Discount Brokerages: Are They Worth It?

There's a new duck in town. It's called "Fee Duck". And strangely enough, it has something to do with real estate. I'm not sure where the name came from, but I suspect the word "duck" comes from the word "deduction", at least it sounds like it may if you say "deduction" out loud. 

This is how it works: Let's say you want to sell your house and would prefer to pay the lowest commission possible. You would go to Fee Duck, sign up, and sit back as real estate agents bid on who will obtain this listing. The listing does not go to the highest bidder. It's the opposite, a reverse bidding process where real estate salespersons are lowering their commission so that the seller could select the salesperson with the lowest bid, and therefore, save money on paying out commissions. 

Though Fee Duck may be new to Toronto, the idea of a discount brokerage is not new at all. Since I am a real estate salesperson myself, it may surprise some that I fully support discount brokerages. In many ways, discount brokerages make my job much easier at finding my buyer clients better deals. Why? Because discount brokerages often tend to attract salespersons who do less for their listing, market properties poorly, and who cannot compete with the pros. In turn, I find it easier to find better priced homes for my buyers. At least that's been my experience. In my day to day life as salesperson, the seller ends up losing more money in the long run by selling at a lower price and netting less of a profit on their sale, even with significantly reduced commission. 

When a real estate salesperson cuts his or her commission enough, then the focus turns more to obtaining the listing over marketing to obtain the best price. A seller's job should be to find the salesperson who markets the house the best. To be  honest, any one can sell your house or condo unit, but you need someone who will maximize his or her marketing and skills to get you the best price that would justify a higher commission.

Still, in the past year there is boom in companies trying to appeal to a lower commission while taking a piece of the commission for themselves. 

And I have a pretty good idea why this lower commission option has become so appealing. Some agents in the past have charged 5%, and did very little marketing and preparation on a property. It leaves the seller scratching their head wondering what the agent had done to earn a fat commission cheque.

Subsequently, sellers have become so focused on the commissions they pay out that they lose sight of what a real estate agents do, or at least should be doing. 

There are a lot of real estate agents in Toronto. More than half of them do two deals or less per year. They are hungry for a deal and lack experience. So, they will cut commissions. The thing is, these deep-cutting commission agents may lack the skills and the revenue to sell your home. You never know, you may find a discount brokerage that offers you a lower commission option and sells your home at a price with which you would be happy, or you may find a lousy agent who wants 5% and does not have the marketing plan to back it up. 

That's usually not the case though. A good marketing plan costs money. And more and more, the marketing is just not about putting a property on the MLS. You are competing with other homes that are for sale at the same time in your neighbourhood. So, you have to have the most appealing property in your area to attract the most buyers away from your competition. Because buyers are going to gravitate to the house that has the most appeal, and leave the one with the less-than-stellar photos and the agents who do not return phone calls, you want to have the most appealing property that was marketed and staged better than any other in the area. If there are 9 serious buyers in your neighbourhood and 3 houses for sale, it is very unlikely that  each house will receive a fair amount of 3 offers each. One house will take in most of the buyers, the next will get one or two, and one will likely receive no buyers.

On some level, it's basic capitalism. You invest more in commission, and you take a risk that it will lead to 5 to 10% sale price above market value, a better return than if you cut commission for a reduced or non-existent marketing plan that does not lead to an outcome as lucrative.

I think real estate is going to see a lot of new models of selling and buying properties in the years to come, and undergo some big and needed changes. On the downside, many outside companies like Fee Duck or Zoocasa will try to reduce commissions for the consumer and take a piece of the cut on commission as well. Some will last longer than others. Some will have more viable business models than others. I would be very interested, though, in seeing the data on sold properties from discount companies/brokerages compared to brokerages that sell at full or close to full commission. 

On the upside of this changing real estate landscape, there are some good things that I think will benefit the consumer. First, I think there will be more transparency for the consumer on knowing what the sold prices are in a given neighbourhood. So, I believe a consumer can soon look up prices and see comparable homes without a real estate salesperson. The real estate salesperson will no longer be the gatekeeper of information. He or she will be the person who will maximize the selling price of your home by knowing how to price, stage, and market your home for the top price. I think many people don't think highly of agents because they think agents make too much money on commission and have access to all the info. I say give the info to everyone, and make the agent work hard to sell your house and earn their commission. 

Are There Too Many Real Estate Agents?

The number are astonishing. For the Toronto Real Estate Board, there are nearly 40,000 real estate agents int this city this year. To put that into perspective. That is 1 real estate agent for every 140 Torontonians, twice as many as ten years ago.  Four thousand more than last year. If you are looking for a way to not feeling special in this city, become a real estate agent.

So, the question has to be: Why are there so many?

