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The Realtors' New Realities

Saturday, March 27, 2010
Garry Marr
National Post

The last thing Shauna Bailey wants to think about is what she makes on an hourly basis. The 27-year-old Regina real estate agent's phone starts ringing at about 7:30 a.m. for the six listings she currently has on the market. She also works for a new-home builder, which generates its own set of calls.

"A typical day is eight to 10 hours and I haven't had a weekend off in two years," Ms. Bailey says.

"I don't remember the last time I had a day off. On weekends, my mornings usually start with showings. In the afternoon, I'm either at [the builder's] showroom or doing an open house for a client. People want to see houses every day. I had two people phone me on Grey Cup day who wanted a viewing. The Riders were playing!"

Ms. Bailey is one of the more than 98,000 real estate agents in Canada, a group feeling under siege. From the volatility of the real estate market to increasingly commission-wary consumers to the continuing loss of business to the Internet, wholesale changes loom over their industry and the way they conduct business.

This week, realtors became even more uneasy with the attempts by the Competition Bureau to crack down on their industry. The bureau has filed a complaint with the Competition Tribunal against the Canadian Real Estate Association, saying its practices are anti-competitive.

The battle centres on the proprietary Multiple Listings Service system, to which CREA owns the rights. It is estimated 90% of the country's homes are sold through MLS. The watchdog wants it opened up so that consumers and discount agents can list homes for a fee, as opposed to paying realtors commission for access to the service.

Realtors have fought back. CREA passed new rules that would allow consumers to decide how much they use an agent on a deal and allow them to conduct parts of a transaction without using an agent at all. The amendments, an attempt to ward off further action by the competition watchdog, were rejected by the bureau. In particular, the watchdog took issue with a clause which would allow local real estate boards to make their own rules about who could access the MLS.

In its legal defence filed with the tribunal yesterday, CREA has referred to the position taken by the commissioner of competition Melanie Aitken as "preposterous," and says it has always followed competition law.

Although realtors have been more successful than other agent-model industries -- travel agents, stock brokers, insurance agents--at fending off major upheaval, it appears their time has come. The industry is bracing for change.

This week, in the midst of CREA's battle with the Competition Bureau, Michael Polzler, executive vice-president of Re/ Max Ontario-Atlantic Canada, sent out an email to his 8,500 agents, to calm the troops. "Let me assure you that I did not say that we should throw in the towel," said Mr. Polzler, referring to a news story that said he wanted CREA to give up its battle with the bureau.

"However, I've also been in the business too long not to recognize the fact that our industry is changing," he wrote.

Don Lawby, Century 21 Canada's chief executive, plans to send a similar note to his agents on Monday, telling them there will always be a place for the full-service real estate agent.

Agents are obviously worrying about the impact on their livelihood. Bank of Nova Scotia economist Derek Holt has estimated that if the Competition Bureau wins its battle to open up the MLS, real estate agent commissions could fall by as much as $15,750 per transaction. He is basing his estimate on the difference between what a full-service broker and discount broker earn; discount brokers charge a flat-fee or 1% commission.

On Thursday, in a letter obtained by the Financial Post, CREA accused Ms. Aitken of the Competition Bureau of harming the reputation of Canadian real estate agents. "The unfounded allegations made by you tarnish the reputation not only of CREA and its member boards but of all Realtors," wrote Georges Pahud, CREA's new president, who stepped into the role this week.

There is good reason for realtors to resist wholesale changes to their business. Last year, the industry did almost $150-billion in existing-home sales. At a 5% commission rate--the average in Canada -- consumers forked out almost $7.5-billion in commissions.

A decade ago, there was 335,490 sales across the country at an average sale price of $158,145. That works out to an estimated $2.6-billion paid in total commissions to the industry. In 10 years, the industry has reaped a 188% increase in total commissions paid, not adjusted for inflation, thanks to rising real estate prices.

Statistics Canada data backs that. Residential ownership transfer costs jumped to more than $19-billion last year, up from almost $7.4-billion a decade ago. Those figures include land transfer fees, legal fees, inspection and surveying, but the largest component is believed to be commissions.

Yet, agents say they've never worked harder for clients. "I probably get to keep half of my revenue, but the rest goes to expenses. It is like running a small business," says Ms. Bailey who, like most agents, ends up giving a cut to the brokerage firm, in this case Royal LePage Regina Realty. "I was an accountant before I was real estate agent. The hours were easier but it wasn't a s exciting."

Last year, she was part of 32 deals. She doesn't want to reveal her total commissions, but the average home in Regina sold for $244,328 last year, which would translate into about $7.8-million in property changing hands for her 32 sales. Commissions are about 5% of the sale price in her area and each realtor gets about half of that. By her estimates, she is doing well but hardly getting rich.

Ms. Bailey knows her industry is evolving, but she says there will always be a role for full-service agents. "I don't worry about it. People who want to work with me will want my help. They don't have time to do their open houses and market their property," she says.

There are similar optimistic views across the country. "I'm not just an agent. Half the time I'm acting as psychologist, holding the buyer's hand," says Ellie Silver, a 12-year industry veteran who works in Montreal's exclusive Westmount area.

Ms. Silver says people will never be able to effectively negotiate when it comes to the price of their home. "They are just too close to it," she says.

"Not everybody is going to want to have their services managed by a realtor from start to finish," says Re/Max's Mr. Polzler. "With some of the changes coming down the pipe through the Competition Bureau and CREA, there will be more a la carte services."

But he says the majority of consumers are still going to want to use a realtor to handle their transaction -- whether the market is hot or cold.

"Right now, a realtor is not often needed in the selling process, but you sure need a realtor in the buying process. If you don't have a good realtor in this market, finding the right property and going in at the right price, people are being rejected all over the place," says Mr. Polzler.

He acknowledges that industry changes might put pressure on commissions, but he also predicts there will be fewer agents to share the pie in the new environment. "The number of non-producing agents in the industry is obscene. They are going to get squeezed because they generally do not provide a service," says Mr. Polzler.

He thinks it's time for the industry to toughen up the requirements for selling property. "I'm a proponent of increasing education. I'd like to see a one-year apprenticeship program," says Mr. Polzler.

The rules for selling real estate vary from province to province, but in Ontario, a realtor can be licensed and in business in less than three months. In Nova Scotia, you are entitled to sell real estate under the designation of sales person after a three-week course.

Mike Graham is the Surrey-B. C.-based owner of,a site promoting "for-sale-by-owner" real estate transactions. Not even he sees the disappearance of real estate agents anytime soon. "You are still going to have people who want to use an agent. Half the people out there don't want to make a $500,000 decision without someone holding their hand," he says.


Posted on Tuesday, March 30, 2010 at 02:13PM by Registered CommenterElaine in , | CommentsPost a Comment | References1 Reference

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