So what does this mean for consumers? The idea is that new rules will enable Realtors the opportunity to offer a broader range of service options and fee structures enabling
consumers to save money when selling their houses. Depending on who you are listening to and choose to believe, some would suggest there already is a menu of options and fee structures available to consumers - think for sale by owner. For sale by owner services and low fee brokerages versus full service brokerages. Others would have us believe that all Realtors are in cahoots to overcharge consumers for doing next to nothing, selling their homes as fast as we can to then collect a big cheque... Then we can all go out and drive Mercedes and BMW's, eat at expensive restaurants and generally live the high life with little effort - no muss - no fuss... Oh if only it were that easy!
I'll leave it to others to decide whether there is in fact enough choice and competition in the market place. What I do know is that the menu of options and range of fees will only be provided if they are economically viable. If someone launches a business model and their business expenses are not covered by the income, and they can't draw a salary to pay their personal bills, eventually they will go broke and that model will disappear. More on that in a minute, first let's look at the current dynamics...Currently in the GTA I compete directly with almost 30,000 registered sales representatives and brokers. (29,913 Toronto Real Estate Board members in July 2010) We compete directly against one another to represent buyers and sellers. In 2009 there were a total of 87,308 transactions which is 174,616 buyers and sellers represented by a sales representative or broker. Divide that by the number of Toronto Real Estate Board (TREB) members and you discover that if each of us did exactly the same number of transactions we would serve 5.83 clients per year.
The revenue this generates based on the average size of transaction and average fees would not pay 50% of my business expenses for this past year. Realistically if I can't pay my basic expenses (car - not a BMW or Mercedes by the way), cell phone, Internet, marketing materials for myself and the homes I am selling, professional fees (RECO, TREB, OREA, CREA dues), insurance, technology, broker fees etc., etc.) I certainly cannot draw a salary or pay my family's bills - in other words I would have to seek another way to support my family and would no longer work as a Real Estate Broker.
Now consider that last year I served 44 buyers and sellers - a lot more than my allotted share of 5.8 clients - and that other top sales representatives and brokers like myself serve this many clients and some a lot more. This of course means there are a lot of Realtors out there that are not representing anyone and or so few that they are starving. So why are some successful and others not? Presumably it's like any business - we offer service in exchange for fees and people see the value in these services and are happy with the work we do. They tell others who then retain our services as well.
Now not all of us offer the same services or charge the same prices. Depending on what a consumer is looking for they will seek the services of different service providers. Some choose to try and sell privately, others work to sell privately but pay a fee to a company to offer basic services. Or they will choose a low service, low fee real estate brokerage, while others will pay higher fees for a full service real estate brokerage.
At the end of the day you get what you pay for - low cost means a lot more work for the seller and they have to rely on their own knowledge and skill set to get the job done. Paying a higher price means less work for the consumer and more professional help and guidance. The key of course is you should only agree to pay the higher price if in fact you choose a competent, hard working and honest professional. Consumers must take responsibility for choosing their professional and ensuring they are in fact competent and experienced enough to do the job.
So what changes if there is a settlement that is accepted by both parties? The big change appears to be that we will be able to provide the sellers name and phone number in the MLS / Realtor.ca listing for properties thus cutting the listing agent out of the loop once the property is posted. So potentially sellers can pay a minimal fee for a sales representative or real estate broker to post their property on the MLS and then the seller does absolutely everything else.
This change I suppose is founded on the suggestion that we have an unfair competitive advantage due to our access to the Multiple Listing Service or Realtor.ca. If this were the case why do so many Sales Representatives not sell houses or perhaps no more than a small handful a year. They have access but not a thriving business. Alternatively why do some listed homes never sell? Lets assume just anyone can load their house onto MLS / Realtor.ca. The reality is if you don't prepare the home correctly, market it properly, disclose latent defects as required by law, and negotiate effectively - you may well sell your home, but realistically it will be for a lot less than if all of the above were done well. Further the seller runs the risk of being sued for not properly disclosing latent defects if there were some and they weren't properly disclosed. Alternatively you may not sell at all as your listing doesn't offer the value you are seeking. Many homes listed on MLS don't sell - and this is with a Sales Representative or Real Estate Broker. A true real estate professional brings a lot more to the table than throwing a house up on MLS and Realtor.ca.
Should I as a Real Estate Broker be alarmed by such a change? Will this revolutionize our industry? Are my professional fees going to plummet as a result?
In the short term I have no doubt additional options and fee structures will emerge, some of these may even survive if the value proposition is sufficient and a large enough market exists to sustain them.
The reality is that Buying and Selling a home is a very complicated transaction, one where many things can and do go wrong, there are many opportunities to lose a lot of money and/or to be sued or feel the need to sue to seek damages. When I sold my own home I had a colleague negotiate the deal for me. Do I have so little faith in my own abilities? Of course not, rather it was my home and I recognized being too close to the sale would not represent my interests well. As an expert I recognize what is at stake and knew I would be better off with someone I trusted acting as the front person in negotiations. I staged the home, prepared and implemented the marketing and sales program but stepped back on the final step to protect myself and my family's interests.
In my fifth year as a realtor having been involved in over 150 individual transactions I now consider myself a knowledgeable expert in my field. The vast majority of individuals will purchase or sell 1, 2 perhaps 3 homes in their lifetime - the idea that the average person has the knowledge or skill to represent themselves, is frankly a bit frightening. The reality is that the knowledge and skills I brought to the table on transaction #1 was a lot less than I bring to the table today. Further I continue to learn and to grow and I have new experiences and encounter unique situations. These deepen my understanding and experience. People representing themselves don't and can't have the benefit of this experience and the attendant knowledge.
By all means having the option is fine and some may well have the knowledge and capabilities to represent themselves. If they can save on fees and not get burned - well awesome! Most people I fear do not have the knowledge and capabilities. Do you have the marketing and sales background to prepare a house for sale to maximize value? Do you have the experience in negotiations or understand what a latent defect is and why you must disclose it to a prospective buyer? If you do know, do you understand how best to disclose it to minimize the harm and cost to you? Do you understand market value and know what a fair price is for the property you wish to buy? Or sell? Do you understand the risk of a termite infestation and the importance of a home inspection and the need to be cautious regarding knob and tube wiring, old asbestos wrapped pipes, or a wet basement? At the end of the day rather than worry about the cost of the fees (within reason) consider what value is delivered, how much more will your home sell for as a result of an experts guidance, advice and service. Further while buyers don't pay our fees, the seller does, buyers guided by a real estate expert will select a more suitable home to their means and needs and should pay a lower price resulting from expert negotiation and understanding of value.
So to answer my earlier questions no I am not concerned (for myself) about the change, though I fear some will get burned on what is the biggest purchase and /or sale of their lives. I believe there will be some new options offered, however it's unclear that the market will sustain these. If the market does sustain them then presumably it's because they effectively serve the needs of a specific market segment. I don't believe this will revolutionize our market as the services of real estate experts will still be needed and sought by those who understand our value proposition. And finally I don't believe the fees I charge will plummet as I understand the value of the services I deliver and believe there will always be consumers willing to pay for superior service and results.
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