Trade Me makes a radical change to real estate agent fees

Trade Me has made a bold and challenging move, telling the real estate industry that they need to charge clients for their property to be listed on the site, instead of absorbing the cost.

With effect from the November 1 the company will no longer offer bulk subscriptions to real estate companies that previously allowed them to pay a single monthly fee for unlimited listings (read Trade Me's official announcement here).

This move comes shortly after Trade Me's 2013 annual report highlighted that the property section of the business held significant revenue growth potential.

For one agency, a 200% increase
Let’s look at the situation for a typical real estate company. I chose at random Professionals Rotorua (McDowell Real Estate Ltd). In the last full month of August the company listed 19 properties for sale.

The current subscription fee is a base cost of $250 plus $124 per listing with a cap of no more than $999. So this office would in theory pay Trade Me $999 for those 19 listings in August.

With effect from the November 1, the base fee of $250 is removed as is the cap. Each listing will be charged at $159 – a total for August of $3,021 – a 200% increase.

The big question that each and every real estate agent and real estate company will be asking right now is how can we manage this?

Trade Me is very clear. As far as they are concerned this fee-per-listing should be passed on to the vendor as a cost to market a property on Trade Me. After all a private listing costs $349 / $399 (inc GST) so $159 + GST ($182.85) is almost half the cost of a private listing.

In the communication being sent to real estate agents Trade Me detail that the recommended price agents should charge vendors is $199+ GST ($228.85) – this allows a 20% commission margin for agents. The Real Estate Agents Act is very clear in detailing that in terms of advertising costs that the vendor pays for, the listing agent must stipulate if there is a commission earned for selling any advertising. At the time the Act came into force in 2009 the industry were very clear that they in the main passed on advertising costs without a commission.

Now there is nothing wrong with agents earning a commission selling advertising, it is just interesting that Trade Me are so explicit with it in their communication.

Click to zoom.

Real Estate Agents Act 2008 No 66 (as at 05 August 2013), Public Act 128 Agency agreement must disclose rebates, discounts, and commissions – New Zealand Legislation.png
This is certainly a bold and aggressive move by Trade. In terms of marketing a property for sale – advertising on Trade Me is the essential part of any campaign and when compared to $1,000 or so for a full page in a single property magazine or many thousands of dollars for a picture in a newspaper spending $200 for a listing on Trade Me is cheap.

Will the vendors accept this re-charge?

Since the start of Trade Me as a legitimate website for property for agents back in 2005 most agents have not charged their clients to have their property on Trade Me, just as they have not charged for Realestate.co.nz or their own website.  They started back then from the perspective of online advertising being a “nice addition” to the mainstream advertising of newspaper and magazines. Over the last 10 years that situation has reversed, nowadays newspapers and magazines are the “possible addition” to the mainstream online advertising.

Accepting this change has been tough for agents and more especially real estate companies as print media is so effective in real estate brand advertising as compared to the web which is solely property focused.

Clearly though real estate agents and companies have no choice; as to swallow this cost for all listings would mean the industry would have to pay up the $21m of revenue that this move creates for Trade Me up from an estimated $7.5m earned in the past year from subscriptions.

Once established as a vendor cost recharged by agents then it will make it easier for Trade Me to apply annual increases of the order that they have applied over the past 8 years to private listings for property.

Click to zoom.

Former Realestate.co.nz CEO Alistair Helm is founder of Properrazi.co.nz.