Here’s a topic that should open up a wicked discussion!
It’s time I opened up about commission, and gave my thoughts on discount brokerages…
Every once in a while, readers ask me to post about commission and/or discount brokerages, and while I’ve touched on this in the past, I’ve never really let loose with a “no holds barred” blog, like I’m going to do today.
After last week’s discussion about Zoocasa, and having the weekend to think about what I’d want to say, and how I’d want to say it, I think I can give most of my true thoughts without breaching any RECO ethical guidelines, or disparaging anybody in particular.
I also feel that majority of my readers, or at least most of those who post comments, understand, if not, agree with my sentiments, and will probably add to the conversation.
Lastly, I know that those opposed to traditional real estate business models will provide a contrarian viewpoint, and that’s what makes this blog an interesting read.
I figure the best way to sort through the issues here is to provide seven, what I call, “Hard Truths,” that are either things people don’t want to hear, or things that a Realtor isn’t supposed to say.
So let’s start with this:
Hard Truth #1: High End Houses Are Not Sold Via Discount Brokerages
The impetus for this post was a comment on last week’s Zoocasa blog, that said the following:
“If it were not for MLS having a monopoly position on listings, there would be no need for an agent. List your house on kijiji and get a good lawyer would be all that is needed.”
One of my readers wrote back:
“Sure why not list your house on Kijji, same place you can list a pair of used underwear. This is only your biggest investment and see how much you really save. Go for it Reginald, maybe one day you’ll learn your lesson.”
I agree.
At the risk of sounding snobby, or even elitist, here is an observation that I’ve made over the last few years: majority of those sellers who list with discount brokerages are selling entry level properties.
Disagree? I don’t think you can.
When was the last time you saw a “ComFree” sign on the lawn in Rosedale for a $3.5M house?
Bosley, Chestnut Park, Sotheby’s, Harvey Kalles, Royal LePage, J&D – these are the brokerages that Rosedale & Forest Hill clientele entrust with their largest assets; their multi-million-dollar nest eggs.
When I’m browsing MLS, and I see the discount brokerages’ listings, they’re always some $300,000 condo. Never a $1.8M house.
Why is this?
Be honest – I’m asking you all to answer.
Is this because rich people are smarter? Not necessarily.
Is this because entry-level condo owners “need” their money more? I don’t think that’s the case.
Draw your own conclusion, but empirical evidence shows that discount brokerages primarily list entry-level properties in Toronto, and that upper-level properties are always sold by name-brokerages, with traditional real estate business models.
Hard Truth #2: The Public Has No God-Given “Right” To MLS
MLS was invented within the real estate community, trademarked by CREA, and is owned and operated by CREA.
For somebody to suggest that CREA has a “monopoly on MLS listings” shows that they don’t understand business.
Would you say that Audi has a “monopoly” on selling Audi’s? Surrrreeee…..but, why wouldn’t they? Maybe “monopoly” is the wrong term.
Does Major League Baseball have complete control over www.mlb.com? Sure they do. They created it.
So for Bob Smith to stand up and say, “This is ridiculous! Why aren’t I free to list my home on MLS, without using a Realtor?” Is like some over-involved mother shouting, “Why can’t my little girl’s softball team play the New York Yankees?”
www.mls.ca and www.realtor.ca were created by CREA, and thus Bob Smith cannot list his house on www.mls.ca unless he is a member of CREA. Doesn’t that make sense?
So long as a brokerage, and its agents, are registered under CREA, they can post listings on MLS offering ANY commission. That’s why we see brokerages like Realty Sellers, Common Sense Realty, and Realty Toronto on MLS, offering commissions of $0.01 or $1.
If you want your listing on MLS, and you want to pay next to nothing, that’s fine. You just can’t use the system without using a licensed Realtor.
Hard Truth #3: It Would Be Anti-Competitive For CREA To Force Brokers To Charge A Fixed Commission Rate Across Canada
There. I said it.
But how could anybody, including Realtors (even those such as myself, who charge a 5% commission), possibly disagree?
Of course this would be anti-competitive! It would be like Rogers, Bell, Fido, Koodo, Wind, and every other phone company secretly getting together and deciding to mark up standard cell phone bills by 80%.
It took some time for CREA to adapt, and for them to allow other business models on MLS, but personally, I’ve always welcomed these discount brokerages to the fray because, 1) I believe that competition is good for any industry, 2) I believe it allows me the opportunity to showcase my value as an agent.
