When I think of some of the shenanigans that go on these days between agents and clients I can’t help wondering if our industry got it wrong. Did we made a fundamental mistake when everyone agreed that the seller should pay the listing and buying agent’s commission? If we could go back in time and re-write the rules, would we be subjected to stories we hear about today?
Think about some of the issues that we deal with on a daily basis. Agents are pitted against each other to offer comparable services for lower commissions despite the fact that they are the ones who lay out the most capital and accept the biggest risks. Buyers are looking to save on their home purchase so they contact the listing agent in hopes of gaining the inside edge. Multiple offers are rampant ( a condition of the market ). One may even argue that new business models (offering rebates or mere posting services) don’t solve the fundamental problem that exists…. The agency relationship.
One could argue that true agency, where buyers and sellers pay their respective agents for services rendered, doesn’t exist when only one person pays the bills. Did our industry get it wrong? It’s a question that comes up every time I hear about a buyer agent asking a listing agent to reduce their commission to make a deal happen or when a listing agent’s own offer miraculously wins in a multiple offer.
In a true agency relationship the seller would contract a listing agent to market a home including all the basket of goods and services that go with it, as well as ensure that the transaction went smoothly. The selling agent would have a unique understanding of the neighbourhood because he or she would be hired because of their local knowledge not because they were offering reduced commissions for doing two sides of a transaction. The seller and the agent would be free to negotiate a fee and the law would stipulate that the listing agent could not represent a buyer thus eliminating chances for error or corruption.
In a true agency relationship the buyer would contract a buyer agent to find a home, negotiate a sale price, and work with the listing agent to ensure a smooth transaction. The buyer’s agent would be duty bound to provide expert and professional service and work in the best interests of the buyer and be free to negotiate an appropriate compensation.
A few things would need to change. For instance, dual agency, also known as multiple representation would no longer exist. We would not have customers anymore, just well-informed clients. Controversy would no longer exist on how commissions are paid and what incentives are being offered. Flat fees might be more widely adopted and we might see the development of two types of real estate brokerages, those that list homes and those that act for buyers exclusively. Naturally there is the problem of compensating the buyer agent but perhaps bank legislation would have to allow a buyer’s commission to be rolled into the mortgage or sale price.
I’m not suggesting we need to throw out the current system. It’s not perfect but, for the most part, it works.
mark mclean is the Broker/Manager at the Bosley Real Estate Queen St W office and President-Elect for the Toronto Real Estate Board. The opinions expressed here do not reflect the opinions of TREB or Bosley RE.
Technology talk used to be the dominant topic of conversation at real estate conferences over the last few years but these days there has been a noticeable shift to discussions on brands and brand building. I think we are talking about brands more because our industry has become so fractured that it is tougher and more expensive for agents to succeed.
Consider this, in the early days of real estate sales, agents worked for a neighbourhood brokerage who fielded calls and handed out leads. Upon successful completion of a transaction, the brokerage would keep a substantial portion of the earned commission. In return, the brokerage office was responsible for advertising listings and managing day-to-day operations. When independent contractor status came out agents assumed more responsibility for the sales function thus opening the doors for new brokerage models. Now take a look at what is happening now.
In Toronto we are closing in on 40,000 agents who are all competing for a piece of the 90,000 sales that happen each year. The sharp increase in the number of agents in our market has caused significant shifts in the real estate industry. The first is a downward pressure on commissions, and the second is the rise in popularity of the “discount brokerage”, a model that relies on fees rather than commissions. Both of these shifts have benefited the consumer in some way but have also put pressure on the traditional real estate brokerage model.
Now agents are faced with a new dilemma. Their competitive advantage is no longer their ability to offer lower commissions. They need to create a lot more value for the consumer. That may come in the form of neighborhood videos, access to a research department, market and/or neighbourhood reports, rich demographic information, media coverage, websites with killer SEO, and, least we not forget… training. For the average new agent coming into the business with nothing more than a few hundred dollars in their pocket and a dream, it is next to impossible to shoulder the costs of these tools. For the savvy brokerage, it is clear that an opportunity exists to share their offerings and create a new competitive advantage with their agents …at a cost.
