Real Estate

Will anything ever bring down real estate commissions

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  • Aug 16th, 2019 10:41 am
[OP]
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Aug 2, 2010
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Will anything ever bring down real estate commissions

Long post so don't bother unless you are serious about this issue. There is no abridged version!

I am hoping my post here will encourage a reasonable non-troll discussion of what it would take for an across the board reduction in real estate commissions (aside from the government mandating a lower typical maximum commission than currently is the case of course).

I have been thinking about this for years and even more so since I became a real estate agent on a dar. I don't have any answers. Real estate commissions have softened a bit on the listing side, ie 2%, 1.5% or 1% but from what I can see it's not like clients are flocking to discounters. Clients still believe you get better service and will benefit from the supposed 'hidden strategies' and 'secret sauce' a 2.5% 'full service', 'top producing' agent will ostensibly provide. This is totally bogus I have found. On the buy side commissions are typically 2.5%. If you offer less then agents will shun your listing as people always try to maximize their own economic interest. Every 0.5% on a $1M property is $5K and on a $2M property is $10K. This is not pocket change.

As I have posted before, I have always thought that a listing commission structure of a flat rate for listing a property and then a higher % of the additional selling price above that as an incentive is the best possible arrangement. Why should I pay a % of the selling price if all I'd have to do is place a sign on the lawn that I would sell my house for well below market and therefore wouldn't need an agent at all because I'd have a line-up of people ready to buy?

For example, if properties comparable to yours in the area sell for $1.2M you know yours would sell in a NY second for $1M, then why not provide, say, a flat rate commission for the first $1M of sell price and then, say, 2.5% for any amount above that. That's a real incentive to do a bang-up job as you get 5 times the commission for every dollar above the $1M as you do for the first $1M. However, to my shock and horror I found out ages ago that that sort of structure is banned by REBBA, the current legislation governing real estate agents/brokers (and business brokers) in Ontario. Why? Obviously because of lobbying by the real estate industry. Oddly enough a commission structure which provides a disincentive is allowed, ie falling commission as the property price increases! WTF?

On the buy side there are agents giving cash-back, but again, clients believe no cash-back agents might do a better job. Because the buy side commission is pre-determined by the seller and sellers want to encourage buyer agents to market the home to their clients, they are loathe do reduce the commission. Sure the buyer might benefit from the cash-back but that does not change the cost to the seller if a successful transaction is concluded.

The stronghold MLS has on listings seems impregnable, although the stronghold on the data is loosening as a result of court decisions. Sure there are competitive listing marketplaces out there but you just don't get even a smidgeon of the exposure as you do with MLS. Sure there are low flat rate MLS listings available but you don't get the service you would from an agent that knows what they are doing. You can be as effective as a really good agent listing a home yourself with a flat rate MLS listing but the people who are willing to spend the time and effort or are not too scared to try it themselves are few and far between.

My beef is that commissions have more than doubled in the last 8 years while the work has even reduced in scope and effort due to technology. I became an agent as an amusing and profitable sideline for friends and family to escape having to pay these commissions. On the sell side I can list my properties and don't have to pay anyone 2.5%, not to mention running circles around so-called 'top producing' agents as I can really focus on what I am doing rather than spending a lot of my time marketing myself so I can get more clients. I won't even do a deal for someone I don't know. On the buy side all the commission accrues to me. However, not everyone has the time or wants to expend the effort to become an agent.

So any ideas on how the entire real estate industry can move to lower commissions? What will it take? I'm dumbfounded.
118 replies
Member
Dec 29, 2017
407 posts
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I do agree with you, flat rate commission would be more reasonable. As this implementation would weed out many flaky RE agent that are on the market for the "hustle". To much show-off and fake personas out there in the field! Many go outside of ethical guidelines just to make the damn sale, knowing they are getting huge percentage-based commission. When one's motivation is to "Make money", it's usually never good. Good financial reward should be a result of doing HARD, QUALITY WORK that requires SKILL, RISK, and EFFORT!