Realtors should be able to charge whatever commission they want. And they do.
I constantly get flyers in my mailbox here at 112 George Street for this chick who advertises “List With Me For 3.5%***” Of course, I’ve never seen her with a single listing on MLS, and those asterisks come with fine print.
If a brokerage wants to charge a flat-fee of $300 to list on MLS, and offer $0.01 in commission to cooperating buyer-agents, I have absolutely, positively no problem with that.
Hard Truth #4: Properties Listed With Discount Brokerages Rarely Sell Via MLS
I didn’t spend the necessary five hours on MLS compiling hard data to back this up, so feel free to sling mud. I’m going on experience and knowledge here, so believe what you want.
But check out the properties listed on MLS that are offering $0.01 in commission, and see how many days they’ve been on the market.
My colleague loves to quote the statistic, “Ninety-five per cent of FSBO’s end up listing with a brokerage that has a traditional business model, even if they use a discount broker in between.” My colleague made his living in the late 1980’s going after FSBO’s.
I’ve also heard the saying, “This property will sell itself” so many times before, but people know that isn’t true. Listing with a discount broker on MLS with “Photo Not Available” isn’t a smart thing to do with the largest asset you’ll ever own, and buyers don’t respond well to no photos, no measurements, no description, no virtual tour, no open house, incomplete and inaccurate information, showings via the seller (who doesn’t answer his phone), and a process that is often deliberately confrontational.
More than half of my business is on the buy-side, and I can tell you that most of my clientele have no interest in looking at these properties.
And as I’ll describe below, there is another reason why properties listed with discount brokerages rarely sell via MLS…
Hard Truth #5: Buyers Don’t Want To, And Will Never Pay Commission
Are you looking for a home?
If you were signed to a Buyer Representation Agreement, which stipulated that your Realtor would get paid a commission if he or she sold you a property, would you want to see a house, listed by a discount brokerage, that isn’t offering to pay commission? Would you want to transact with a seller who is insisting you pay the commission?
I think, not.
Of course, some readers will be quick to say, “Well buyers shouldn’t sign that B.R.A., and if the Realtor doesn’t get paid, then so be it!”
Okay, I hear the argument, but it lacks logic. The reality is, Realtors are going to be paid, one way or another. And shouldn’t they be?
Stop me if you think that all Realtors should work for free, and honestly – speak up, and provide your argument. But be honest, just for a moment, as you read this from your desk at KPMG, or from your cubicle at some law firm, or on your iPad as you take a smoke break at Starbucks, and tell me that if your boss said, “I’d like for you to come in for the next week, and I’m not going to pay you,” you would reply, “Not a problem.”
Or do you think Realtors should be paid less? Maybe. Well, maybe Tom Brady shouldn’t be paid $20 Million to throw a football. What can I say? The market determines compensation, and as you’ll see in Hard Truth #7, there is a “most common” compensation, and it’s not zero.
So let’s expand this conversation and get to another point that readers might bring up: what if Realtors refused to show properties that were offering ONE CENT commission?
Folks, I’m not going to lie to you and pretend that some Realtors don’t just ignore these listings. Yes, it’s against the RECO Code of Ethics. But, yes, it happens, and it should come as no surprise.
I’ve shown these properties, and I’ve sold these properties, but the reality is, I’m often weary of dealing with these sellers. If 99% of sellers are using the same platform to sell their home, what does it say about that 1%? Are they smarter, because they’re saving money in commission?
In my experience, these people have an axe to grind with everybody involved, they’re unpleasant, and the property is always over-priced. They want to save 5%, AND get 110% of fair market value. They’re confrontational right from the get-go.
You catch more flies with honey, and to offer 2.5% in commission rather than ONE CENT is a sure-fire way to attract the 36,000 Realtors working in the GTA. How is this different than any other industry where, a) people get paid to work, b) incentive helps?
Hard Truth #6: MLS Is The Best Selling Tool There Is
There are a host of discount brokerages whose listings do not appear on MLS. Their sign on the lawn, and listings on their website, are their primary mediums to communicate with buyers looking to transact in real estate.
I don’t know how these brokerages expect their listings to sell, or how they explain their business model to clients.
Consider that 90% of all residential real estate transactions in Canada are via the MLS system. That’s 90%. Not 99.9%, but 90%, or one out of ten, all across Canada.
