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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Rob Chipman
Rob Chipman
13 years ago

Discount Realtors aren't new. They've been around as long as I've been in the business. 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.

whybuywhenucanrent
whybuywhenucanrent
13 years ago

I think on a ten-year average, realtors probably earn their money pretty well. 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 $0.02Whybuywhenyoucanrent

Aleks
Aleks
13 years ago

I don't think we can predict whether the discount brokers are the future or not until the market cools down. Maybe full service brokers are overcharging and will be forced to lower their fees, but it's equally possible that once the bubble corrects and the corresponding real estate agent bubble bursts, the discount brokers will disappear.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… Read more »

Jesse
Jesse
13 years ago

"Typically, an Estate Agent will charge you between 2 and 3.5 percent of the sales price as a commission"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.

Ulsterman
Ulsterman
13 years ago

Slice and dice this argument all you want, but let's face it, here in Canada we are all getting ripped off for the services of a real estate agent. 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/selling/estateagents.htm"The CostTypically, an Estate Agent will charge you between 2 and 3.5 percent of the sales price as a… Read more »

Joshua
Joshua
13 years ago

I think the market decides what works, and with guys like 1%, etc you see proof of that.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.

betamax
betamax
13 years ago

People are tired of paying full commissions because of the bubble. 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'.

Raine
Raine
13 years ago

This might be the end to the "Realtor Only" MLS usage:Google "MLS"http://tinyurl.com/2xexq6

northvan
northvan
13 years ago

Considering how many years of education a realtor needs..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… Read more »

Streel
Streel
13 years ago

Somewhat OT but had to post this CTV news article.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?

Jesse
Jesse
13 years ago

"I think the commissions are high, but not necessarily out-of-line… "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… Read more »

canadidan
canadidan
13 years ago

When I sold my house in Ottawa several years ago I used a service called Grapevine.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… Read more »

digi
digi
13 years ago

It probably comes down to what you need – If you need someone to walk you through the process or you don't have the time to run open houses yourself then its probably worth paying extra for a full service realtor.I agree though that its not a black and white issue and the discount brokers will put downward pressure on commissions.

M-
M-
13 years ago

I interviewed three realtros before listing my place for sale last month. Two were full-fee, the other was 1%.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… Read more »

dosh
dosh
13 years ago

I think that when some people say that realtors make too much they underestimate the amount of work that they do.

mold
mold
13 years ago

I dont think we'll see the disappearance of standard full service realty, but competition will drive down commissions.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.