Real estate commissions could fall as new competition heats up
Home sales startups threaten to break the industry's business model
For years, real estate agents have enjoyed a strong market where high housing prices have translated into fat commissions.
But the landscape is getting crowded. More and more agents are vying for your business. And the traditional industry may be in for a shake-up. A cooling housing market, legal battles and a powerful federal agency are all circling.
It could all lead to cheaper deals when duelling agents and services drop their prices to win your business.
How low will agents go?
Penny Thoms makes it clear she’s not a discount agent. The RE/MAX realtor offers the full package — from open houses to marketing. But she recently signed up with a new Toronto-based service, feeDuck, where, via a virtual auction, she will try to underbid other agents to sell a client’s home for the lowest commission.
Warren Mascarenhas, the company’s vice-president of finance, describes feeDuck as a “negotiation platform” in cyberspace where clients, free of charge, can wheel and deal with agents without leaving the house. “An eBay meets Priceline kind of thing,” he says. The site has just launched but already it’s attracted 100 realtors.
Typically in Toronto, agents charge about five per cent commission. So why would Thoms sign up for a service where she might make less?
“The real estate market is getting more and more competitive so [feeDuck] is another avenue to pick up leads,” she says.
And if the overall market slows, the fight over fees could increase even more.
Agents, agents everywhere
The Canadian Real Estate Association (CREA) includes more than 100,000 real estate brokers, agents and salespeople. The Toronto Real Estate Board (TREB) boasts the largest local association with more than 40,000 members, a jump of about 29 per cent since 2011. During that time, home sales have only grown by four per cent.
Thoms says rising housing prices have convinced some that real estate is a great way to cash in. After all, according to a report released by Sotheby's International Realty last week, home sales worth over $1 million are booming in Canada's big cities. Five per cent commission on a million-dollar home would net $50,000.
“It’s almost like everybody knows somebody who’s a realtor,” says Thoms. “I think there’s a misnomer that people think it’s easy, an easy way to make a lot of money.”
When asked how low she would go on commission, Thoms says, “I would have to take it on a case by case basis.”
Battle in the courts
Toronto real estate lawyer Lawrence Dale applauds feeDuck's mission, but he says services like it are “really just a subtle evolution.”
He desires a shake-up of the entire system.
Dale is currently suing both CREA and TREB for implementing rules that he claims forced his own discount real estate brokerage out of business. TREB would not comment because of the pending litigation.
The lawyer says more alternative discount companies are needed to really spark competition. But he believes the traditional real estate industry is determined to prevent new entrants and models from thriving.
Breaking with tradition
Erin Hatcher and her husband, David, sold their home in Grimsby, Ont., this past summer using the flat-fee brokerage ComFree. They first interviewed three agents who quoted commissions of between 4.5 and 6.0 per cent to sell their home. But instead of going with the lowest bidder, the couple paid ComFree $2,000 for help marketing the house and negotiating the selling price.
Hatcher estimates they saved $22,000 by not hiring an agent. The couple had to show the home and field calls on their own, but she feels it was worth it. What she didn’t think was worth it was the price of commission: “When you work hard for your own salary, to think that they can make a portion of that in just a few days just seemed a little bit excessive to me.”
But Hatcher notes, there are not a lot of alternatives in the real estate market: “It’s one extreme or the other. You either go with an agent or you list it yourself.”
Competition watchdog's case
If Canada's Competition Bureau wins its case, more options might open up for consumers.
The bureau is in a running years-long battle with TREB. This May, for the second time around, it will take its case to its overseer, the Competition Tribunal. The bureau wants to break TREB’s control over certain types of data that are crucial to consumers. That includes information about previous home listings and sale prices, comparable properties and length of time on the market, information that, for now, can only be obtained through an agent.
For its part, TREB says it will “continue to work to protect the personal information entrusted to it and its members.”
Dale, the real estate lawyer, says that if the bureau wins its case, more non-traditional services can attract clients: “If I have the data, I can build a website consumers are interested in. I can then generate the traffic.”
Real estate agent Thoms senses the market is set for change. She says if more sales data becomes readily available, “more people will think they can [sell a home] themselves.”
No matter what the competition brings, she believes Canadians will continue to see value in the cost of a full-service agent: “It’s not just a matter of throwing it up onto a site and hoping that people come and buy it. You need some advice. You need some experience,” she says.