What If The Whole World Worked The Same Way As The Toronto Real Estate Industry?

Go ahead, and call me biased for this next video.

I work for a traditional, full-service brokerage, and I believe in the brand value of a Realtor’s name and brokerage, as well as the value of a top Realtor’s knowledge, experience, and skills.

So with that in mind, I’d like to take a look today at the “discount agent” in our industry, and whether or not it makes sense to trade the experience and skill of a top Realtor for a discount on the fee for service.

This long-titled web series all started when my frustration with the public’s ever-present desire to roll the dice with pre-construction condos reached a boiling point, and I wondered, “How the hell can I get through to people who still don’t understand?”

Then I realized, I needed to dumb it down.  Like, to the very lowest level.

And hence I thought, “What if something in the real world worked the same way as the Toronto real estate industry?”

You all saw the video that compared buying jeans to buying a pre-construction condo, and ultimately if you couldn’t try on jeans to feel the fit and style, see the jeans, make sure they aren’t too long, or too short, or too thin, or too wide, or are actually made of jean, then perhaps you wouldn’t buy the jeans.

So if people wouldn’t spend $90 on jeans and take that “chance,” then why would people spend $500,000 on a pre-construction condo?

The same goes for hiring a discount agent, and I thus my comparison to laser eye surgery.

I’m not going to make this into an advertisement on why to hire me, or any other full-service agent, but rather I want to make people aware of the risks of hiring a part-time agent, or fly-by-nighter.

You would never use a Groupon or go to a back-alley for laser-eye surgery, so why do people look to cut corners with a $1 Million asset, give or take?

Look, I know that many of you have your minds made up, and that’s fine.  You can comment below, and tell me what an awful person I am, how useless I am, or whatever else comes to mind.

But you do have to concur, after reading my blog for a week, a month, or a year, that I tell it like it is.  Even if it results in nasty comments, both those informed and uninformed.

So I will tell you, without a doubt in my mind, that the discount agents in Toronto are getting out of control.

I have more stories than I can possibly share, but here’s just from last week alone.

I did a deal with a part-time agent, who never answered his phone before 5pm since he clearly worked a day-job.  I submitted an offer that was intentionally low, hoping to “find the middle ground,” but to my absolute astonishment, he emailed me back to say, “We have a deal!”  My offer was a dummy offer – it was junk.  It was a means to an end; an attempt to negotiate towards something else, and all he did was push it on his client, without any effort on his part to get his client more money.

After it was signed and emailed to me, I joked, “I guess you didn’t think there was any more money on the table huh?”

He replied, “It doesn’t make us any more money either way, does it?”

Nasty.

I did another deal last week with one of those “virtual brokerages,” that doesn’t really exist.  I had to drop off the deposit cheque, and the listing agent told me to leave it with concierge in his condo.

It didn’t sit right with me.  It’s a $25,000 cheque, made payable to a brokerage that’s only existed for five months, who has one agent on record, and who wants me to leave it with a concierge in a condo.

So I said “no.”

I told the agent that we would amend the Agreement to say that my brokerage – Bosley Real Estate, will hold the deposit in trust, otherwise, we wouldn’t move forward.

He agreed, without a fight.  He said, “What the hell do I care anyways?  Costs me $28 less as I won’t have to issue a cheque on closing.”

Folks, I could tell these stories all day and night.  But I fear that you’ll grow sour on the whole industry, and not just the jokers that I’m pointing the finger at.

There are 42,825 Realtors licensed with TREB.

41% did zero or one transaction in the past 12 months.

All I’m saying is that you have a choice in who you hire, and you should make that choice VERY carefully.

