Real Estate Agents: Worth the Commission? New Data Sheds Light

Analysis suggests agents may be worth the cost, despite a small percentage of sellers opting to go it alone.

As homeowners consider the significant fees associated with selling their property, new analysis from property data firm Cotality suggests that engaging a real estate agent can lead to more successful and efficient sales.

Agent Effectiveness Highlighted in Sales Data

While a small fraction of homeowners, between 3.1% and 8% annually, choose to sell their homes privately, data indicates agents outperform private sellers. According to Nick Goodall, Cotality’s head of research, agent-assisted sales boast a higher success rate by an average of 11.5% over the last decade.

Historically, around 76% of agent-listed properties have sold, compared to 65.1% for privately listed homes. Last year, this trend continued, with 65% of agent-listed properties finding buyers, versus 52.8% for those sold privately.

“The sales success rate is higher for agent sales — by an average of 11.5% over the 10 year period.”

—Nick Goodall, Head of Research, Cotality

Goodall explained that agents often possess a deeper understanding of the market and potential buyers. They can effectively target individuals likely to be interested in a specific property, a capability that often eludes private sellers.

Market Trends and Pricing Strategies

Typically, agent-marketed properties also spend less time on the market. In 2021, the median days on market for agent sales was 24, significantly less than the 40 days for private sales. An interesting exception was last year, when agent sales averaged 75 days, marginally longer than the 71 days for private sales.

While agents often secure higher median sale prices, Goodall noted this could be attributed to the types of properties agents typically handle. “Vendors may be more likely to sell their property privately when it’s a lower value property, whereas owners of more expensive property might be more likely to use an agent,” he stated.

The slight increase in private sales last year, Goodall speculated, might reflect sellers’ attempts to save money during a period of less robust price growth. Last year, properties sold by agents achieved a median price of $735,000, compared to $704,000 for private sales. This year, those figures rose to $740,000 for agent sales and $662,500 for private transactions.

A $750,000 sale could incur approximately $23,978 in commission, while a $1 million sale might result in nearly $30,000 in fees. “The figure for this year is almost $100,000 so I’d say that would justify it if it was like-for-like properties,” Goodall commented on potential value, though he acknowledged the comparison could be “borderline” in other instances.

He also highlighted the hidden costs of private sales, including the opportunity cost of a seller’s time. “Having to take time off work or the opportunity cost or what else you could be doing if you have to spend all that time preparing to sell a property on your own, you know that might bring the calculation a little bit closer as well,” Goodall noted.

Expert Insights on Agent Value

Brooke Gibson, a real estate agent, understands the appeal of private sales, having experienced it herself. However, she believes agents add significant value, particularly in negotiations. “You could actually easily kill the deal because you know, if someone comes up to you and you’re opening up your house to them and they go ‘how much do you want?’ and you say $1 million and he thinks it’s worth $700,000 for example, he’s going to be like ‘nah not interested’,” she explained.

Wellington salesperson Mike Robbers concurred, adding that agents often enhance property presentation through professional photography and staging. “Private sellers often start out with a very high price in mind, then reduce it over time when there’s no interest, but by then the listing has gone ‘cold’,” Robbers observed. “Agents tend to use their market knowledge to get the pricing strategy right from the outset, so the listing doesn’t sit as long on the market.” He also pointed out that buyers sometimes expect a discount from private sellers, assuming commission savings will be passed on.

Belinda Moffat, Chief Executive of the Real Estate Authority, stated that the decision between private and agency sales depends on individual circumstances, property type, and seller experience. She emphasized that licensed real estate professionals are bound by professional standards and legal obligations to achieve the best outcome for their clients.

“If a person works with a licensed real estate professional, and an issue arises with their professional conduct, the person has the option to make a formal complaint to REA and/or to raise the issue with their agency,” Moffat noted, outlining recourse for clients.

Agents are required to provide a Comparative Market Analysis (CMA) before listing agreements are signed, offering insights into a property’s potential value based on recent sales. They also guide sellers on crucial disclosure obligations regarding property defects and unconsented alterations. Failure to disclose could lead to the sale falling through or legal action.

Moffat added that commission rates are often negotiable and advised private sellers to thoroughly research the selling process. Confidence in the real estate industry has seen a significant rise, climbing from 70% in 2021 to 82% last year.

Despite a high volume of listings, there remains strong demand for property, though some sellers struggle to adjust their price expectations to current market conditions, still holding onto figures from the market’s peak. rnz.co.nz reported on this analysis.