The new threat to real estate commissions

Real Estate commissions have been remarkably consistent for years.

Despite threats from the internet and the competition bureau, real estate salespeople have managed to keep their part of each sale.

The Globe and Mail points out one factor that may threaten that income.

In short: rising prices make it easy to just pay the commission, but sellers in a falling market might be a little pickier about how much they are paying to get their property sold.  Could bargain shopping and new real estate startup threaten the traditional real estate commission?

John Andrew, a professor at Queen’s University, suggests the following analogy: When the stock market is rising and you’re making money, then you don’t mind paying a broker a fee, but if you lose money on your investment, then the charges will be upsetting.

The market dynamics are changing at a time when new real estate startups, which are largely Internet based, are becoming more innovative. “There is no question that commissions are very high, and there is a big consumer pushback against that,” Mr. Andrew says. “It doesn’t make sense to me that it be a fixed per cent, and perhaps it’s time to begin to look at more of a sliding scale like we have for the land transfer tax, like we have for the income tax.”

Read the full article here.

Sort by:   newest | oldest | most voted
beoken clock
Guest
beoken clock

Surely THIS is a sign that the bubble is about to finally burst!!

crikey
Guest
crikey

Until recently British Columbia’s longstanding advertising slogan was “The Best Place on Earth”. One would think such pompous conceit must be well-substantiated. Indeed there is a list of very good reasons for such extreme arrogance…
Move over ‘Chuck Norris facts’, here come ‘Vancouver facts’!

Vancouver fact #20:
In Vancouver you can ski, surf, swim, and spend eight hours in the Emergency Room waiting to see a doctor to treat your hypothermia — all in the same day!

Vancouver fact #56:
Vancouver’s property salepeople’s tears can cure cancer. Its a shame that none of them will ever have reason to cry, since Vancouver home prices are only ever going to go up.

Vancouver fact #106
Vancouver could shrink its abundance of rainy days if it *really* wanted to. But Vancouver chooses to allow so much crummy weather every year because it is being ironically hip.

patriotz
Member

“It doesn’t make sense to me that it be a fixed per cent, and perhaps it’s time to begin to look at more of a sliding scale like we have for the land transfer tax, like we have for the income tax.”

Vancouver (and the rest of BC I think) already has a sliding scale, but it works in the other direction – the higher rate is on the base amount. This means that the agent has even less of an incentive to get a higher price for the sale than if the commission was a flat %. It also means that a given decline in prices has less effect on the amount of the commission.

Bhupendra Chahar
Guest

Hi there! I just would like to give a huge thumbs up for the nice info you will have right here on this post. I will likely be coming again to your weblog for extra soon.

Anonymous
Guest
Anonymous

Commissions are set at time of sale by reduced bid-ask spread. Realtors won’t tell you that, and apparently an academic won’t either.

Anonymous
Guest
Anonymous

Almost June…Surrey SFD prices rocketing higher and higher. Check MLS if u don’t believe it. Wishful believing they are lower is fantasy.

chilled
Member
chilled

No one would deal with an auto mechanic who is paid solely on what he can sell you. No one would eat at a restaurant that paid the chef and wait staff a percentage of the value they convinced you to eat. Why people accept this method of compensation for realturds is beyond me. PAY THEM BY THE HOUR. Good agents will get raises, poor agents will not and potentially get laid off if they work isn’t coming in. (Kinda’ like how it works for most of us???) Problem solved and the lying whores are reined in. Who knows, the industry may even start acting like “professionals.”

Anonymous
Guest
Anonymous

“No one would eat at a restaurant that paid the chef and wait staff a percentage of the value they convinced you to eat.”

That is exactly how the tip is calculated.

@chilled
Guest
@chilled

You act like commission are unique to real estate. They aren’t. Get your head out of your ass

Vote Down The Facts
Guest
Vote Down The Facts

Chilled, if a $100k property spends 300 days on the market what do you think a fair commission based on an hourly rate would be?

Anonymous
Guest
Anonymous

Vdtf that’s a conundrum every homeowner and investor faces. Who’s worth the commish?

Anonymous
Guest
Anonymous

Chilled: “No one would deal with an auto mechanic who is paid solely on what he can sell you. No one would eat at a restaurant that paid the chef and wait staff a percentage of the value they convinced you to eat.”

Everyone is in sales who deals with a customer and is compensated in some way by selling the customer something. Many auto mechanics are paid a commission or flat rate on what work is done. Ever been through the high pressure sales pitch during an oil change at Mr. Lube? They get a commision to sell you the engine flush or transmission fluid change. In restaurants tips are calculated off of the total bill so the wait staff are getting a 15% commision on what they sell you. You don’t get out much do you?

Anonymous
Guest
Anonymous

Exactly why i’ve never been back to Mr Lube. Of course at the last discount place i went to for an oil change told me i desperately needed brake pads which was a total lie.