Sure, the door is open for people to transact outside of MLS, but these are special situations. “Reginald” believes that you can list your house on Kijiji and get a good lawyer, but if this was truly the case, wouldn’t everybody be doing it?
Is it naive for me to suggest that if 90% of sales happen via the MLS system, then this is the best system? I don’t think so.
Don’t forget that buyers work with buyer-agents!
So how can a seller expect to sell a property, that’s not listed on MLS, with just a sign on the lawn?
Hard Truth #7: The “Most Common” Real Estate Commission Is 5%
No Realtor is supposed to talk about a “standard” commission, because this would be deemed “anti-competitive,” but having just seen Lawrence Dale himself refer to a “standard” referral fee of 35% (when in fact it’s only 25%) in reference to how much Zoocasa charges Realtors, I don’t think there’s anything wrong with having this conversation.
More important than the 5% seller commission, however, is the 2.5% that buyer-agents are paid.
So if a Realtor is taking on a listing for 4%, that usually means that 2.5% is paid to the cooperating buyer agent, and the listing agent takes 1.5%.
I’m sure a hundred people reading this right now could post, “My agent worked for 4.5%,” or 4%, or less.
But as I alluded to in Hard Truth #5, the most common commission for buyer agents is 2.5%, and a quick scan of MLS (random sample of 100 C01 condos) shows:
3.0% – 6.0% – 6
2.5% – 89
2.25% – 3
$0.01 – 2
(NOTE: 3-6% is for new developments where commissions are higher)
More often than not, you get what you pay for.
A top agent “usually” (just to appease the Competiton Burueau) charges 5%.
Having said that, a bottom agent could charge 3.5%, or he or she could also charge…..5%!
It’s up to YOU, the seller, to decide if that agent is worth 3.5% or 5%. Interview ten agents, ask them all to work for 3.5%, or nothing – do what you want!
So while I would agree that as a seller, you can expect a bottom agent to “cut” from 5% to 3.5%, I don’t agree that you can expect a top agent to do the same. You just can’t buy a Lexus for the price of a Honda.
I truly believe that many agents have a “brand name,” and so too do their brokerages. This is worth its weight in gold in real estate, and these agents get sellers get more money for their properties, just as Nike gets more money for its shoes.
There’s a reason I work for Bosley Real Estate. It’s a top brokerage, that has been around for 85 years, and whose owners, managers, and Realtors are well respected. I tell my sellers, “With a Bosley sign on your lawn, nobody will lowball you, and you’ll be treated with respect. Expectations are high. ” And I believe this because the opposite is true for XYZ Real Estate, where most top Realtors will have no problem lowballing the hell out of one of XYZ’s listings, and where top Realtors will bully, dummy, and take advantage of their agents.
Conclusion?
Having just written the preceding, the only request I make is that people “don’t shoot the messenger.” I’ve made my name, and my living, on being the most honest and opinionated Realtor in Toronto, and this blog post is intended to provide some insight into commissions, discount brokerages, and MLS. The only thing I can’t talk about is the Competition Bureau, since there are ongoing legal proceedings.
I don’t mind hearing other people’s thoughts on the matters.
One of my loyal blog readers and commenters sold his Mimico condo two summers ago without the use of an agent, or any discount brokerage whatsoever! He saved $18,000 in commissions, and probably got fair market value for the property, and I told him “Good for you,” when I shook his hand.
If you can sell your house or condo by yourself, without hiring a Realtor, then do it. I encourage you.
In the meantime, I’d love to see a discussion about any and all of these Hard Truths, and as for my readers who are Realtors – you can remain anonymous if you choose.
After all, I’m the only person on here who is putting a name to this…
Jake
at 8:56 am
You know, the more I think about it the more I agree with your point about MLS owning MLS. I never thought about it the other way that you suggest – MLB.com for example. Good point and thanks for bringing it up.
I also think its problematic when people say that Realtors get overpaid. Maybe some do, but isn’t that the case in all facets of life? Don’t we all have those friends of worse, colleagues, that have somehow slipped thru the cracks and make too much money for their lack of competence?
Good post.
Geoff
at 9:15 am
When we sold we interviewed 3 agents and ended up going with the one who had the highest rate, but also made us the most comfortable. It is competitive in terms of rate offered, but you do have to ask. In the end it wasn’t worth trying to save $500 when we felt the agent we went with brought more to the table. We ended up selling for very close to asking and it was a pain free process.