Agree or disagree, and I won’t fault you for it.  But hey – how about Jarrod’s acting in that video, eh? 🙂

I think I “discovered” this guy.  He’s going to make it big one day.  I just know it…

39 Comments

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  1. stuart says:

    There are several points in this article. I will speak only to one just now. You refer to FULL service agent in the same context as Full time vs part time. The knowledge level of a part time agent is NOT determined by his desire to work full time or not. Consider this : a person works in a union job where he contacts employees coming and / or going continually. He gets a real estate license so evenings and weekends he earns BIG bucks. Let’s actually face it, you don’t need a University degree to sell real estate. You only have to be available Z (if you are a selling agent ) and you SELL one home every weekend. You also stay in your Union job, that gives you a great pension when you decide to slow down a little. What gives you the idea that the Part time guy doesn’t know what he is doing. I think your jealous, that’s all. After reading your blog, I wouldn’t use you as you sound like you wouldn’t treat a PART TIME Selling agent fairly and I might lose out on a buyer who is uninformed and might overpay for my property.

  2. Noel says:

    Whoops. That should be 1,034,000/0.9435 = $1,095,919. or 9.6% more.

    1. johnny chase says:

      No. that new buyer has to pay land transfer tax too. Add it to the price and that is the total price paid.,

  3. johnny chase says:

    ya, comparing a surgeon to a real estate agent.,,, good comparison. What so hard about pricing low and waiting for bids? I’m sorry David, but you make it sound way more complicated than it is.

    As long as the agent sincerely cares, and charges a reasonable fee (like 1-1.5%) then there is room for the discounters.

    Right now, with a rising market, most vendors don’t care. I get that. As long as I’m making money then you can make money. Its one of the main reasons why house prices are so high… the process is manipulated to extract max leverage. BUT, when the market softens and people aren’t making money on houses, I think we will then see a trend to discounters… especially once the double LTT goes Ontario wide. Friction costs are just way too high. Anyone buying a house in this environment needs to sell at 16-18% more just to get their money back. Its a losing proposition

    1. Noel says:

      Actually not 16-18% more. LTT on a $1M home in Toronto is $32,200. Add, say, $1,800 for legals/disbursements (and that’s high) and you are up to $1,035,000. Assuming 5% +13% HST for commission = 5.65% and 1-0,0565= 0.9435. $1,035,000/0.9435 = $1,096,979 which is 9.7% higher than the sale price.

      So it’s more like you have to sell it for about 9.7% more to break even, not the 16-18% you quote.

      There sure a lot of people here throwing numbers around that don’t know what they are talking about or are bad a math or both!

    2. Angelica says:

      24/08/2012Greetings! Quick question that’s tlaltoy off topic. Do you know how to make your site mobile friendly? My blog looks weird when viewing from my iphone 4. I’m trying to find a template or plugin that might be able to fix this problem. If you have any recommendations, please share. Many thanks!

  4. Joel says:

    I find it interesting that many people look to mortgage agents to buy down the rates with their commission, yet don’t expect this of a real estate agent.

    I think if someone signs up to buy and sell with the same agent they are foolish not to ask for a discount on one or both of the transactions.

    1. Yukko says:

      12/09/2012An outstanding share! I have just foeadrwrd this onto a friend who was conducting a little research on this. And he actually ordered me dinner due to the fact that I discovered it for him lol. So allow me to reword this . Thanks for the meal!! But yeah, thanx for spending some time to discuss this topic here on your website.

  5. Ed says:

    Top notch video David.
    Looks like you had a director for this one.

  6. EE says:

    David I love the video and personally I agree with the message. But as somebody pointed out on here with your bike lane post, you’re five times more likely to get negative comments than positive ones.

    Or maybe you don’t mind? Maybe you’re just lighting a match here and waiting to see how high the fire burns?

    1. @ EE

      A reader and very frequent commenter emailed me last week and said something to the extent of “Sorry if me and some of the other people are harsh at times.”

      I told him not to worry.

      Do you think I would invite the this criticism into my life if I couldn’t handle it, or didn’t want it?

      My readers tell me, “I learn so much from your blogs.”

