PHOTO: If your boss paid you $0, there would normally be a problem
Imagine turning up to work, making 100 phone calls, attending listing presentations, running open homes all weekend, negotiating offers, answering emails at 10pm — and finishing the month with a paycheque of exactly $0.
For most New Zealand workers, that sounds extraordinary.
For thousands of real estate salespeople, it can simply be part of the job.
New Zealand’s real estate industry operates on a model that looks increasingly unusual when compared with almost every other modern workplace: commission-only remuneration, frequently combined with independent contractor status.
Sell a house and the rewards can be substantial.
Don’t sell?
All those hours may produce precisely nothing.
So how does the real estate industry legally get away with it?
The answer lies in one of the most important distinctions in New Zealand employment law:
Many real estate salespeople aren’t employees.
And when the property market stops producing transactions, that distinction suddenly matters enormously.
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If your boss paid you $0, there would normally be a problem
Consider an ordinary employee.
A salesperson working in a shop can’t spend 40 hours trying unsuccessfully to sell televisions and then be told:
“Sorry. Nobody bought one this week, so there’s no pay.”
A waiter doesn’t lose their wages because the restaurant was empty.
A car salesperson employed for agreed hours can’t simply have all remuneration disappear because nobody bought a vehicle.
Employees have employment agreements and statutory protections, including minimum employment standards.
Real estate can operate very differently.
Under New Zealand’s Real Estate Agents Act 2008, a salesperson can be engaged by an agency as either an employee or an independent contractor, provided the legal requirements for that arrangement are satisfied.
That distinction opens the door to the commission-only model that dominates much of residential real estate.
The magic words: “Independent Contractor”
This is where the economics of the industry become fascinating.
A real estate salesperson may work under the banner of a major agency.
They may use the company’s brand.
They may work from its office.
Their listings may appear on its website.
They may attend company meetings and training.
They may have a manager.
They may have sales targets.
To the public, they look very much like someone who works for the real estate company.
Legally, however, their contractual position can be quite different.
An independent contractor is effectively operating their own business while contracting services to another business.
That generally means many of the protections attached to employment don’t automatically apply in the same way.
And crucially, remuneration can be based almost entirely on results.
No sale.
No commission.
No commission.
Potentially no income.
The agency has shifted an extraordinary amount of risk
This is the part of the traditional real estate business model that doesn’t receive enough attention.
In most businesses, the company carries much of the risk of employing salespeople.
If business is slow, wages still have to be paid.
If customers disappear, payroll doesn’t disappear with them.
If the economy enters recession, employees still expect their salary on Thursday.
Commission-only contractor models reverse much of that equation.
The salesperson carries the income risk.
The agency can have dozens — sometimes hundreds — of salespeople representing its brand without necessarily carrying the same fixed wage burden that an ordinary company with hundreds of employees would face.
That’s an extraordinarily powerful business model during a downturn.
The person sitting at an empty open home on Sunday afternoon may be donating their time to the transaction unless that property eventually sells.
Then there’s the work that never produces a dollar
This is perhaps the most remarkable part.
Consumers generally see the successful transaction.
They see the SOLD sticker.
They see the smiling agent.
They see the commission.
What they don’t see are all the unsuccessful attempts surrounding it.
The appraisal where another agent wins the listing.
The vendor who decides not to sell.
The listing that expires.
The buyer who walks away.
The conditional deal that collapses.
The auction that passes in.
The months spent nurturing a potential seller who eventually lists with somebody else.
The phone calls that go unanswered.
The open home where nobody turns up.
The hours of prospecting that produce nothing.
In a commission-only model, enormous amounts of commercial risk and unpaid effort can sit with the individual salesperson.
A successful commission doesn’t merely pay for the hours involved in that particular sale.
In effect, it also has to help fund all the work that produced no sale at all.
That is one reason looking at a $20,000 agency commission and assuming the salesperson personally pocketed $20,000 can be wildly misleading.
A $20,000 commission isn’t necessarily a $20,000 payday
Suppose a property produces a gross agency commission approaching $20,000.
The salesperson doesn’t necessarily receive that amount.
The agency receives the commission.
GST has to be accounted for where applicable.
The salesperson may receive an agreed percentage or split.
There may be franchise or agency structures sitting behind the transaction.
Then the salesperson running their own contracting business may have business expenses.
Vehicle costs.
Fuel.
Phones.
Technology.
Marketing.
Professional costs.
Tax.
And perhaps weeks of work surrounding listings and prospects that generated no commission whatsoever.
A high-performing agent completing multiple transactions can still earn very good money.
But the economics look dramatically different for someone selling one property every month or two.
And brutal for somebody selling none.
The property boom disguised the weakness in the model
This system looks fantastic when houses are selling rapidly.
That’s precisely the problem.
During the extraordinary 2020 and 2021 property boom, transactions flowed, buyers competed and agents could move properties relatively quickly.
The commission machine worked.
A new salesperson entering the industry could look at successful agents and reasonably conclude there was serious money to be made.
But commission-only remuneration has an Achilles’ heel:
It needs transactions.
Not listings.
Not appraisals.
Not social-media followers.
Not open-home attendees.
Completed transactions.
And New Zealand’s property downturn has made those considerably harder to produce.
House prices aren’t the number agents should fear most
Property headlines obsess over prices.
Agents should arguably care more about sales volumes.
A house worth $900,000 that changes hands generates economic activity.
A house supposedly worth $1.1 million that sits unsold for six months generates very little.
No completed transaction means no commission.
That’s why a stagnant housing market can be particularly punishing for the real estate industry.
Properties remain listed.
Agents remain busy.
Photographs are taken.
Marketing campaigns run.
Open homes continue.
Buyers make offers.