Anyone read the Freakonomics study on realtors? I think that tells you what you need to know about the realtor incentivization. All they really want to do is sell your house as quickly as possible. Or get you to buy the biggest thing you can afford as quickly as possible. There is very little reason for them to get you the best price.

Real Estate Pimp
Guest
Real Estate Pimp

Anon # 6
MLS does not show the sold price.

Anonymous
Guest
Anonymous

“There is very little reason for them to get you the best price”

And this is a surprise?

Many if not most Realtors work off referrals, so there is some incentive not to screw over the client, at least in theory.

The biggest scam I see is the careful marketing around affordability and convincing the public of the supposed status quo, which is more house, rising prices, and property ladder mythos. Break those “truths” and it’s a long way down.

Vote Down The Facts
Guest
Vote Down The Facts

Anonymous #11, I guess it was more of a rhetorical question. I imagine people are quite happy to pay a commission if the agent puts in a lot of hours. If they put in only a small amount of time they’re not happy, and would have rather paid an hourly rate.

Frankly, if I were selling a place I’d prefer that a deal is done with as little work from the realtor as possible. i.e. a quick sale is the result. After all, I would have agreed the commission terms up-front (and they are negotiable, as I understand it).

Real Estate Pimp
Guest
Real Estate Pimp

I guess there’s the myth that all realtors own German luxury cars.
I was at two open houses this weekend, and the realtor’s cars parked outside were a Toyota and a Volkswagen.
Both houses were in the 1.5 mill range.
BTW, very little action at both open houses.
My guess is that right now being a RE agent must be very tough.

UBC in crisis mode
Guest
UBC in crisis mode

Saw this open house yesterday:

1988 WESTERN Parkway, University, Vancouver West, $3,990,000.00

Commission listed here:

3.25% for the first $100,000, 1.625% of balance and $10,000 bonus.

The house is very old, so mainly the land value (assessed around 4 million). I think the owner/realtor is waiting for a developer (?).

Anonymous
Guest
Anonymous

“Vancouver fact #106
Vancouver could shrink its abundance of rainy days if it *really* wanted to. But Vancouver chooses to allow so much crummy weather every year because it is being ironically hip.”

Well, it is a ‘dry rain’ after all.

Real Estate Pimp
Guest
Real Estate Pimp

Vancouver fact #106
Also called “liquid sunshine”.

Anonymous
Guest
Anonymous

“That is exactly how the tip is calculated.”

Of course, tips are optional, but don’t let that skew your moot point.

Democrass
Guest
Democrass
There is an excellent post today from Garth, which sets out some “insider information” type information. Often, the info-based speculation in these kinds of posts from Garth prove to materialize (but sometimes not). Here is an exceprt. Also in the air is a new round of tightening, almost invisible. As I told you a few weeks ago, 30-year mortgages, even with 20% down payments, will be eliminated entirely this year. The effect is to raise mortgage payments and reduce sales by up to 10%. And the bank cop, OSFI, has been crawling up the butt of major lenders, pushing them to quash risk and make borrowers jump through new hoops. As one senior bank lender put it in an email to realtor clients this past weekend: “What this means to me is…. (1) It is more important than ever that… Read more »
Atomic Frog
Guest
Atomic Frog
If I am a seller, I will only give an agent 3 months to sell my house. If at the end of the 3rd month, the house is unsold, I will fire this agent and hire a new one. The amount of commission will be agreed upon when the listing is posted. Say I will only sell this house for $X and I will pay $Y as commission, not a cent more or less. If an agent thinks he/she can handle it, then he/she will get 3 months to get a deal done. It will take a lot of luck and aggressive pricing to move anything in this kind of market. But dealing with a housing agent regarding commission should be the last thing that an owner should worry about. It is because all commissions are agreed at the START… Read more »
Barb Rennie
Guest
Barb Rennie
What it actually means is that the real estate “Companies” that charge realtors a very high desk fee will start losing their sales staff. When high priced listings do not sell, the first thing that gets shaved are extra expenses. A company like Remax should be worried because they charge thousands every month to their realtors. Do realtors deserve commission earned from the sale of property? Hmmm….well, instead let’s think about other occupations who get paid by commissions….mortgage brokers who sell you debt, debt you could probably get on your own, they get paid by the institution which gives you the debt, paid by you who gets a debt, and re-paid every time you automatically renew your debt. Mortgage brokers are devils in disguise. How about financial advisors? They sell you mutual funds, stocks, etc. They “manage” your money, and… Read more »
Anonymous
Guest
Anonymous

“Chilled, if a $100k property spends 300 days on the market what do you think a fair commission based on an hourly rate would be?”

Given the amount of Realturd work is the same if a home is listed for 3 minutes, 3 hours, or 3 years, what do you think the rate should be? I vote for 3 minutes.

wpDiscuz