Radical changes coming for CREA

Nir · Oct 4, 2010

Hi Brett,
"The Canadian system .. creates a situation where it is always in both agents` interest to get a sale at any price."
I don`t understand the Australian lawyer. isn`t the seller`s agent`s interest to sell to the highest bidder? this contradicts trying to work with a specific buyer`s agent.
Only when market condition is such that there isnt much interest in the house, the lawyer`s statement is more accurate.
Sincerely,
N.

wealthyboomer · Oct 4, 2010

QUOTE (investmart @ Oct 4 2010, 09:32 PM) Hi Brett,
"The Canadian system .. creates a situation where it is always in both agents` interest to get a sale at any price."
I don`t understand the Australian lawyer. isn`t the seller`s agent`s interest to sell to the highest bidder? this contradicts trying to work with a specific buyer`s agent.
Only when market condition is such that there isnt much interest in the house, the lawyer`s statement is more accurate.
Sincerely,
N.
Australia does not have many buyers’ agents and those who do exist are paid directly by the buyers. By law an agent cannot act for (and accept a commission) from both parties in the transaction.

wealthyboomer · Oct 4, 2010

Why didn`t CREA keep its members informed? - the Globe reports that several top brokers were caught off guard when contacted about the potential settlement. This change will trouble many in the industry, mainly because change is hard and it`s even harder in the absence of good leadership.

Berubeland · Oct 5, 2010

QUOTE (housingrental @ Oct 4 2010, 12:53 PM) Sure but this is of total comission offered on property which your other wording didn`t imply... so if 2.5% buyer agent commision buyer agent gets that less broker split + there costs - what I`m trying to write is there many cheaper options for broker fees where agent takes much higher portion of comission

My point is that the maligned agent doesn`t take home the entire commission. The split between agent and broker is variable but no agent takes home the entire $20,000. The business is a lot less lucrative for the agent than is perceived by the general public. By my calculations, an agent who sells 1 house per month, brings home about $35,000 per year after all expenses and taxes maybe even less. That`s under the poverty line for a family of 4 in Toronto for instance.

60,000 - car expense - desk fees - advertising - gas - licensing and professional fees - Continuing Education - income taxes= ?

In other countries (except the USA) , sellers pay 1% of the purchase price or less to sell their home. For that to occur here in Canada a lot of the services will have to be trimmed. Agents and Brokers will have to look at the entire industry and decide why they are doing what they are doing. For instance in the UK people don`t usually get driven around and owners can do their own showings. This reduces costs for the agents. To truly reduce costs for the consumer, the entire business model will have to change.

The other thing is that rules that require an agent to act against their own best interests are doomed to failure. For instance if you have a buyer and it pays you more to sell them a house with full commission that`s what the agent will try to do. To think otherwise is just ignorant of people and the way they are. Specifically if they are struggling to make a living and support their family. It`s a lot easier to be altruistic when you`re making 75K per year.

housingrental · Oct 5, 2010

Hi Brett re " Commission arragements are and always have been negotiable. If buyers would like to provide an incentive to their agents to get a better price then they are free to offer any arrangement they see fit."
Actually this isn`t true in Ontario. Incentive type commission structure`s are actually not allowed.

housingrental · Oct 5, 2010

Hi Berubland
Your calculations are way off.
Here`s what it really looks like for an agent that chooses a lower cost brokerage:
1 house a month equals 12 houses a year
Average price apx. $350,000
(12 x 350K) x 2.5% = $105,000
75% to agent, 25% to brokerage = $78,750
Less gas, insurance, education, advertising = apx. $70,000

This is well above the average personal income in Canada (apx. $40,000 (?) ) .... and here`s the thing - Most agents both sell and buy... and good ones can build a business over time to do a lot more than 12 transactions in a year.... The realtor I use is involved in apx. 60 transactions each year... Not bad $$$

Berubeland · Oct 5, 2010

QUOTE (housingrental @ Oct 5 2010, 08:14 AM) Hi Berubland
Your calculations are way off.
Here`s what it really looks like for an agent that chooses a lower cost brokerage:
1 house a month equals 12 houses a year
Average price apx. $350,000
(12 x 350K) x 2.5% = $105,000
75% to agent, 25% to brokerage = $78,750
Less gas, insurance, education, advertising = apx. $70,000

