Are realtor commisions set to drop?
There’s an interesting article in The Star about discount brokers in the real estate business and the impact they may have on the cost of buying and selling.
While other industries, such as travel agents and stock brokerages, have gone the discount route, the real estate industry has largely held steadfast.
Realtors have been successful at holding their commissions at a standard 5 per cent in recent years, although that is already down from 6 per cent a decade or more ago.
But in a market where homes are selling in record numbers and at record prices, some consumers are wondering why commissions are still so high in the real estate business.
They also mention the Competition bureaus investigation of the Canadian Real Estate Association:
The Canadian Competition Bureau, meanwhile, is investigating the Canadian Real Estate Association to see if the CREA’s guidelines discourage discount brokerage houses from using the Multiple Listing Service, which the association owns.
CREA officials say they are simply protecting their trademark.
I’ve noticed a lot of discount broker signs on condos recently, I wonder how much of an impact they are having here in Vancouver. As the article points out - in a hot market it may be easy to sell through a discount broker, but what happens when the market slows?
So what do you think- Are discount brokers the way of the future and would you feel comfortable using them to sell a property in a slower market?
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April 10th, 2007 at 9:19 am
A bigger threat to real estate commissions would be a cut back in the number of young gullible buyers that are willing and ‘able’ to buy property at any price. A housing market collapse would hurt more than just the last buyers in.
April 10th, 2007 at 9:21 am
April 10th, 2007 at 9:51 am
The 1% realtor wanted to list our place for a low price, relative to what comparables had sold for in our building. The two full-fee realtors wanted to list about $25K higher.
We believed our place could sell for closer to what the full-fee realtors wanted to price it. We interpreted 1%’s low-price proposal as laziness on that realtor’s part– list the place for a low price so that it sells within days of the first open.
We listed with the full-fee realtor with whom we felt most confident. A career salesperson. We ended up receiving multiple offers, and sold for $35K more than 1% wanted to list it.
We did negotiate our realtor’s commission down a little– rather than 7% on the first hundred and 3% on the balance, we negotiated it to 6%/2%.
Here’s a comment that I have about realtor commissions: if you’re looking to sell your place, always interview a few realtors. Doesn’t matter if one of them is family/friends– selling your place is business. The realtor should be able to defend their commission– and it should be more compelling than the anger-inducing argument of “buyer’s agents won’t show a 1% property”.
If they can’t sell you on their commission, do you really trust them to sell your place for the best value that you can get our of it?
My realtor gave up half the money to the buyer’s agent, and kept half for herself. In a week and a half, her part of the commissions (which she splits with her agency) total roughly what I make in a month before-tax. After she splits the commission with her agency, she’ll be left with about half of that. So for a week and a half’s work, she will have earned about what I make in two or three weeks. Pretty good pay, but she doesn’t sell a place every week. And if my place hadn’t sold right away, it would have taken considerably more work on her part to sell it.
I think the commissions are high, but not necessarily out-of-line…
April 10th, 2007 at 11:02 am
I agree though that its not a black and white issue and the discount brokers will put downward pressure on commissions.
April 10th, 2007 at 11:06 am
http://www.grapevine.on.ca/
For a $300 flat fee they provided me with lawn and street signs that directed the customer to their website where my listing was posted. This service is fairly well known in the area and most buyers know of them.
This service worked for me because I was in no rush to sell. You do all the tours and deal with all of the open houses etc. They don’t put your listing on MLS (at least they didn’t several years ago) so you tend to get less traffic. However if you are patient you can save paying the realtor fees. I did end up paying 2% to the buyers agent but he did all of the paper work for the sale. I didn’t mind too much as I set the record price for the area.
I think a service like this while not for everyone keeps agents from monopolistic practices and provide customers choice when selling (or buying) their home. It would be nice to see a similar service here.
April 10th, 2007 at 11:30 am
I think this is a fair statement. Business is feast or famine so this time of the year their incomes will be good and in slower months they will get next to nothing. For m- the added cost of the Realtor’s discounted commission paid back compared to the 1%.
That said, there is a massive difference between the quality of Realtors out there. Shop around and check referrals/references.
An interesting question is when the market turns soft, what will happen? At the beginning of soft market there will be high inventory and lower sales. This is I would think the absolute worst time financially for selling agents. Lots of stuff to administer and advertise but nothing moves so no paycheque. Though with fewer showings there is probably more idle time.
When you hear of places sitting on the market for months you know something is wrong: the price, the agent, or there are literally zero buyers. Recently people have attributed these listings to a soft market (i.e no buyers or the price is too high for the quality of property). Maybe, but I have seen places that could sell but the agent was lazy or incompetent and it was impossible to get an appointment.
I don’t think I would call today’s conditions “soft.” There is still money around and leverage is very enticing on the way up.
April 10th, 2007 at 1:22 pm
A new radio station is on the air in Vancouver but you won’t hear any pop music or the local news.
Instead, SellFM broadcasts real estate information about properties for sale using their ‘Talking sign’ feature.
The ‘For Sale’ sign on the property directs people to a radio frequency where, using an FM transmitter, information about a property is broadcast.
Where does it end?
April 10th, 2007 at 4:09 pm
I think there are not going to be any shortage of them. So therefore, I think their comissions could easily go down.
