Commission rates for real estate sales have fallen in the past two years as intense competition has seen agents trim margins to win business, according to new data.
Macquarie Bank’s 2014 Residential Real Estate Benchmarking Report, released this week, showed that average national commissions for sales have dipped 0.1 per cent to 2.22 per cent since 2012, which represents a significant drop from the 2.5 per cent recorded in 2009.
This trend is most pronounced in metro regions, where the average commission - across all cities - is 2.08 per cent, versus a regional average of 2.51 per cent, with the average in South Australia slipping below the two per cent mark.
Adam Crawley, director at Ray White Sylvania/Jannali, who ranked 50th in last year’s Real Estate Business Top 100 Agents, told Real Estate Business the figures quoted in the report do not match up with what's happening on the ground in his area.
“Wherever they got their statistics from I don’t think they’re correct,” said Mr Crawley. “I averaged 2.32 per cent last year, but I can tell you the average out our way is more like 1.7 or 1.8 per cent. I'm not surprised the rates are coming down, it’s cut throat out in the market."
The report, based on responses from 460 real estate agencies nationally, is the fourth from Macquarie in the past eight years and identifies the key drivers of business performance, maps financial standards and provides a comprehensive view of industry trends.
It pointed to two major trends to explain the drop in average commission rates. The first is the intense competition for stock and cash flow in recent years, and the second is a tendency for sales services to become increasingly commoditised in the eyes of vendors, despite agents’ efforts to add value.
The data found that helping to drive this trend are online service providers making it significantly easier for sellers to market their houses without engaging an agent.
Matthew Anstee, principal of Raine&Horne Bowral, who ranked 39 in the Top 100 Agents list, told Real Estate Business that any agent charging under the two per cent mark for commission was asking for trouble.
“I’d say 2.5 per cent is about as low as we will go,” said Mr Anstee. “For anybody doing below that rate then it’s really a race to the bottom of the jar; it does not help anybody. For agents doing under two per cent it’s not a sustainable business product. These people are underselling their services and in this industry you get what you pay for.
“All the ones in my region that have gone below two per cent, within six to 12 months they’re out of the industry. They are charging these low rates because they’re not professional, they can’t sustain it as a business model, it doesn’t work.”
Daniel Evans, head of residential real estate at Macquarie Business Banking, told Real Estate Business increased sales activity in the market is driving competition, "which has in turn led to a decrease in commission rates. However, it is important to note the value of homes has risen significantly over this period, helping to offset some of the revenue impact".
The Macquarie report showed that smaller agencies in particular seem to be subject to increasing price pressure, dropping average commission rates substantially in comparison with their larger peers.
Ric Mingramm, general manager and director of sales at PRDnationwide Moreton, said the most disappointing aspect is that many large leading agents in small areas are discounting to gain net numbers, although their market share may be stable.
"This places severe financial pressure on smaller agencies, which in turn limits the true services offered and the ability of these agencies to grow," said Mr Mingramm.
"There may be an argument for a total review of the way the industry is remunerated, as commission rates are arguably set to offset the amount of unpaid work agents do on behalf of sellers trying the market or attempting to gain unreasonable prices in a market, or just servicing customers," he added.
Meanwhile, contrary to industry speculation, the proportion of international buyers remains small, although highly concentrated in a few key urban markets. While 7.1 per cent of Sydney sales over the last 12 months have involved buyers from offshore, the national average remains a slender 3.4 per cent.
Sales volumes are on the rise around the country, according to the the report, although there has been significant variation between the states. While average annual sales per agency have increased in both NSW and SA, the figures for NSW are relatively subdued given the volume of market activity, reflecting intense competition for stock coming on to the market and an increasing number of agencies competing for that business.
According to the data, more than 50 per cent of NSW metro listings now sell in under 30 days, which is half the average for regional NSW and the ACT. In contrast, just 11 per cent of properties sell in 30 days or less in Perth.