      Well guess what? I learn too. In the comments, every day, I learn with people are thinking, and how they’re feeling.

      So while my “message” in this video is what I truly believe, I don’t mind if people disagree. I enjoy the feedback, and as “Dan” just said – about “getting the popcorn ready, and preparing to read the thread,” I think a lot of people enjoy the ensuing debates as much as the blogs.

      Somebody else told me “This isn’t a Toronto-Sun-style message board” in reference to the comments. These comments aren’t moderated, and yet there is no swearing, no racism, no toilet-talk, and nothing inflammatory. People disagree, but they do so respectfully, and often back it up with statistics, resources and links, or exceptionally well-constructed arguments.

      I don’t think this “fire is going to burn high,” but I do agree that the ones who should the loudest will disagree.

  7. condodweller says:

    David, that’s a hilarious video for comedy relief, however, undoubtedly the underlying message is unmistakable. It uses fear mongering to attempt to drive uninformed sellers into your arms. Commissions have gotten so out of whack with reality that the best agent in the world does not deserve it. I can go to the Keg for a steak and pay $20 or go to a high-end steakhouse and pay $2,000. I don’t care how good that steak is, I am not paying $2,000.

    Even if I “leave some money on the table” with a discount broker, net net I’m probably still better off. When I sold my first condo I tried to do it myself and did not want to pay a buyer’s agent as I thought I could sell to someone without an agent. As it turned out I ended up using a reputable full-service agent who wouldn’t budge on his commission. He told me there was an agent who preys on people in the building by low balling prices for FSBO deals. Well, in the end I would have netted more, even if I paid that agent’s commission, accepting his low ball offer than what I ended up getting from my agent after commissions. On my second condo I was wiser and paid the buyer’s agent and saved about 10k in commissions. On my next sale, I’m going to give myself time to sell without an agent and save more.

    BTW using laser eye surgery is a bad example; of course I’m going to pay a reputable clinic to correct my vision. Comparing losing my eyesight to “possibly” leaving a few thousand dollars on the table on a house sale is silly.

    1. Ed says:

      I used a extremely reputable laser place and negotiated a discount. Advertised at $490/eye (few years back), was quoted $990/eye since I had an ever so slight astigmatism. I then asked how much extra work for the astigmatism, they said maybe 20 seconds per eye. Hello discount.

  8. GregariousDan says:

    Popcorn is ready. I’m sitting back, looking at this thread… This is going to be good!

  9. Geoff says:

    David, since you opened the door, i have to ask – do you know where you rank in TREB?

    1. @ Geoff

      Yes, Yes I do! 🙂

      1. Geoff says:

        Ha! Okay well I’m going to put you on the spot then, if nothing is private in your business and personal life! How DO you rank in TREB?

        1. @ Geoff

          True.

          I believe last year I was 80’ish, but it fluctuates, and TREB doesn’t release numbers. There’s a third-party system that tracks every sale done via TREB, and the licensing is expensive, so not every brokerage has it. But to be honest, I don’t really keep track. My manager sometimes tells me, or other brokerages trying to recruit me will throw numbers at me.

          I’m not a “rankings” guy and I hate quoting statistics. It might be necessary for some agents, and I don’t blame them; it’s a competitive business. But you won’t see me put awards, stats, rankings, or anything like that in my marketing, or on my website.

  10. Appraiser says:

    “Price is what you pay and value is what you get.” WARREN BUFFET

    1. Darren says:

      Very true appraiser. Quality is something that needs to be paid extra for. But there comes a point where it’s nothing more than a piss take.

      http://www.torontorealtyblog.com/archives/8781

    2. Noel says:

      Funny. You can get a higher quality investment portfolio that will beat 95% of all money managers over the long term by investing in LOW-COST index funds.

      So you can get better value by paying less.