When we bought our house a year later we used her again and there is a house across the street, still listed today, trying to sell it on their own. He has used one of the $200 agents to get his house onto MLS. He has changed his price 5 times since October, 3 down and then 2 back up again. He doesn’t want to pay any fees and in my opinion his house is only slightly overpriced compared to the 3 others that have sold recently – including our purchase. I think that with little things like proper staging and a proper selling agent being able to converse with any potentially interested buying agents it would already be sold.
I personally think 5% is probably a little high in a relatively fast moving market but the same goes for good contractors, designers, cars, etc, you get what you pay for and if they weren’t busy they would offer a lower rate.
Geoff
at 9:18 am
I also agree with Realtors owning MLS. I do like tosolds however, it makes me a more informed buyer and I still used a realtor on both ends without even thinking about it. I think that information should be more readily available
Joe Q.
at 9:21 am
I think the main issue surrounding MLS was that it had elements of a cartel operation: cooperation among entities that were ostensibly competitors to control access to what is essentially a marketing or advertising channel.
johnny chase
at 9:47 am
Dave – since you’re in the mood for a no holds barred opionion today, I have a qucik question… just to get your opinion.
If an agent listed a great house detached house for sale in Riverdale or Leaside and the selling fee was 1% – do you think there would be agents who would not show it to prospective clients? It’s never happened of course, so its a total rhetorical question but I’d like you honest opinion on the matter.
David Fleming
at 1:38 pm
@ Johnny Chase
You don’t even need to ask; you already know the answer!
IF a great house, detached, in Riverdale or Leaside was listed with a 1% commission, yes – there are Realtors out there that would not show this to prospective clients. This clearly contravenes the RECO Code of Ethics.
I’m just being honest here, and I’m not painting all Realtors with the same brush. There ARE Realtors who wouldn’t show the property, but I would hope that most would. I know I would.
The question is: would that house be priced at fair market value? As I wrote in the blog, these sellers are usually trying to burn the candle at both ends. If the house was a great deal, sure I’d sell it! Why not? Save my clients money, make them happy, and give them something to brag aboug to their friends! How many people can get a “deal” in this market? But more often than not, that seller would list his or her $999,000 house at $1,149,000, offer 1% commission, and just see what happens.
As you said – I haven’t seen a Leaside home, EVER, with a 1% commission. The asset is far too valuable to mess around with, and the risk of turning off buyers and decreasing perceived value of the asset is far too high to save 1.5%. As for Riverdale, you might get the odd seller who “tests the market” with a discount broker, but the average Riverdale price is probably approaching $900K now, and these houses are getting 5-6 offers if they’re listed properly, and often selling over fair market value. So why bite the hand that feeds?
bubba
at 5:10 pm
I am certain some buying agents only show the properties that offer them high commissions. One agent I tried to work with kept sending me listings that did not suit my needs, and yet never showed me the listings that fit my needs almost exactly.
On another note, I had to do a triple-take on the cartoon image above, is that an angel with an erection? Hard truths indeed!
ScottyP
at 3:15 pm
He may not be an angel (they’re arms on hips, not angel’s wings), but he definitely has an erection.
Good eye!
Devore
at 11:29 pm
Does the BRA not outline and govern agent compensation? In which case the amount of commission offered to “cooperating” agents is totally irrelevant; the agent just has to tell his buyer that he will have to write a cheque out of pocket, instead of the seller doing so from house sale proceeds.
jeff316
at 10:01 am
A better comparison for MLS is iTunes, which dominates the music download market, sets all kinds of arbitrary rules on who gets to post music for sale and how they do it, is kind of a terrible program (software-wise) and charges a hefty premium (30 percent?) to boot.
Instantaneous and often free/cheap access to information and services has fostered a sense of entitlement and a lack of understanding of what is involved in the provision of a service.
This is particularly true for the real estate market and the disconnect is widest for for young real estate buyers. The discussions that often arise from the posts on the blog – which are almost always excellent, it’s almost a disservice to call this a “blog” – skew almost completely toward the needs of buyers, with minimal view to the future, of broader implications of the changes they want, or their impact on others involved in the process.
That’s not to say that there aren’t changes that could improve MLS and home-buing – there are, and buyers, the internet, savvy agents, discount brokerages, etc. are playing a role in slowly evolving the market for real estate services. But the sense of entitlement fosters a bias and subsequent demands that aren’t reflective of the realities involved in selling/buying a home.
