Total real estate agency commissions estimated to be down by almost a third last year compared to 2021
By Greg Ninness
The downturn in the housing market is estimated to have pushed real estate agency commissions down by almost a quarter of a billion dollars in the fourth quarter of last year compared to the same period of 2021, when the market was still booming.
Interest.co.nz estimates that the industry earned about $417 million in gross residential sales commissions in the fourth quarter of last year, down by $235 million (-36%) compared to the $652 million it is estimated to have earned in Q4 2021.
The annual figures tell a similar story.
Interest.co.nz estimates that the industry earned around $1.60 billion in gross residential sales commissions last year, down 32% (-$740 million) compared to 2021.
While those numbers suggest the industry may have had to endure a fair amount of belt tightening last year, taking a longer term view suggests the figures may not be as bad as they appear at first glance.
The graph below shows the estimated gross commissions earned by the industry each quarter since the beginning of 2017.
It shows that commission levels were reasonably steady, with fairly consistent seasonal variations, from the beginning of 2017 to the first quarter of 2020.
They then dropped away hugely in the second quarter of 2020 as pandemic restrictions were introduced, before surging dramatically from the third quarter of 2020 to the fourth quarter of 2021 as the Reserve Bank pushed mortgage interest rates down to historic lows.
But as mortgage rates started to rise and the housing market cooled last year, commission levels also began to fall.
Although that fall has been dramatic compared to commission levels in 2021 and the second half of 2020, as the graph shows, total commissions have only fallen back to pre-pandemic levels.
In that regard, the surge in commissions that occurred during the 18 month housing market boom from Q3 2020 to Q4 2021 could be seen as an anomaly, with total commission levels now returning to more normal levels.
However, there has also been a change in the makeup of commissions.
Industry commission levels are determined by both the number of properties being sold and the prices being achieved.
REINZ figures suggest that the number of residential properties sold last year was down about 18% compared to 2019, and although the median selling price was declining last year it was still $162,000 higher at the end of 2022 than it was at the end of 2019.
The numbers show that although total commission levels have dropped back to pre-pandemic levels that is mainly being driven by lower sales volumes rather than falling prices, so the average size of commissions is likely still higher than it was pre-pandemic but there are fewer commissions to go around.
Which suggests some agents will be doing it tougher than others, with fewer sales and fewer commissions than there were pre-pandemic.
This story was originally published on Interest.co.nz and has been republished here with permission.