This is well above the average personal income in Canada (apx. $40,000 (?) ) .... and here`s the thing - Most agents both sell and buy... and good ones can build a business over time to do a lot more than 12 transactions in a year.... The realtor I use is involved in apx. 60 transactions each year... Not bad $$$

At 6o transactions he`s not average and makes about $300,000 less expenses which are considerable plus he`ll have a lot of pull to get his broker to reduce his split percentage. For the guy who sells 12 he`ll probably have a 50/50 split with his broker. That`s $52500 Plus only 8000 for expenses ? No way.

Car, gas and insurance is more than that. Plus signage, plus advertising, open houses, licensing fees, marketing materials, mailings, business cards, then the desk fees, then income tax.

wealthyboomer · Oct 5, 2010

Lawyers Will Now Use the MLS to Sell Real EstateThe ability to use the MLS and lawyers means you can effectively cut out the middlemen – the agent.That kind of thinking does not sit well with organized real estate, with many agents already under siege from consumers who see more options available and suddenly want a better deal.Often realtors will send their clients to their lawyer AFTER the property has sold. When a problem arises at this point, it seldom can be remedied inexpensively, if it all. When it comes to enforceable contracts, nobody knows better than a lawyer.
1. The Seller gets he property valued by an independent appraiser rather than by the selling agent, eliminating the temptation to manipulate the valuation too high (to win the listing) or too low (to get a quick sale).

2. The Seller gets the property listed on the MLS.

3. Interested buyers who see the listing on the Internet then approach the seller directly.

4. The seller takes the potential purchaser through the home at a mutually convenient time. (After all, who knows the property better, than the Seller)

5. A Buyer wanting to make an offer is advised to get legal counsel. The buyer’s lawyer and the Sellers Lawyer then negotiate the terms of the purchase agreement.

This approach raises ethical standards considerably by minimizing potential conflicts of interest. When an agent is paid by commission, the temptation is to get a sale at any price rather than at a price that is best for the vendor.
A Lawyer Will Handle the Paperwork: Real estate lawyers—not agents—are responsible for ensuring that documents and other legal matters pertaining to the sale are in good order, and actually closing the deal. Agents can offer some direction, but only an Lawyer can provide legal advice and handle the contract and other paperwork. Sellers should always have a Lawyer whether they have an agent or are selling their home themselves.

And then there is WAL-MART who also wants to get into the Business of Real Estate.
I was part of a study they did a few years ago, where they were entertaining the idea of adding Real Estate business to their portfolio.
Now that they have their own Bank in Canada, this now provides entry to an industry that has been much criticized for perceived high prices.
Talk about one-stop shopping!

housingrental · Oct 6, 2010

Hi Berubland - You are correct that someone with a lot of sales has pull with the brokerage - but I don`t think you understand what I`ve been writting - Realtor`s can choose which brokerage`s they work for - Some brokerages offer 50/50 split whereas others offer 80/20 split, etc... - Realtors that have there act together and work good hours make an above average income... not crap money that you seem to be implying....

QUOTE (Berubeland @ Oct 5 2010, 04:59 PM) At 6o transactions he`s not average and makes about $300,000 less expenses which are considerable plus he`ll have a lot of pull to get his broker to reduce his split percentage. For the guy who sells 12 he`ll probably have a 50/50 split with his broker. That`s $52500 Plus only 8000 for expenses ? No way.

Car, gas and insurance is more than that. Plus signage, plus advertising, open houses, licensing fees, marketing materials, mailings, business cards, then the desk fees, then income tax.

housingrental · Oct 6, 2010

Hi Wealthyboomer - did you write this? or was this an article from somewhere (where)?QUOTE (wealthyboomer @ Oct 6 2010, 04:59 AM) Lawyers Will Now Use the MLS to Sell Real EstateThe ability to use the MLS and lawyers means you can effectively cut out the middlemen – the agent.That kind of thinking does not sit well with organized real estate, with many agents already under siege from consumers who see more options available and suddenly want a better deal.Often realtors will send their clients to their lawyer AFTER the property has sold. When a problem arises at this point, it seldom can be remedied inexpensively, if it all. When it comes to enforceable contracts, nobody knows better than a lawyer.