Joe Q.
at 11:29 am
The iTunes analogy is interesting, but would be more apt if iTunes were operated by a consortium of record labels (just as MLS is operated more or less by a consortium of RE brokerage firms).
jeff316
at 3:16 pm
If you’re getting to the cartel aspect, yes, but that’s not David’s point in #2 above. If you’re talking about use of a product/service platform developed privately then the analogy still works.
David Fleming
at 5:10 pm
@ jeff316
Cartel, you say?
Hmmmm………I should talk to my peeps down in Columbia…
FrankyB
at 11:10 am
I don’t have an issue with CREA having a ‘monopoly’ over MLS. However, David, how can you justify that CREA controls the access to information related to the property for sale (past sales prices, past listing prices, lot size, etc etc.), and also effectively prevents competitors from creating aggregator sites for listings, which is why zillow.com and others have been unable to create a presence in Canada, despite strong efforts.
Using your analogy, it wouldn’t be like Audi having the monopoly over selling Audis (only new Audis by the way – totally different), it would be like Audi getting the government to prevent having its cars sold in used car lots.
Irena
at 11:25 am
Great post David. You get what you pay for. As a person who is courrently looking at listings to purchase on mls, I see tons of properties without photos or descriptions. Guess what? I just pass them by. I am busy and have no time contacting the listing agent to get the details. I am not doing the work, the agent should. Mls should have stayed restricted so that I dont waste my time clicking on the listings that have no information given.
Joe Q.
at 11:25 am
Getting to the main point of this post: I know David is a free-market guy, and I think basic economic principles apply to Realtor services and commissions just as well as they apply to actual home or condo sales.
Prices for a service are ultimately set by the balance of supply and demand, and consumers will choose a service provider based on perceived value. To me, the proliferation of discount operations is a symptom of an oversupply of Realtors in the local market, and the perception that many Realtors add very little real value to the home-selling or -buying process.
I know I’ve beat this drum before, so I understand if other readers start to tune out, but the fact remains that in Ontario, the barrier to entry into the RE industry is very low. As a consequence, there are an enormous number of Realtors (in name, at least) — one for every ~60 families in the GTA — all of them able to provide the basic services (filling out forms, getting the listing onto MLS, handling the offer process correctly).
In addition, in a hot market, where even marginal properties sell quickly and for high prices, the perceived value-add of a Realtor may be minimal. When the extra services — “marketing”, staging, etc. — seem to add little value beyond what an already-hot market provides, people will be unwilling to pay extra for them, especially when the services seem trivial (setting up a website is very easy).
All of these issues are also somewhat wrapped up in the reputation of the RE industry as a whole (ethical issues and conflicts of interest).
So overall I think there will always be a place for discount brokerages and agents, at least as long as the supply of Realtors remains high and the market stays hot.
Al
at 2:29 pm
Smoking at Starbucks!!! LOL.
Thing that most people forget is the amount of fees, license, insurance, marketing and taxes realtors pay. 5% is never 5%.
Great blog David.
Suburban
at 4:33 pm
I agree that realtors make what the market will bear, and that the market majority is 5%. However, just to be devil’s advocate….
Toronto and GTA home prices have doubled in the past 10 years, and commissions have stayed the same. That means that per transaction, realtors have received a 100% pay raise in a decade where most people are getting 0 or taking pay cuts. The work is the same as it was 10 years ago. I think the 100% raise just burns some people up, that’s all.
Of course, if there are more realtors now than there were a decade ago, that money is being spread among more agents…
Geoff
at 12:29 pm
If it were that easy we’d all be realtors is all I’d say to that!
Suburban
at 4:18 pm
I didn’t say it was easy, I said it pays 100% better than it used to.
Joe Q.
at 10:19 am
I would be interested to see how the number of TREB registered Realtors has changed over the years.
TREB has something like 35k Realtors for a region with a population of 5.5M (about 6 per 1k population)
In Montreal they have 10k Realtors for 3.8M population (about 3 per 1k population)
In Ottawa they have 2.8k Realtors for 1.45M population (about 2 per 1k population)
In Winnipeg they have 1.7k Realtors for 730k population (about 2 per 1k population)
etc….
jeff316
at 3:53 pm
Is it the same job today vs. ten years ago, though? Ten years ago, how common was staging, fancy photography, personalized house websites, web/kijiji/craigslist advertizing, virtual tours, bidding wars, etc.?