Everything else, is going discount.
Costco, yes, even realty, people shopping around more on the net.
Give enough time, when the discount realty refine its methods and people become more informed, I think that is the way to go. Like everything else.
Yes, many realtors will kick and scream, but as always, the priviledged never in history gave up their priviledges voluntarily.
They will use scare tactics to hold people away from trying something different and probably will try to change laws and rules so they will remain untouchable.
But people are becoming more savy with the net, and will explore.
I think even discount realty is almost out, I think that more people will try to sell their own homes in time, maybe use some advisor for a small fee. Just as they do with stocks and funds.
April 10th, 2007 at 4:11 pm
Google “MLS”
http://tinyurl.com/2xexq6
April 10th, 2007 at 4:26 pm
Housing prices have doubled, and so have the realtor’s gross pay (same percent for double the value) — for the same amount of work.
And with buyers’ exuberance of the past several years, realtors are basically order-takers rather than salespeople.
That will all change with the bust. Realtors will be starving, many will exit the business, houses won’t sell themselves, and people won’t begrudge realtors their commission nearly so much.
In two years, no one will envy them their ‘easy money’.
April 10th, 2007 at 9:45 pm
I think discount agents are byproducts of the consumer desire to get cheaper service, mixed with the massive inflow of new agents in the industry they must compete with.
Like a few have mentioned already, it really comes down to the good agent/lazy agent thing. You can have the full-service version or a discount version, you pick.
April 11th, 2007 at 12:27 am
About 10 years ago there was a campaign to introduce more competition to the British market in many diferent industries. I think it was called “Rip Off Britain”. Basically the internet allowed Brits to see how much cars, insurance, real estate commissions etc etc cost in other countries.
Now they have online discount brokers for just about every service you need and it shows. Sure gas and McD’s are still way more, but you can’t win them all.
Check out this link to see what regular, full-service real estate agents charge in the UK.
http://www.home.co.uk/guides/s.....agents.htm
“The Cost
Typically, an Estate Agent will charge you between 2 and 3.5 percent of the sales price as a commission, but their fees are usually negotiable. One thing to keep in mind is that your Agent might make a lot of profit if you are selling a mansion, but a one-bedroom flat in a shabby building in outer Sheffield won’t pay for his children’s education. Consider this before you try to push him below 1.5 percent.”
Please don’t believe that “…it’s different here.” It used to be just as bad there before people caught on.
Just to finish, if you are looking for the bare bones discount 1% service, rest assured you are still getting ripped off. The same service is offered in the UK for, you guessed it, 1/2%.
Here’s the link for those interested.
http://www.halfapercent.com/
Just to finish my rant, i don’t get one of the earlier comments about people not realising how hard an agent actually works for you. In a hot market like this how much work does the agent actually do when selling a nice 400k condo in Kits that’s on the market for a week or two and is sold. I get that it’s not lying in the sun drinking a martini, but surely they shouldn’t make 10-20k on a simple sale such as this. On second thoughts maybe i’m being unfair and they need all that money to pay back their student loans for all those years of education that it took to become a “real-estate professional”;)
OK, i’m done.
April 11th, 2007 at 8:19 am
You can make your money from high commissions and low volumes or low commissions and high volumes. I am guessing Britain is the latter and Canada is more the former. If the profession adds value (which I think it can) the average to good agents need to at least put food on the table. The bad ones can get lost.
Given the inherent competition between individual agents, I am suspicious of agency collusion. A good question is what the cut is for agencies in Britain versus Canada.
April 11th, 2007 at 10:11 am
In a hot market houses sell quickly and require little effort on the part of the agent. They can afford to take a lower commission because volume is high and they don’t really have to do much other than put a place on MLS to attract offers. In a down market I’m not convinced there will be enough volume to support realtors charging 1%.
It’s one thing to undercut your competition when all you have to do is say “buy this” and people will, it’s another thing entirely when a house sits on the market for months and the agent has to arrange multiple open houses and viewings without getting any offers. It wouldn’t surprise me at all if the discount brokers are just a temporary side-effect of the bubble, and disappear when the market returns to normal.
April 11th, 2007 at 10:41 pm
There’s two things I’d like to see, though, which would make RE agents less sleazy folks to work with:
1) reward for the buyers agent to keep the price low. As it is, the buyers agent benefits by jacking up the price as high as buyer is willing to go.
2) minimum competency/honesty requirements. When I go to open houses, I hear agents saying fairly ludicrous stuff about “the market”, about neighborhoods, about problems with the house, etc. Let’s set some standards, get the agencies or RE associations to require minimum levels of accuracy.
My $0.02
Whybuywhenyoucanrent
April 16th, 2007 at 4:13 pm
Selling real estate isn’t easy money. If you’re not good at it you’ll starve. Check the stats. Most Realtors starve and leave the business.
I’m not sure exactly rates are in the UK, but if Ulsterman thinks they’re between 2-3.5%, do this math using a fairly common figure: 7% on the first $100,000, 2.5% on the balance. On a $500,000 house that’s $7,000 + $10,000, for $17,000. Divide that by $500,000 and you get 3 1/2 percent across the board. I’ve never bought or sold in the UK, but I from what I’ve seen (which is limited, I grant you)we do a lot more here.