Vendors reject them.
Everybody appears to be working.
But the transaction never happens.
And without the transaction, the commission cheque never arrives.
This explains why agents desperately chase listings
Once you understand the economics, some of real estate’s behaviour starts making more sense.
Why do agents relentlessly prospect homeowners?
Why the letterbox drops?
Why the cold calls?
Why the sponsored Facebook advertisements?
Why the obsession with appraisal numbers?
Why do agencies celebrate listings almost as enthusiastically as sales?
Because a salesperson with no stock has virtually nothing to sell.
Listings are the inventory from which future income might emerge.
But even winning the listing guarantees nothing.
The agent can spend weeks servicing that property and still earn $0 if it doesn’t transact.
That creates enormous pressure to convert listings into sales.
And it raises an interesting consumer question.
Does commission-only create the right incentives?
Real estate’s defence of commission is straightforward.
The model aligns the agent with the homeowner.
If the property doesn’t sell, the agent doesn’t get paid.
That can be enormously attractive to sellers.
The agent carries substantial risk and is incentivised to achieve a result.
Fair enough.
But there is another side.
If someone’s mortgage, groceries and household income depend on getting transactions across the line, does commission-only also create pressure to get the vendor to say yes?
The seller might want another $30,000.
The agent might know another month of marketing could potentially produce it.
But another month also means another month without being paid.
That doesn’t mean agents behave improperly.
Most professional agents understand their fiduciary and regulatory responsibilities.
But incentive structures matter in every industry.
And real estate has one of the clearest incentive structures imaginable:
No deal = no pay.
There’s another legal wrinkle: calling someone a contractor doesn’t automatically make them one
This is important.
Businesses generally cannot simply write “independent contractor” at the top of an agreement and assume that settles the question forever.
New Zealand law distinguishes between genuine contractors and employees by looking beyond labels to the real nature of the working relationship.
Factors such as control, independence, integration into the business and the economic reality of the relationship can matter.
Real estate, however, occupies an interesting position because its governing legislation specifically contemplates salespeople being engaged as independent contractors.
That gives the industry’s contractor model a statutory footing that many consumers probably don’t realise exists.
It is one of the reasons commission-only real estate has survived for so long.
Imagine if other industries adopted the same model
Consider the proposition elsewhere.
A teacher receives nothing unless every student passes.
A journalist gets nothing unless an article reaches 100,000 views.
A supermarket worker gets nothing unless shoppers buy enough groceries.
A bank employee receives nothing unless enough mortgages settle.
Most people would consider those arrangements extraordinary.
Yet real estate has normalised a version of exactly that risk/reward proposition.
And during a boom, plenty of salespeople willingly accept it because the upside can be enormous.
The problem comes when the boom disappears.
The industry effectively conducts its own layoffs
This may be the most ingenious — or brutal — part of commission-only real estate.
Traditional companies experiencing a major downturn may have to restructure.
There can be redundancies.
Notice periods.
Employment obligations.
Restructuring costs.
A commission-heavy contractor workforce can adjust differently.
The agency doesn’t necessarily need to formally remove large numbers of people.
The market does it for them.
If salespeople go months without earning enough money, some eventually leave.
The workforce effectively contracts through economic attrition.
No dramatic corporate redundancy announcement required.
No headline saying hundreds of salespeople have been laid off.
People simply discover they can no longer afford to remain in the industry.
The boom recruits. The bust removes.
This helps explain real estate’s recurring employment cycle.
Booming property markets attract salespeople.
Big commissions are visible.
Successful agents buy nice cars.
Recruitment advertising ramps up.
People look at the market and think:
“I could do that.”
Then the cycle turns.
Listings become harder to win.
Buyers become cautious.
Sales take longer.
Deals collapse.
Commission income becomes irregular.
And the people who entered expecting easy money discover they’re effectively running a small business in one of the most competitive sales industries in New Zealand.
Some adapt.
Some become exceptional agents.
Others leave.
The industry shrinks without anybody officially pulling the redundancy lever.
AI could now expose the model to another challenge
There’s an additional complication arriving at precisely the wrong time.
Artificial intelligence.
AI can increasingly perform many of the administrative tasks surrounding property sales.
Listing copy.
Buyer follow-up.
Database segmentation.
Marketing content.
Appointment scheduling.
Vendor-report preparation.
Comparable-sales analysis.
Routine communication.
Document organisation.
If technology steadily reduces the amount of manual work involved in a transaction, consumers may increasingly question the traditional percentage commission itself.
Agents may therefore find themselves squeezed from both directions.
Fewer transactions at one end.
Technology challenging the perceived value of traditional commission at the other.
The agents most protected from that disruption will probably be those whose value lies in things AI struggles to replicate:
Negotiation.
Trust.
Local relationships.
Judgement.
Strategy.
And the ability to create a transaction when one doesn’t naturally exist.
Property Noise Take: Real estate’s greatest strength is also its greatest weakness
Commission-only real estate is an extraordinary business model.
For agencies, it can create a large, motivated sales force without the same fixed salary exposure associated with a conventional workforce.
For homeowners, it offers an appealing proposition:
If you don’t sell, you generally don’t pay the sales commission.
For successful agents, the upside can be substantial.
But virtually all the income volatility sits with the salesperson.
That’s manageable when houses are selling every week.
It’s considerably less attractive when transactions dry up.
Which leaves New Zealand real estate with a fascinating contradiction.
The industry can legally operate a model where people may work enormous hours without generating any income because many are not conventional salaried employees at all.
They’re effectively businesses within businesses.
And when the housing market booms, that structure can create extraordinary incomes.
When the market freezes?
The agency doesn’t necessarily have to sack you.
The $0 paycheque eventually does it for them.