Suburban
at 4:22 pm
I’m not a realtor so I don’t know. The biggest change has probably been the public getting access to the MLS. Has that made a realtor’s job harder or easier, I wonder?
jeff316
at 9:32 pm
I’d guess harder, particularly for buying agents, because the realtor has less control over the flow of info and now has to put up with “We just wanna see this house on the outskirts of Baby Point…sure it’s out of our price range but looks old online”:)
Frosty Johansen
at 5:14 pm
Sir,
Two points:
(a) What is up with that drawing? Is that a baby alien (from the first “Alien” movie) about to burst from that unsuspecting woman’s abdomen? Or is she really glad to see me?
(b) The second was something about competition law and the MLS/MLB analogy being inapt. Aw nuts: that drawing is a distraction!
ScottyP
at 3:21 pm
David did say this would be a “no holds barred” blog post!
R
at 5:34 pm
Aside from the MLS monopoly (more akin to the collusion of brewer’s running The Beer Store, IMHO), I’d ask why a realtor gets paid on commission at all?
I do value the services of a realtor, in advice, marketing, etc. but do you/they really do that much more work to buy/sell a $600,00 condo than a $500,000 condo that is worth the extra $5K to the seller? Sure I can see more would be involved in selling a $2M mansion than a $250K condo box, but it would make more sense to have levels of service or tiers than a straight “standard” commission. There is just no proportionality to cost/service.
R
Devore
at 11:21 pm
And this is my biggest, and really only, point with RE commissions. In theory, a percentage of selling price incentivizes obtaining a higher selling price (but what does it incentivize for the buyer’s agent??? hmm) but in reality you’re far better off turning over more transactions than pouring tons of effort into obtaining a 1% higher sell price that could have gone into a second listing.
But that’s kind of another can of worms… and David’s already told us he’ll work harder for less money rather than closing a deal and moving on to the next one.
Mr.Audi
at 10:05 pm
If instead of a 2-3-5% commission would be a flat fee paid upfront of …let’s say 1% you think it would be better for the seller?
Usually the sell agreement has a limited time frame 2-3 months and if the realtor have not sold the property the seller may fire him without paying a dime,if instead there is the upfront fee….the money is lost.
I think commissions are hard earned money and I think is the best way to do business in RE.
GeorgyBoy
at 8:13 pm
I have 2 comments Dave:
1. Perhaps while true, I have a fundamental problem with “real estate is the biggest asset that you will ever own.” The mere fact of you mentioning and believing this makes me worry. I don’t think that real estate should be anyone’s biggest assets, but it goes to show the pathetic situation that most people have put themselves into these days.
2. I firmly believe that if selling and buying with the same agent, the total commission for him/her should be less than 5.00%.
Devore
at 11:15 pm
“The biggest SINGLE asset”, yes. You would be far more diversified in other assets (unless you are a multibilionnaire and your house represents pocket change), but you can’t subdivide house ownership.
James
at 9:21 am
Or you can not own a home and the cash to work and be diversified. Owning a home is not the ultimate path to retirement or and end game.
George
at 12:26 am
I was considering moving to a bigger place this past year, but commissions and transfer taxes are the reason I have not done so. A Torontonian could easily end up paying 3-6 months salary in moving fees.
Julia
at 7:38 am
When we sold our property last year, we interviewed 3 top agents in the neighbourhood. I was honestly surprised when we asked about commission, while they all said 2.5% for the buyer’s agent, but off the bat they quoted 1.0%-1.5% for themselves – no negotiating involved. Our house was listed in the high $2M range – I’m wondering if agents generally reduce commissions based on house price? I do think that the work involved in selling a $1M house is basically the same as that involved in selling a $3M house, so it’s odd that one sale would pay 3 times what the other does.
Shelley
at 2:08 pm
Julia, could you suggest the 3 agents you met with. We are meeting with agents and the lowest commission rate we have found for good agents is 4 1/2 % Thanks, Shelley. My email is all lower case.
Stuart
at 2:28 pm
Excellent comment. The reality is that the listing agent gets their share of the commission pot just for listing the property. To me, the real effort is on the buyer side. It makes sense, therefore, to reward the agent who finds the buyer and presents the offer. Reality also suggests, however, that the commission structure for a buyer’s agent must be attractive enough for a buyer’s agent to take an interest in showing the property to their buying client. If showing two equally attractive homes in a similar price range, provides the buyer’s agent with $20,000 for one but $30,000 for the other, I am well aware as to where the agent will devote his/her time.