Over past few years, when houses were inflated in value, RE agent were collecting (and still do) MASSIVE commissions. Not that such RE work is hard, rather because of ridiculous commission based structure. If one is sincerely devoted to the profession (such as many nurses that work exhausting 12 hr shifts for $29/hr), they will make decent money even when they get let say, $2-2.5k in flat rate commission from a house sale.

When a RE "dude-bro" collecting commission close to what the average associate Dentist makes , or double of what an average Lawyer makes. There is a problem in profession.
Member
May 22, 2013
263 posts
108 upvotes
Vancouver
Oversupply of RE agents will do its trick. We need less stringent requirements to pass those exams.
Member
Dec 28, 2017
404 posts
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Burlington
rMBA13 wrote: Oversupply of RE agents will do its trick. We need less stringent requirements to pass those exams.
These exams and requirements are low enough already. Many agents can't speak nor read English well.. yet.. they passed these exams easily.


As for commission, it's a direct conflict of interest in the get-go. The buyers agent will make more mone if their client pay more.
The seller have to pay 2.5% to selling agent and 2.5% .. that's 5% of the seller's home value.

And OP is right, agents often don't like selling agent gives less than 2.5% commission to buyers agent... some will ignite than the listing from the buyer. That's a disservice to clients.

There are sites now that offers a fix rate for sellers and rebate to buyers when buying a house.

Honestly, a buyer's agent does not give much added value . A buyer will definitely spend more time researching the area than the agent.

Only added service an agent have is the data that OREA provides to the agents that clients have no access to due to "privacy" reason. But these agents would use it at their own gain. So privacy aren't really an issue when it's abused anyway.
I.e. If you want the same information your investment advisor have access to, you can pay for it. ORRA only restrict to their own agent so they have an edge and disallow free market.

Anyway. Commission should go down as time pass. With enough complaint from the public. It's really a tug of war between public vs. OREA's "lobbying".
Sr. Member
Sep 9, 2014
608 posts
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Vancouver
I teach economics in college and real estate always makes me think what we teach is wrong. This is a sector with very low barriers to entry (any idiot can be a Realtor and quickly), so you'd expect competition to kick in and the rates to go down. But it doesn't.

I think it just illustrates how this sector is actually not competitive. We have plenty of examples, including court cases, where Realtors or realty firms acted non competitively and used despicable tactics to prevent competition. So I think this is where reforms need to happen.

The lawyer is a real estate transaction often does more work than the realtor and yet he's getting paid a fraction (and it's flat fees!).
Last edited by Bryan2B on Jun 17th, 2018 12:01 pm, edited 1 time in total.
Sr. Member
Sep 9, 2014
608 posts
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Vancouver
rMBA13 wrote: Oversupply of RE agents will do its trick. We need less stringent requirements to pass those exams.
Stringent requirements? Is that a joke? Anybody and their sisters can be Realtor already...
[OP]
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rMBA13 wrote: Oversupply of RE agents will do its trick. We need less stringent requirements to pass those exams.
There is already an oversupply. Over 40,000 agents in Toronto alone and the oversupply has lasted for years. It has not done anything to reduce commissions. The issue is much more complicated than that.
Newbie
Dec 6, 2017
94 posts
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People need to just tell agents they want to pay less. Instead of putting down the 2.5 % on the cooperating put down 2 %. Everyone searches MLS on there own anyway, and if your agent won't take you somewhere with 2 % vs 2.5 % fire them get someone new. If you are an owner, get them to cover some staging costs, professional photographer and drop there commission.

When that becomes more common, you can drop it even further.

End of the day consumers keep paying it, so they keep charging it.
[OP]
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BryanBreguet wrote: Stringent requirements? Is that a joke? Anybody and their sisters can be Realtor already...
You are right. The bar to entry is about as low as it can get. The only time it was even lower was a couple of years ago when you only needed to pass 3 exams, not 5, before you could trade in real estate and years ago before that when there was less material to cover. The course is being re-designed and will become more stringent around 2020 when it is introduced. That will reduce number of additional new agents.