  11. Darren says:

    I agree with Paully and Ed.
    5% might have made sense many years ago, but with real estate price growth far outstripping inflation and the salaries of most people, 5% doesn’t make sense for many transactions. That’s why there’s so many damn realtors!
    That said, I definitely agree that a good realtor is worth having and they deserve to be paid, but even they are overpaid for many transactions.

    1. condodweller says:

      Agreed. I believe the 5% commission was established in the 60’s when house prices were what around $30k? That means the commission would have been $1500. In 1965 minimum wage was $1 which means a minimum salary was $2080. Contrast that to today’s $20,000 minimum salary and $50,000 commission. You would have paid .75% of your salary in 65 vs 250% your salary today. If you bought your house in the 60’s and sell it today you will pay almost double what your house cost you to the agent!

  12. Paully says:

    I think that there is room for another possible scenario. How about a competent, experienced, professional real estate agent for a more reasonable commission? With the average detached in the 416 going for more than a million now, isn’t there some room for a better commission rate? For example, would you really turn down your half of $30,000 if the full-service rate for million dollar houses was only 3% instead of 5%? A sliding scale based on transaction value might be a good idea.

    1. Ed says:

      I agree with Paully. The 5% commission will go the way of the dodo. There needs to be a better model. Paying $40,000 commission on the sale of a $800,000 house is crazy. Especially when the the house is priced for multiple offers and the sale process will take less than 10 days.

      And another thing. Why should the sale of a $800,000 property incur double the commission charges of a $400,000 property? Is it double the work?

      1. Noel says:

        @Ed – It is the same amount of work with the exception of some very very high end homes where there is less demand (but then the commission dollars match the extra effort). The venerable Elise Kalles of the boutique ‘high-end’ brokerage firm Harvey Kalles Real Estate answered this question for herself many years ago and based her career on it. She is quoted reiterating it in a Globe & Mail article in 2009 (http://www.theglobeandmail.com/report-on-business/small-business/sb-managing/succession-planning/the-new-king-of-the-castles/article4187346/?page=all) thus:

        ‘When Harvey opened his brokerage in 1957, he leaned in part on connections his father, a wholesale fruit merchant, had among wealthy grocers, such as the Loblaw brass. In 1973, Elise sold the company’s first high-end home for $1-million, an unheard-of price then. Deciding that “it was the same selling a $50,000 house as a house for $1,050,000,” the family decided to “farm” the ultra-tony Bridle Path neighbourhood.’

        Need anyone say more?

        Btw, real estate commissions have doubled in the last 8 years as the prices of homes have doubled, yet inflation has only been 12% in that period. Who else sees their wages double when the work is the same and arguably less with the technology available today? I asked a very high end agent who recently retired how things have changed in the last decade and he said that technology has indeed made it less work but that the industry has become more litigous (but professional insurance takes care of court awards as a result, of course).

        Unfortunately, basing the commission on the difference between the sale and listing price is illegal under REBBA. I think paying commission on that basis and adding a flat rate for the rote work that is done on every listing makes much more sense.

        1. Noel says:

          Whoops, it didn’t copy correctly (damn you can’t edit these). Elise’s statement was:

          Deciding that “it was the same AMOUNT OF WORK selling a $50,000 house as a house for $1,050,000,” the family decided to “farm” the ultra-tony Bridle Path neighbourhood.

      2. RPG says:

        Commissions were 6-7% in Toronto in the ’70’s and ’80’s. One might suggest that they’ve already come down over time.

        It should be noted that in most major American cities, commissions are still 6%. New Yorkers pay $600,000 to sell their $10,000,000 condos with Sotheby’s.

        1. Pragmatic says:

          And there are many cities where commissions are considerably less – most notably Vancouver, where the going rate is 2.5% on amounts over $100,000 (and 7% on the first $100,000) – this is negotiable as well and results in commissions less than half of Toronto. No double land transfer tax either!

          There really is no justification for rates to be so high in Toronto, and competition will eventually solve the problem. David’s video, while humourous, misses the point – commissions are too high and opening the market will help consumers.