I have entertained quotes from 3 agents who have stated that my home is updated, shows well and I would not need staging. That to me means little effort to prepare for putting my home on the market. So to me, a 1% commission (about $15,000) for the listing effort should suffice. The buyer’s agent in my opinion should then be worth 2-2.5% ($30-37,500).
luddite
at 5:22 pm
hard to believe the internet hasnt killed off R.E. agents yet, this is the dark ages.
Al
at 1:41 pm
Why would you say that? How would the internet replace an entire industry?
Joe Q.
at 2:43 pm
The Internet doesn’t necessarily kill off whole industries, but it certainly turns them on their heads. It hasn’t happened yet with RE but probably will at some point.
Chris McKee
at 3:33 pm
You miss a major part of what a good realtor does. When a contract becomes complicated, not only with the people involved but the actual contract itself (dates, terms etc.), a good realtor can navigate buyers and sellers through all of this. In my opinion, well over half to three-quarters of the contracts I’ve dealt with over the years have flare-ups that require good legal knowledge and psychology 101 skills. If you feel that simply Googling the answers will replace this, my advice is to find a good lawyer sooner rather than later because your going to need them. Just my opinion. Chris
TorontoTheGood
at 2:42 pm
Well, the rationale is that the Internet has changed most business models and streamlined a lot of costs from used cars, retail, brokerages, auctions, construction materials, insurance, banking and just about anything where money changes hands.
It is possible that you could argue that houses are not like commodities, but the reality also is that for each good experienced listing agent that worked hard and priced a house right, staging, trying to read the buyers, there’s probably 2 other agents that spends 10 minutes at geowarehouse.ca and sells a unit within a week with perhaps a total of 10 hours of work.
When you view it that way, some houses really should have been treated as commodities and less variables made on sales.
A house needs a good agent only in the sense that the back and forth of bargaining for the price has highly variable outcomes.
But paying for a used cars used to have highly variable outcomes — and now look at trader.ca.
I suspect that it is possible that high end houses would be more inclined to need a strong listing agent, just as banks always have advisors getting large fees from high netvworth individuals. But if the variability of house prices no longer occur — for example in a 1000 unit condo building with a long record of historical sale prices, the effort of pricing and selling those units are not …really… that high is it?
Chuck
at 1:20 am
I think the part that a lot of people miss in this conversation is the fact that Realtors are paid on a CONTINGENCY basis, not on a RETAINER.
In other words, you don’t pay the money up front… you pay it when you get the result satisfactory to you.
In between signing on the dotted line and the finish line, there are countless things that can go wrong. And every agent with even a few years experience will tell you that not every listing results in a sale.
In some capacity, some of the fees should be considered a “premium” for the risk involved, without any guarantee of return. And whether the agent spends 10 minutes or 10 months, they get paid for the result the client wants.
I wonder if it was an “upfront” charge, or “hourly”… how the business model would change…
AsianSensation
at 12:54 pm
David, I enjoyed your Jerry Maguire moment.
Keep up the truthing!
steve smith
at 8:43 pm
The fact is that anyone can be a real estate agent. I know many people that have become one after failing at other means of employment. No special education or skills are involved. Let’s consider a $350,000 1 bedroom condo in downtown Toronto. A good condo in a good location would sell within a few weeks. At 5% the commission would be $17,500. For a job that a monkey could do that is way too much. With the rise in price for real estate in Toronto, the percentage should be dropping.
Compare this to an architect with 5 years of university (after stiff competition to even get into a program) and 3 years of apprenticeship just to be able to call him or herself an architect. When they design a residence what do you think the acceptable rate is. It’s about 5%. This is to completely design from scratch, produce working and permit drawings, to tender and oversee construction. Not to mention the liability insurance.
Now do you think that 5% for both is fair?
Joey
at 5:00 am
Very true and excellent point.
Chris Mckee
at 3:22 pm
If it’s so simple and easy, why aren’t you a realtor?