The number one reason: There is a public perception out there that selling real estate is easy money. If you have a winning personality and half a brain, you can be rich and self-employed. There is a belief that any one can do it. But the same stats that show us just how many real estate agents there are here in the city also tell us that a great proportion of the Toronto real estate agents are not making this easy money. I'm sure some may be surprised to find out that almost 27% of all agents in Toronto have not done a single sale last year. To put that into perspective, they are paying their yearly dues, thousands of dollars, to the Canadian Real Estate Board, the Real Estate Council of Ontario, the Ontario Real Estate Board and the Toronto Real Estate Board, and not making a dime. In fact, two thirds of all agents in Toronto have done less than three deals in a year. Of course, people at the top do much better than this, but still the median salary for a real estate agent right now in Toronto is less than miminum wage.

The other shocking statistic: 71% of all real estate agents on the Toronto Real Estate Board are part time. That means that most real estate agents have another job beit a fireman, a part-time teacher or they just don't clock in enough deals to be considered full time.

If you are someone who wants to buy or sell a house or condo, you should find these stats concerning, to say the least. If you are dealing with a salesperson that has less than three transactions a year, then you are dealing with someone who has cultivated little expertise. Now, I know we have all been there. We've all had to start somewhere. And I personally think it's important to support new real estate salespersons as they learn, but it's another thing to have most agents in this city with such limited experience. And I see this on a daily basis. Salespersons who do not know how to write up a deal, who don't understand the conditions I have included. Real estate salespersons who price something incorrectly or market something poorly.

The inexperienced work force does not only come from those salespersons who think they can make easy money and have it as a part-time career. The Ontario Real Estate Council, who provides the educational framework to become a real estate salesperson, also makes it very easy to obtain this real estate salesperson designation. Tougher than the old days, but still fairly easy. The more real estate salespersons there are, the more money OREA makes from providing the educational courses.

Even though it's not a bad idea at all, I don't want to be that guy who says it should be tougher to become a real estate salesperson by increasing the standards of education. A lot of what I learned, I learned from buying and selling property. And if most agents are not turning over more than three transactions a year then I would think the learning curve doesn't curve very much. There is simply not  enough opportunity to learn for many.

So, what does this mean for those of us who are not real estate salespersons? For the consumer, make sure you do your homework on your salesperson. Ideally, you would seek out someone who has some skills and some experience, works well with your personality, and who is, most importantly,  full time in their career. If you want to give your cousin or best friend a chance who has just become a real estate agent, maybe have him or her work with someone more experienced on the transaction. As for part-time agents, I don't know if they can be as effective as a full time one. Would you prefer a part-time doctor over a full-time one? I think with any profession, whether you're a brain surgeon or a tambourine player, full time will make you better at your job.

Is Your Real Estate Salesperson Looking Out For Your Best Interest?

Real Estate salespersons have never been a beloved profession in on our culture like a doctor or an astronaut.  No, we are never mentioned with the actresses, presidents and even lawyers when a young kid is asked what they want to be when they grow up. Salespeople are often seen as tricky in the eye of the public. For a long time, and still today, the idea of a salesperson brings up images of the cigar-smoking used car salesman or the door-to-door vacuum salesman or even the Avon Lady. They are seen as people whose #1 interest is to make a sale,  even if the client doesn't need a used car, a vacuum or a year's supply of ruby lipstick.

Still, I think the idea of sales has changed since those days.  Personally speaking, selling real estate just isn't about making money for myself, but it's about making my clients happy with my services, and finding them the best deal.  Because on some level, I care about what people think of me. Even on a greedy level where I want to make money, I know that doing a good job with a client will lead to more referrals and more money for me. Yes, I'm a people pleaser at heart, but I'm not Saint David of Real Estate. I think it's just good business sense. 

For the most part, I find my fellow real estate agents, whom I work with on a regular basis, are looking out for their client's best interest, and are usually professional. I think that the Toronto Real Estate Board and the other provincial and national boards have done a pretty good job at creating an ethical guideline for how real estate salespersons should act, but still, every once in a while, I run into an agent who I believe is not looking out for the best interest of their clients, and drives me a little nuts in the process. 

Let me illustrate this with an example. I recently had some clients who were interested in a property. They went through to see the the property twice. That's usually a pretty good indicator that there's some interest there. Because of work and travelling arrangements, they had asked me to wait a few days until they were in town to fill out an offer. The property had been on the market for a long, long time. If interested, it is always best to put in an offer as soon as you can, but they felt there was no reason to rush. I contacted the listing agent and told him that if he receives any offers to let me know. Therefore, if an offer came through, I can arrange for my clients to bring in an offer earlier, and his seller would have two offers, instead of one offer, from which to choose. On the day I planned to meet with my clients to put together the offer and register it, I found out that the listing agent had sold the property already. Not only that, but he represented the buyer in the transaction as well as the seller. Therefore, he made more money from both the buying and selling ends of the transaction. 