1. The Seller gets he property valued by an independent appraiser rather than by the selling agent, eliminating the temptation to manipulate the valuation too high (to win the listing) or too low (to get a quick sale).

2. The Seller gets the property listed on the MLS.

3. Interested buyers who see the listing on the Internet then approach the seller directly.

4. The seller takes the potential purchaser through the home at a mutually convenient time. (After all, who knows the property better, than the Seller)

5. A Buyer wanting to make an offer is advised to get legal counsel. The buyer`s lawyer and the Sellers Lawyer then negotiate the terms of the purchase agreement.

This approach raises ethical standards considerably by minimizing potential conflicts of interest. When an agent is paid by commission, the temptation is to get a sale at any price rather than at a price that is best for the vendor.
A Lawyer Will Handle the Paperwork: Real estate lawyers—not agents—are responsible for ensuring that documents and other legal matters pertaining to the sale are in good order, and actually closing the deal. Agents can offer some direction, but only an Lawyer can provide legal advice and handle the contract and other paperwork. Sellers should always have a Lawyer whether they have an agent or are selling their home themselves.

And then there is WAL-MART who also wants to get into the Business of Real Estate.
I was part of a study they did a few years ago, where they were entertaining the idea of adding Real Estate business to their portfolio.
Now that they have their own Bank in Canada, this now provides entry to an industry that has been much criticized for perceived high prices.
Talk about one-stop shopping!

JDaley · Oct 6, 2010

QUOTE (wealthyboomer @ Oct 6 2010, 02:59 AM) Lawyers Will Now Use the MLS to Sell Real EstateThe ability to use the MLS and lawyers means you can effectively cut out the middlemen – the agent.That kind of thinking does not sit well with organized real estate, with many agents already under siege from consumers who see more options available and suddenly want a better deal.Often realtors will send their clients to their lawyer AFTER the property has sold. When a problem arises at this point, it seldom can be remedied inexpensively, if it all. When it comes to enforceable contracts, nobody knows better than a lawyer.
1. The Seller gets he property valued by an independent appraiser rather than by the selling agent, eliminating the temptation to manipulate the valuation too high (to win the listing) or too low (to get a quick sale).

2. The Seller gets the property listed on the MLS.

3. Interested buyers who see the listing on the Internet then approach the seller directly.

4. The seller takes the potential purchaser through the home at a mutually convenient time. (After all, who knows the property better, than the Seller)

5. A Buyer wanting to make an offer is advised to get legal counsel. The buyer`s lawyer and the Sellers Lawyer then negotiate the terms of the purchase agreement.

This approach raises ethical standards considerably by minimizing potential conflicts of interest. When an agent is paid by commission, the temptation is to get a sale at any price rather than at a price that is best for the vendor.
A Lawyer Will Handle the Paperwork: Real estate lawyers—not agents—are responsible for ensuring that documents and other legal matters pertaining to the sale are in good order, and actually closing the deal. Agents can offer some direction, but only an Lawyer can provide legal advice and handle the contract and other paperwork. Sellers should always have a Lawyer whether they have an agent or are selling their home themselves.

And then there is WAL-MART who also wants to get into the Business of Real Estate.
I was part of a study they did a few years ago, where they were entertaining the idea of adding Real Estate business to their portfolio.
Now that they have their own Bank in Canada, this now provides entry to an industry that has been much criticized for perceived high prices.
Talk about one-stop shopping!

Great post.

RedlineBrett · Oct 6, 2010

QUOTE (wealthyboomer @ Oct 6 2010, 02:59 AM) Lawyers Will Now Use the MLS to Sell Real EstateAll kinds of mis-information here.
"1. The Seller gets he property valued by an independent appraiser rather than by the selling agent, eliminating the temptation to manipulate the valuation too high (to win the listing) or too low (to get a quick sale)."