For further clarification and a hint of what is to come, it is worthwhile to look south for additional trends. Following a catastrophic real estate collapse, the US market is finally returning to health. But something happened along the way. The primary objective to staying in business moved from saving money to creating an experience for the client. Several companies that operated VOWs in the past are now embracing bricks and mortar models. Others are moving away from the fee based systems and returning to traditional brokerage business models. Take a look at these great videos from Go Realty in North Carolina or Red Oak Realty in California. They are creating an experience for the consumer who may have come to the realization that buying and selling real estate doesn’t work in a virtual environment.
This is not to say that a virtual office or fee-based brokerage can’t succeed. I am all in favour of consumer choice but from where I sit it is clear that the full-service real estate model is about to make a giant come back.
As the old expression goes…what comes around goes around. Years ago independent contractor status destroyed the big brand but just like the circle of life, the independent contractor status is bringing the concept of brand back.
The opinion expressed here are the opinions of Mark Mclean and don’t represent the opinions of Bosley Real Estate.
Every year, around this time, I surf through my blog statistics and try to get some idea of how I did over the course of the year. Did I pick up subscribers? what posts got the most views? which received the most comments? The goal of this exercise is to see what’s working and what isn’t. Pretty simple, really. So, without further ado here are the top ten posts of 2013.
Number 10. We have seen it a fair bit this year, and lets hope the tide is turning as more and more people get reported but it still never fails to surprise me when an agent uses other agent’s pictures to create fake ads on 3rd party sites like Craigslist or Kijiji. Surprisingly, the public hasn’t heard the old expression….if it is too good to be true, it probably is. We call it Gaming the System.
Number 9. I had a lot of fun with this one because it combines two of my favourite things; office meetings and infographics. I asked agents at my office how they went from a phone call at the office to a listing a home. I called it The Ultimate Pricing Guide.
Number 8. My friendly neighbourhood Coburg agent Dave Chomitz, who follows me everywhere (or is it I that follows him) gave me the idea for this post. He had an idea…and doesn’t it all just start with an idea, on how to build his own real estate market. Check out his success and then come up with your own Niche Marketing Ideas.
Number 7. Surprisingly 3 of my top 10 of 2013 were actually written and published in 2012. Talk about longevity. But when the content is still relevent, that can happen. In this case I wrote about a seller who wanted to sign back for more than the asking price. What should stand out in any agent’s mind is that if you list a home low in order to get multiple offers, you need to explain to sellers what could happen if the plan doesn’t work.
Number 6. Saw a few cases of this during the year. A house is sold and the appliances that were thought to be included were different when the buyer took possession. This made us conclude that listing agents need to CLEARLY educate sellers about inclusions and exclusions,but more importantly, buyer agents need to do their own due diligence in marking down the important stuff. I called this one, The Old Bait and Switch
Number 5. Another hit from 2012. I did a bunch of research on this one and then, while attending NAR in Orlando I learned a fundamental thing about open houses. After 20+ years in the business it never occurred to me that people who went into your open house weren’t there to look at the house. They were there to check you out. I guess it is true…Open houses aren’t for suckers.
Number 4. How many times have you heard Sellers say ‘boy, I should have taken that first offer’? Probably never because that would be like admitting defeat. Still it was fun to write about The First Offer is the Best Offer.
Number 3. This one is my proudest blog post because it’s a video (featuring ME!) and most viewed video on YouTube. The content is pretty good too and drove this post to become the most shared on 2013. Nuff said. Here’s your opportunity to watch How to Become a Real Estate Super Hero. Blammo
Number 2. The last man standing of 2011. The anatomy of a Canadian Realtor. Funny how two of the top ten posts are infographics.
And finally, drum roll please, the Number 1 blog post of 2013 remains my post on agent statistics that I did in 2012. Probably due for an update soon but I suspect the ratios will remain pretty consistent. It seems that agents want to know how they stack up to the other 38,000 agents in their market.
Well thanks everyone for a fun year. Look forward to another year of fun and discussion.