your own boss – self employed is the status. The more you put in the more you get out
3. It is an industry that effects many many people’s lives – great if you are social and a good networker
Cons
1. You start with nothing – it is hard for the first year to get established
2. The market is constantly changing and the market does in many ways dictate your success – when the market is booming more people try and sell, so it is competitive. When the market is low – everyone is fighting for business – it is never easy
3. It is (or can be) a 7 day a week business
4. You need to be thick skinned – you have to be nice – even when you don’t feel like it
So my advice is go and talk to a manager of a couple of local offices – they are always on the look out for smart people who would like to join their team.
Best of luck.
I’m a property investor and having had some very frustrating experiences with estate agents over the years, I’ve just sold my own A’land home privately through Green Door. You state that ‘these companies operate outside of the law’- this is an irrelevant as well as biased comment as companies such as Green Door make it clear that they are marketers and not sales agents, nothing illegal about that. In fact with Green Door’s support and my solicitor completing the legal paperwork, I achieved a great result in a short time and saved myself a lot of money. I certainly won’t be wasting my time and money with an estate agent again and I’m sure neither will a growing number of sellers who’ve simply had enough of dealing with their fake promises and high charges. No wonder so many of them are going out of business.
Daniel,
Thanks for your comment and the insight into your experience with Green Door.
To be clear the statement I made was “These companies operate outside of the law regarding the legal requirements of real estate agents and cannot act in the transaction, facilitation or negotiation of a sale without becoming a licensed agent”
In this regard I was referring to the fact that at present Green Door is not a licensed real estate company / licensee and as such is not bound to the legal requirements of the Real Estate Agents Act 2008. This is not to say or make any implication that their operate operates outside the ‘law’ – that would be inappropriate.
Green Door are very clear in that they provide a marketing service for a fee and through this assist private sellers with the marketing of their property, however they cannot operate to facilitate the sale of the property as to do so would legally contract them to be bound by the real estate agents act.
I am pleased that you have had success in selling your property satisfactorily.