No one has yet come up with any thoughts on how to blow up the MLS cartel and lower commissions. Flat rate listings and competitive listing sites have proven not to do the trick. I think performance-based commission as I have outlined will at least on the listing side because then you are only getting a low flat rate for what the house would sell for without any work whatsoever. I wanted to do that on a few properties before I became an agent but was not allowed by the legislation and still cannot as an agent. I cannot think of anything else that will, certainly not on the co-op side. Can anyone else?
Last edited by eonibm on Jun 17th, 2018 12:52 pm, edited 1 time in total.
[OP]
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Jswarez wrote: People need to just tell agents they want to pay less. Instead of putting down the 2.5 % on the cooperating put down 2 %. Everyone searches MLS on there own anyway, and if your agent won't take you somewhere with 2 % vs 2.5 % fire them get someone new. If you are an owner, get them to cover some staging costs, professional photographer and drop there commission.

When that becomes more common, you can drop it even further.

End of the day consumers keep paying it, so they keep charging it.
As I mentioned reducing the co-operating only makes your property less attractive to buyer agents as they will then shun lower co-op commission. While unethical it's only natural. I've seen it happen myself. That is not a viable solution as it reduces incentive as there are always other comparable properties out there where the buyer agent can get full pop. Also, this option has been available to those listing properties from time immemorial and absolutely no change has happened for the most part and that is for the reason I have outlined.
Last edited by eonibm on Jun 17th, 2018 12:50 pm, edited 3 times in total.
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Tarrana & The Ri…
Having access to sold data would help, for starters.
[OP]
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JayLove06 wrote: Having access to sold data would help, for starters.
Not really. It's already been available for a few years through other websites and more recently through bungol.ca, etc., not to mention please explain how it lowers listing or co-op commission.
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Jan 15, 2017
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BryanBreguet wrote: I teach economics in college and real estate always makes me think what we teach is wrong. This is a sector with very low barriers to entry (any idiot can be a Realtor and quickly), so you'd expect competition to kick in and the rates to go down. But it doesn't.

I think it just illustrates how this sector is actually not competitive. We have plenty of examples, including court cases, where Realtors or realty firms acted non competitively and used despicable tactics to prevent competition. So I think this is where reforms need to happen.

The lawyer is a real estate transaction often does more work than the realtor and yet he's getting paid a fraction (and it's flat fees!).
I agree that reforms need to happen at the provincial level. One such reform would be to take the MLS listing service away from Realtor control.
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skeet50 wrote: I agree that reforms need to happen at the provincial level. One such reform would be to take the MLS listing service away from Realtor control.
I don't see how that would change things. How would that make a client not want to list at 2.5% for the selling agent or not want to provide the greatest incentive to the buyer agent? Not that it is the only answer but at least with a flat rate + commission % above a pre-determined sell price clients would have a choice they do not now. I am sure lots of clients would choose it if available. The only choices now are flat rate regardless of sell price, % of sell price, or declining commission as sell price rises. It is so telling that one of the best compensation arrangements is banned, is it not?
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Jun 7, 2017
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eonibm wrote: As I mentioned reducing the co-operating only makes your property less attractive to buyer agents as they will then shun lower co-op commission.
This is a general myth, please stop perpetuating it. To a large extent, buyers tell their agents which properties they want to see.
If ANYONE has a first-hand account of a buyer's agent refusing to show them a property because the commission was too low, please share.

There are so many agents in the GTA, from noobs to veterans, with varying degrees of desperation and hunger, all competing for the same piece of pie. Commissions are dropping, albeit slowly.
Agents know their end time is coming. They have had it too good for too long, and the public is waking up to the understanding that their large fees are unjustifiable.
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Furcorn wrote: This is a general myth, please stop perpetuating it. To a large extent, buyers tell their agents which properties they want to see.
If ANYONE has a first-hand account of a buyer's agent refusing to show them a property because the commission was too low, please share.