The seller is always the one to choose the price. They are the one signing the contract and the purchase contract. Listing agents provide sellers with the same data appraisers do but also much more. They can also take stock of the current active competition and even take their sellers through currently active property to price their home for whatever strategy the seller needs. Some need to sell quick, others need to know they aren`t leaving any money on the table. Real estate appraisals are far from an exact science and often aren`t as thorough to sellers because they don`t offer dialogue (you get a written report, no Q and A) and you cannot see how your home slots up against the current active competition. (DOM, price reductions, expired listings etc.)

2. The Seller gets the property listed on the MLS.

This is the huge piece of the puzzle you (or whoever wrote this article) is missing. CREA OWNS THE MLS. It`s not a government owned system, it`s private. So you want your property on the MLS you will have to pay a broker to put it on there.

3. Interested buyers who see the listing on the Internet then approach the seller directly.

What makes you so sure this is what everyone wants? Do you think buyers want to go through a property with the seller hanging over their shoulder the whole time? The seller knows one property -their own- where a realtor knows how the seller`s property stacks up against other alternatives and been through this process hundreds of times... whereas both buyer and seller will be working with much less experience. How does the buyer get their questions answered? Directly from the seller? How likely are they to trust that information? What if they have concerns and need expert 3rd party information? If you are an amateur how do you know who to call and who`s opinion to trust when it comes to property issues, title issues, zoning concerns funky comparables better yet how does the buyer get comparables? Hire an appraiser? What happens when each party`s `expert` appraiser comes back with a different number? Are they going to do this for every property they have interest in? You do know it`s $400 a pop for an appraisal right? All kinds of hazards that are easy to glaze over when looking at this scenario from 10,000ft.

5. A Buyer wanting to make an offer is advised to get legal counsel. The buyer`s lawyer and the Sellers Lawyer then negotiate the terms of the purchase agreement.

So in a huge stroke of genius to cut out the middleman and save money both parties are going to fire their agents and hire their lawyers to work out the agreement for them. Please read this sentance again and again until you realize how ridiculous it sounds. How do lawyers get paid? What motivation does a lawyer have to execute a quick, simple deal? Have you ever even heard of a lawyer doing something quickly and simply? Lawyers are contract experts not experts at valuation and negotiation. Are you going to trust your lawyer to work out the details of your purchase when they have never even been in the property? Is your lawyer going to call you when you`re off work or offer advice on the weekend when thats the only time the buyer/seller can get together? How is this approach better than working with your agent and having a `approval of buyers/sellers lawyer` condition? Buyers and sellers have always had the option of nominating their lawyer to represent them under the current system but when you look at the logistics of working this way you will see why no one does."This approach raises ethical standards considerably by minimizing potential conflicts of interest. When an agent is paid by commission, the temptation is to get a sale at any price rather than at a price that is best for the vendor.A Lawyer Will Handle the Paperwork: Real estate lawyers—not agents—are responsible for ensuring that documents and other legal matters pertaining to the sale are in good order, and actually closing the deal. Agents can offer some direction, but only an Lawyer can provide legal advice and handle the contract and other paperwork. Sellers should always have a Lawyer whether they have an agent or are selling their home themselves.

Again what is in the best interests of the lawyer? Are you so sure the system you propose is free and clear of ethical issues? Is it truly cheaper and more efficient to have your lawyer `handle the paperwork`?

And then there is WAL-MART who also wants to get into the Business of Real Estate.
I was part of a study they did a few years ago, where they were entertaining the idea of adding Real Estate business to their portfolio.
Now that they have their own Bank in Canada, this now provides entry to an industry that has been much criticized for perceived high prices.
Talk about one-stop shopping!

Do you want wall-mart customers crawling all over your property?? I can barely stand being in line there... Is the bouncing smiley face going to pop over and `roll back` the price of your house?

Rickson9 · Oct 6, 2010

I think it would be cool to see WalMart get into the RE business. I would consider what they had to offer.

bizaro86 · Oct 6, 2010

QUOTE (Rickson9 @ Oct 6 2010, 10:44 AM) I think it would be cool to see WalMart get into the RE business. I would consider what they had to offer.

I think Wal-Mart would be more likely to get into the vehicle sales business than the real estate business, because the product is more standardized and the manufacturers are large national companies, as opposed to homebuilders/sellers.

Of course, the existing dealer networks would scream blue murder, but that`s true of every industry Wal-Mart enters. Once one manufacturer flips the rest would have to follow.