Now, by the real estate rules that we go by, the listing agent can do this. I did not have an official offer that I could show him and his clients. So, technically he only had his one offer. 

For my clients and for me, this could be a lesson to move quicker. The longer you wait the more chance there is of a property slipping away from you, even if the property has been on the market for months at at time.

Still, if an ethical and professional process took place and the listing agent had told me that there was another offer on the table, I would have been able to rush my offer through and his sellers would have had the benefit of choosing the best offer. Instead, he only presented the one offer. So,  he is not exactly acting in the best interest of his sellers. In the end, he makes more money, but his clients don't necessarily get the best deal. It's the kind of thing that I think makes salespeople look bad. Their goal is their sale, not their client's best interest.

My goal here is not to show you how some real estate salespeople are not looking out for your best interest, but it should make you think how you pick your real estate agent. 

If you are looking for a salesperson to represent you, make sure you do your research. Speak to others who have worked with a particular agent with whom they've had a good experience. If you are working with someone you just met, interview them. Make sure your agent is as transparent and straight forward as possible. Ask him or her how they do their business and how they handle offers. Most importantly, if you are looking for a selling agent, ask: How are they going to market your home?  Some sellers are so focused on getting the commission rates down that they don't focus on any thing else. And when commission rates are cut low, I find, agents seem to do a lot less to market the property and take care of their client.  

All in all, most salespeople are good folks in the real estate industry. Just make sure you pick the one who will represent you wisely. 

The Strange Truth About Real Estate Agents

From time to time, we all find ourselves at those parties where people like to talk about their jobs. Fair enough. It's what we do for most of our waking life.  But as we all know, not all jobs are as exciting as others, or at least they don't appear as exciting. So, if you are a lawyer working on an plot-twisting criminal case or an artist working on  a mind-bendning new gallery show,  then it is easy to get the crowd worked up about the kind of things you do. I know I'm a sucker for such things.

Many years ago, I used to work in television, mostly on HGTV shows, before I became a real estate agent. At parties, most people loved to ask about my job. They watch television.  So, it makes sense that they would want to know about the inner workings behind how the shows are made. And yes, a lot of reality on reality shows are made up.  All I would have to do is mention I worked on a given show, and the questions would start rolling in.

When I became a real estate agent, the interest in my job took a bit of a turn. There were always a lot of questions about certain neighbourhoods and my opinion about what's going on in real estate right at the moment. There were a lot of questions to pull out my expertise, but very little interest about the job itself.  As a career, real estate agents rarely inspire a gasp of excitement, usually because it is not much of a novelty these days to be one, especially in Toronto.  

So, without anyone asking me any questions directly about my full-time career, I'm going to tell you a few pretty fascinating things about real estate agents in Toronto.  With the help of the talented Mark McLean, the Manager of Bosley Real Estate at the Queen West office and the knowledgable Ann Bosley, the VP and General Manager of Bosley, let me reference their findings and graphics to show you what real estate salespersons are really like in Toronto. 

1. There are a lot of us. I've known this for awhile. You probably have too, but do you know just how many? There are approximately 33,000 real estate agents in this city. I know. Yikes. That's a lot. That's one agent for every 167 people. How can a real estate agent  possibly make any money with those kinds of numbers? Well, let me guide you to the top graphic that indicates that more than 40% of all agents are  new.  The thing is that this new category seems to stay the same size year after year. So, that means a large number of people join up and many leave. In fact, 70% of all agents will drop out in the first 2 years. 

2. We're old. Compared to many professions we are an older bunch. The largest age group falls between 51 and 60. If you want to feel like a spring chicken, become a real estate salesperson. And who wants to retire? The agents who stick around stay awhile.  2.8% of our workforce works past the age of 70. 

3. Many Toronto real estate agents do not sell very much, if any thing. This brings us back to the 33,000 agents in Toronto stat. A full 18.6% of registered real estate agents did not sell one property last year. That's over 6000 agents with no deals.  Keep in mind that we all have to pay fees to belong to the appropriate boards to keep our licence. So, this large group of agents is certainly not making any money.  And agents with just one deal a year number over 5000. So that's almost a third of all agents who have very little experience in the trenches with one deal or less per year. The lesson: Pick your agent wisely. And at the very least, pick an agent who works full-time, and takes on real estate as a full time career. Otherwise, they may be a little clueless.

So, there you have it. Maybe not as interesting as someone who saves lives each night, but still, I'll bet there are a few things in there you didn't know...