          1. another point missed! says:

            “Competition will eventually solve the problem.” Theres a ton of competition out there. Nobodys forcing you to pay 5%. You can pay Realty Sellers a flat fee and put it on MLS.

            What you’re sayings that the “problem” is that really good, high end, top agents charge 5% and you don’t like it. You want to eat filet mingon, but you want to pay for chuck meat.

            The “point” of this video was missed by people like you because choice IS available.

            “Rates” aren’t so “so high” in Toronto. SOME rates are high, but you don’t have to hire agents at 5%. You just WANT those agents, and you WANT to pay LESS!

            It’s a free market!! The fees charged are function of the public’s willingness to pay!! If NOBODY would pay 5% then NOBODY would be charging it.

            If “helping consumers” means allowing uninformed, naïve, penny-pinching crappy-condo-owning people to hire an agent to put the listing on MLS for $900 and still pay a buyer agent 2.5%, then those consumers will be helped another mile further down the road from the rest of the public.

        2. Vic says:

          @another point missed.

          Now you’re spot on. Can you sell or buy for next to nothing in commission, yes. Can you get that same deal with an experienced Realtor, no.

          Stepping back for a just a moment though, there may well come a time when rates will come down. But when it does, you will hardly care because the market will be in a very calm time period. Houses will have much longer days on market, and prices will either be in decline or stable. In that market, agents will exit, but for a while there will be too many agents to support the declining volumes and some full commission agents will start starving and start discounting. However both buyers and sellers will have become far more apathetic to the real estate market. If you know anything about the stock / other financial markets, you will know that people get very bored when the market is stable. There’s nothing to complain about, nothing to dream or hope for (meaning you’re not crossing your fingers for a crash so you can afford something, or white knuckled hoping your expensive condo wasn’t purchased at the top).

          Just to be a bit patronizing for a moment…the above isn’t a prediction, it’s just how things go, people get bored, things get forgotten, fads and news get swept away by time. If you haven’t figured this out on your own then either 1. you are <25 years old, 2. well, you know what.

      3. Antoni says:

        anything incredibly iprsesmive more like youve painted a quite picture above an issue that you know nothing about! I dont want to sound mean, here. But do you actually think that you can get away with adding some quite pictures and not seriously say something?

    2. Kyle says:

      You already can negotiate the commission with your Agent. There’s nothing stopping anyone from asking a potential Agent if they would work for less than 5%. Some good Agents will even offer a reduction, if the house’s value is large, if they bring the buyer or if you’re an especially good client (i.e. not a time-wasting pain in the ass, have used them in the past, are using them to buy, are pleasant to work with, etc). This has happened to me with two different Agents. But remember they pay the buyer’s Agent 2.5% and their brokerage some percentage and they have marketing costs, so asking them to work for 3% is basically like asking them to work for free.

      1. realtor says:

        Kyle, you hit the nail on the head here. I’m an agent although I don’t feel like getting tarred and feathered so I’ll choose to remain anonymous. I can tell you that every agent has to split the commission with his or her brokerage, and those splits can go as high as 60/40. So if you got an agent to work for 3% on the listing end, which you know 2.5% is going to the buyer’s agent, then that’s 0.5% that they keep. They’ll split it with their brokerage at 60/40, or 70/30, or 80/20, or whatever, and some brokerages have a minimum payment to the “house” so you might be working for free, or paying out of pocket, if you take a listing for 0.5%!! You pay for photos, virtual tour, videos, feature sheets, newspaper ads, internet ads, open house supplies, home inspections, staging services, mailings and flyers, community bulletins, wine and cheeses, and the list goes on. And during they year you spend $5,000 on dues, fees, and licensing, plus thousands more on mandatory courses. This doesn’t include all the money realtors have to spend just to have a CHANCE at getting a call for a listing. So I agree with Kyle that an agent working for 3% is working for free, and they’re not going to spend a penny on the listing. They have to do SOMETHING for money, so what are they doing when they’re not working to sell your listing for free? A day job? Some of you missed the point of this video. You get what you pay for. Why are there no “ComFree” signs in Rosedale or Forest Hill? Maybe those people know something that the average internet dweller does not? Darren is right when he says that’s why there are so many damn realtors. But that’s what the video explains as well.