Brenda
at 4:58 pm
Interesting that realtors would be considered monkeys. I have a Bachelor of Arts degree in English and Sociology but i should have completed psychology. This is a tough business and to stay afloat and to prosper you really have to put your self out there 24/7 which I have done. I had no real sphere of influence and I dug in my heels and I worked endless hours. I was a single mom who had to make many sacrifices to get my earnings into the 6 digits and I am far west of Toronto in a market where the average price of a home was $250,000 before the boom raised it towards $350,000. Perhaps those agents who have been grandfathered with no prior education required to become an agent back in the day are less book educated but nowadays an agent has to pass 3 exams with 3 more once completing the first phase while juggling a new career and education and if you are lucky a growing business. Staying current and marketing yourself costs thousands a year not too mention the fees the brokerage takes. Yes Toronto agents were making some good money and if they were truly committed they were doing amazing. Should we penalize agents for doing well in this market which is now correcting itself? Do I ask my neighbour the architect to take a reduction in pay to work for me? Is he/she entitled to more income? Goes back to his employer for the rate they charge for the job unless self employed and again what rate is set is what the client is willing to pay based on several factors including experience. Its all relative. We are 100% commission based. I don’t ask you to take a pay cut to do business for me why would I take a pay cut. However, with many agents having the viewpoint that 3% is better than nothing you can lower your service level to meet the price reduction. At 5% you get X amount of service at 4% X amount and at 3% X amount. I have just lost out on 5 potential listings due to a lower commission. Seems this is a trend but likely due in part to an overpriced market. With things softening we will see listings have more air time on the market and with rates increasing and buyers having more difficulty securing lending we may soon be back to the norm of 5%. Just because a property sits on a the market longer does not always denote more effort. A short whirlwind listing with multiple offers of 30 or more is a hair raising experience and very experienced educated and sharp agent is required for that job. Not just any realtor will do and if you hire a 3% agent you may get what you pay for. Just my 2 cents worth.
Andy
at 8:37 pm
Why does you illustration have a erection?
anne
at 3:21 pm
If you are buying and selling with the same agent- is it then standard to negotiate a lesser commission on the selling of your house? This is what an agent from the suburbs advised me to negotiate with our agent-but not sure if it stands true still in downtown?
Maggie K.
at 12:10 am
Great post.
BeWiseBuyer
at 10:26 pm
I just wonder how you would justify the specific example of us walking into an open house with a million dollar price tag, and buying from the listing agent who can choose to discount the 5% as the double agent or walk away with $50,000. Even at 2.5% each or total, that’s $25,000 that would cover a lot of staging fees and overhead. It just adds so much to the price – some buyers and sellers just don’t need the fluff. It seems something has to change.
Mont
at 2:53 pm
Simple math- Internet connectivity plus lean times equals savvy less tolerant consumers. Do believe we’ll see pencils sharpen with respect to RE commissions. They have to, RE professionals wI’ll be dinosaurs in no time if they don’t respond to growing resentment.
Part of the high commission is going toward this fruitless effort to control the narrative. Namely ad campaigns , blogs and so on, dissing the discount realty service or even the owner seller. Both of which are perfectly viable option for knowledgable sellers.
Why should a retired lawyer for example with time and skill set , be blocked from , marketing and negotiating the sale of his/her own property.
Mindy
at 2:14 pm
The reality is this: times change, and when they do, some industries become obsolete, aside from the few in that industry who figure out creative ways to change also and stay in the game – this is what discount brokerages have done….and they will be the ones to win and succeed as the rest of the traditional model real estate agents scrounge for business, and eventually become non-existent. Change with the times or get left behind. Simple! Some money is better than none. And agents who are digging in their heels and refusing to adapt to the changing industry are just setting themselves up to disappear. Netflix and pay-per-view made blockbuster video obsolete, simple fact of times changing as a result of technology. Uber and the taxi industry. etc. Those agents opposed to change and unwilling to bend to it are already outdating themselves. The public has awakened to the excessiveness of real estate fees and the gauging that has taken place over the yrs, took us a while to clue in, but we did, and nothing will be the same again.
Litsa
at 12:48 pm
Thanks for this information.
Here’s my situation and I would like your professional opinion:
We are building a custom spec home in Santa Fe, NM. The listing agent has requested an extra 1 percent commission “due to the extensive marketing and time it will take to find a buyer”.
Now, almost a year into the project, she has requested that we also pay her $47,000 marketing fee in monthly installments! Let me mention the home will be listed at 4.74 million.
Your thoughts?
Eric Sim
at 9:25 am
I love your honesty and frankness.
If you can deliver great results, why are you scared to ask the top fee?
I see too many business models rely on discounted practices rather than on confidence of their knowledge and service to ask for top price or commission. Redpin seems to come to mind, hope Redfin is not one of their offshoot.