Home Truths

Issue 59 - The Costs of Selling your Home - February 2010

One of the issues that seem to come up from time to time is that of fees charged by real estate agents. As always, there are many who claim that Real Estate agents’ charges are too high. For those people, there is always the option of selling their property themselves. In fact, we have a booklet designed to help people do just that.

Generally, in Auckland, fees are in the order of 4% for the first $300,000, 2% thereafter, plus $500 plus G.S.T. Some are a little higher, some may be a little bit lower, but they are all fairly similar. Every now and then someone decides they can do the job for lower fees but, truth to tell, they mostly haven’t stayed in business for very long.

In needs to be remembered, however, that the level of fees in no way indicates the level of service or results. I believe that our level of service and results is very high. That certainly is our earnest aim.

The focus should really be on the add-ons, the extra charges that some companies consider should be paid by the vendors. I am referring, of course, to the advertising that many agencies encourage their vendors pay for. Special (large) advertisements in newspapers, glossy advertisements in specialist booklets, large, roadside signs with photographs - all very expensive, all paid for by the vendors and in our opinion, all virtually useless as far as achieving better prices for sellers. We firmly believe that specific advertising of sellers’ properties should be paid for by the agencies.

For companies to advertise their commission rates without mentioning that it is their policy to encourage their vendors to pay extra for advertising, is almost like the airlines mentioning airfares without mentioning the various taxes that have to be paid. The obvious effect is to increase the costs to the vendors, sometimes without even the benefit of a sale. It is our belief that the pages and pages of expensive advertising that can be seen in newspapers and specialist journals is there for just one purpose – to raise the profile of the agency.  In fact, those studying for their salesperson’s exams are told that the best way to raise their personal profile is to obtain vendor funding - and include their own photo in the advertisement. It doesn’t have to be that way!

The real test in this area should be ‘lower overall costs to the seller’ rather than ‘lower commission rates’.  With Glover Real Estate, the only cost to sellers is the commission, payable only upon a successful sale. This, rather neatly, brings me to my next point.

An important consideration, especially for those who are going to be buying as well as selling, is what we call ‘change-over cost’. This is the difference between the net proceeds of the sale of one property (i.e. proceeds of sale minus the costs of the sale) and the total costs of buying the replacement property, including relevant costs. Obviously, the higher the net amount achieved for the sale of the existing property, the lower the ‘change-over’ figure.

Rather obviously, those who sell their own property are going to have substantially lower costs, which is why many people go down that path.

But this area too, can be something of a trap for many, which is why we have our free booklet ‘How to sell and Buy without Agents’. While this is of assistance, it is not the whole answer, however.

The most overlooked aspect of owners selling their property themselves is probably that of a lack of knowledge or ability to negotiate effectively. While it is relatively easy for a seller to tell a salesperson that a higher sale figure is required, it becomes a little more difficult to say the same thing directly to a prospective purchaser. This is especially so should the seller encounter that most likely of direct purchasers – the opportunist investor.

Most people choosing to sell their properties themselves will be relatively inexperienced in selling at all, let alone selling something that does not have a definite price. To be faced with an experienced investor, whose only motivation is buying for the lowest possible price, could well be a daunting prospect. Many private buyers will make much of the fact that as the seller is not paying any fees, the price to should be discounted by the amount of the fees, thereby taking away, in one fell swoop, the whole reason for selling privately.

So maybe it is better to let trained, Real Estate salespeople do the job after all.