        1. Paully says:

          When I suggested, for example, a 3% commission on a $1M+ property, I would not imagine a 0.5%/2.5% split. That is grossly unfair and is another example of something that could change in the future. In the example of a 3% total commission, I would think that it really should be 1.5%/1.5% or a 50:50 split.

          My point was not necessarily to vilify the 5% commission. If I had a dog property in a slower market like maybe Belleville or someplace like that, I would be all for offering a higher commission to get things done, if I really needed to sell quickly. But 6% or even 8% on a $250k Belleville house is still way less than 3% on a GTA $1M house.

          1. Kyle says:

            I disagree, I firmly believe the expertise plays a way bigger part in getting top dollar in a hot market than in a cold one. In a cold market, you list and wait, if no one buys, you drop the price and wait some more. In a market like Toronto’s there are a lot more considerations. Each neighbourhood is a micro market, that goes from being white hot one day to smoldering the next. Lots of people think it’s so easy, Duh…just under-price and hold off offers. But in this market you only get one shot, and that isn’t always the best strategy. I’ve seen Agents do it and get burned, with no one showing up on offer night. And if that strategy fails, coming back to market at a higher price is the kiss of death. IMO, it actually requires a great deal more expertise and feel for the local market when it is hot: How do you stage? What repairs or improvements need to be addressed before listing? When is the optimal time to list? Do you hold off on taking offers? How long? Could there be other houses that are coming out the same week? What price do you list at to get the most interest? Do you take the bully offer? These things don’t matter as much in a cold market. A good Agent will have a good sense of what buyers are looking for, how many buyers are searching in your neighbourhood and how “hungry” they are. You can’t develop this by looking at comps, you can only develop this by working that market.

        2. Noel says:

          Aside from the fact that internet ads are free (even customs websitse are minimal cost) I’ve never seen an agent pay for staging (except very minimal that they do on their own) or had any wine & cheese (even at an agents’ open house I’ve accidentally walked into) there is a lot of puffery in the fees you quote to be an agent.

          Dues, fees and licensing are:

          TREB: $859.65/yr
          OREA/CREA: $474.60/yr
          RECO: $350/2 yrs so $175/yr
          E&O Insurance: $400 yr

          Total: $1,909.25 – NOT $5,000!

          Mandatory Courses are:

          Continuing education: $44 every 2 yrs so $22/yr – NOT THOUSANDS MORE!

          Total is $1,931.25

  13. Noel says:

    Another absolutely hilairous video David. I think you missed your calling. Jarrod’s acting was great, the script was great and your facial expressions are over-the-top great. You both should be on SNL.

    However, enough of my laudatory comments! There are agents with non-discount brokerages that did zero or one deal in the last year. There are also discount agents that do an excellent job. There are excellent agents that were with non-discount brokerages who moved to discount ones in order to get a greater cut of the commission. So, I wouldn’t colour the entire discount agent industry with the same brush stroke. Having said that I would venture to say as a whole your chances of finding a excellent agent at a non-discount agency is better, but that is not necessarily assured.

    1. Kyle says:

      Solid points Noel, but i don’t necessarily think David’s trying to paint the whole industry as being either good full service Agents or bad discount ones. I think the key point of the video is that commission should not be the over-riding consideration in choosing who to sell your house with. As with anything else, one still needs to do their full due diligence before selecting, but should consider much more than just the rate that they’ll have to pay (e.g. experience, track record, what they do “on the side”, reviews, etc)

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