There are so many agents in the GTA, from noobs to veterans, with varying degrees of desperation and hunger, all competing for the same piece of pie. Commissions are dropping, albeit slowly.
Agents know their end time is coming. They have had it too good for too long, and the public is waking up to the understanding that their large fees are unjustifiable.
Stop perpetuating the myth that it is a myth. I've seen it happen myself. You actually think that if two properties are comparable, say at $2M each that a buyer agent will not prefer the one paying them 2.5%, ie $50K, vs 2%, ie $40K or even less? Paaaaleeeease. If there is one thing I have learned it is that people maximize their own economic interest. You obviously think that is not the case. I kindly suggest that you familiarize yourself with human nature instead of embarrassing yourself by proving you do not understand it.

I've heard the refrain of commissions dropping, agents know their end time is coming for years, public is waking up etc. for years. It hasn't really happened and if at all it is at a glacial pace.
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BryanBreguet wrote: I teach economics in college and real estate always makes me think what we teach is wrong. This is a sector with very low barriers to entry (any idiot can be a Realtor and quickly), so you'd expect competition to kick in and the rates to go down. But it doesn't.

I think it just illustrates how this sector is actually not competitive. We have plenty of examples, including court cases, where Realtors or realty firms acted non competitively and used despicable tactics to prevent competition. So I think this is where reforms need to happen.

The lawyer is a real estate transaction often does more work than the realtor and yet he's getting paid a fraction (and it's flat fees!).
how long does it take to become a realtor? I think it's because no one undercuts, therefore rates stays.
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Furcorn wrote: This is a general myth, please stop perpetuating it. To a large extent, buyers tell their agents which properties they want to see.
If ANYONE has a first-hand account of a buyer's agent refusing to show them a property because the commission was too low, please share.

There are so many agents in the GTA, from noobs to veterans, with varying degrees of desperation and hunger, all competing for the same piece of pie. Commissions are dropping, albeit slowly.
Agents know their end time is coming. They have had it too good for too long, and the public is waking up to the understanding that their large fees are unjustifiable.
true buyers will tell their agents what properties they want to see. But agents can play the game by showing you properties they know you can afford, even though a cheaper one meets your needs. I have had agents say that a house was not available for viewing, but when i called the listing directly, it was available.
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eonibm wrote: Not really. It's already been available for a few years through other websites and more recently through bungol.ca, etc., not to mention please explain how it lowers listing or co-op commission.
A lot of people don't know that and a lot of those sites are either down, unreiable or don't go back too far. Still, plenty of people do not know about them. Sold data needs to be available and easily accessible. Realtors have been able to leverage this information and it has resulted in higher prices and customers needing their services.

On top of that, I feel the commission should either be reduced or re-jigged. It doesn't make sense to have to pay out that kind of money for in some cases no work at all. And if you want to sell the home on your own barriers are created to thwart that.

Bad, unscrupulous, fly by night agetns have ruined things for everyone.
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JayLove06 wrote: A lot of people don't know that and a lot of those sites are either down, unreiable or don't go back too far. Still, plenty of people do not know about them. Sold data needs to be available and easily accessible. Realtors have been able to leverage this information and it has resulted in higher prices and customers needing their services.

On top of that, I feel the commission should either be reduced or re-jigged. It doesn't make sense to have to pay out that kind of money for in some cases no work at all. And if you want to sell the home on your own barriers are created to thwart that.

Bad, unscrupulous, fly by night agetns have ruined things for everyone.
A simple google will present a number of sold websites, especially for the GTA. Nevertheless, explain how having sold data reduces commissions?

We all know commission should be reduced or re-jigged but what is your strategy to cause that? There are no barriers to selling your own home. You can even do a super-cheap flat rate MLS listing.

I am not sure it is 'bad, uncrupulous, fly by night' agents that have ruined anything at all but rather a system that is set up to favour the agent.

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