As for real estate, I think they`d be more likely to do a program like Costco where they match you with an agent and rebate you part of the referral fee.

Michael

gwasser · Oct 6, 2010

QUOTE (Rickson9 @ Oct 6 2010, 10:44 AM) I think it would be cool to see WalMart get into the RE business. I would consider what they had to offer.

What do you think that WalMart could offer that a Discount Real Estate Broker couldn`t?

With the discount brokerage being barely an economically viable model, buying re-sale housing through WalMart seems even more ludicrous. I think Bret provided you all with a very extensive and sound reasoning about many points made or dreamed up about Realtors on this and other posting streams.

If you are truly concerned about Canada`s Realtors and their ethics, I suggest to work without them. From the Realtor`s side it is not very attractive to work with clients who always seem to focus on Realtor shortcomings. For those that recognize the value Realtors add to the process of buying or selling real estate, they will probably be happy to deal with the Realtors that meet their needs.

This is my last posting on this topic as I think it is discussed in detail beyond the limits of what is reasonable. So, you won`t hear from me further on this topic.

jwilbrin · Oct 6, 2010

My idea of an MLS/FSBO UtopiaI have to agree with Godried, this topic has been beaten to death. Both sides are in a deadlock and things are just being rehashed. I thought I might take this opportunity to present my idea of a unified MLS/FSBO Utopia. I’m sure you’ll all pick it apart in no time but hey! I’ll give it a shot.

First I have to say there seems to be a lot of fear and misconceptions on both sides of the fence.

I have learned from experience that we often over think and over complicate situations. I am a firm believe that in most cases the best solution for a complex problem is often the simplest solution.

We all have to accept and embrace the fact that our options for trading real estate is going to change, it’s inevitable. Consumers have at their disposal ever changing and ever improving technology. There is a wealth of information out there for consumers to educate and empower themselves to be more hands on with their investments and be more active in how those investments are handled.

Since the introduction of the mls.ca site and the numerous fsbo sites I personally have become a lot more hands-on and proactive with my daily real estate acquisitions and sales research. I purchase and sell properties both through my team of trusted realtors and on my own (GASP!! Yes, I actually buy and sell without realtors on occasion and live to tell about it)

I have a great respect for hardworking, full-time, professional and ethical realtors and believe they will thrive as a result of any changes that may come. I do also firmly believe that individuals should have the right to act as their own agent (buyer or seller) if they have educated themselves.

Having said that, here it is… my model for an MLS/FSBO utopia.

· CREA creates a package for non-realtor individuals (hereafter referred to as “owner”) wishing to market their for-sale-by-owner property on the mls system.
· The listing fee for an owner will and should rightfully be higher than the listing fee for realtors since the realtors already pay fees into the association.

· The owner will have to sign off and abide by all the rules and regulations set out by CREA to protect consumers. They must also fill out and sign off on a very detailed property disclosure statement and go through all the due diligence that is required by realtors to verify correct measurements, zoning, pricing etc.

· The owner must also agree to allow buying realtors an opportunity to show the listed property and should the realtor have a buyer for the property, the owner must pay the realtor a commission which of course will be less than full commission (ie. the usual 50% realtor split)

· I know a lot of FSBO’s will not like paying any sort of commission but FAIR’S FAIR. If you want equal rights and exposure for your property on the mls then you better be prepared to offer equal rights to realtors on that same system. It would be “Unfair Competition” if you did not allow them to access your property.

· Owners will be required to provide any buyer with an “Owner Agent” Disclosure document which clearly states that they are the owner of the property and will be acting in their own interest – much like the Dual Agency Disclosure.

Realtors Fear Not

Should owners be allowed to list on MLS the sky will not fall; The foundations of the real estate marketing system will not crumble. How many owners have tried to sell their property on FSBO sites with no success and then list with a realtor? Now you will have a centralized system whereby you can see both realtor and owner listed properties.

tyle="font-size:12pt;line-height:100%">No more scrolling through different FSBO sites. Come on realtors, admit it, you look through those FSBO sites if you can’t find any properties on mls that suits your clients. Don’t deny it… you know you do it

I have sold many properties on FSBO sites and almost half the inquiries and viewings are by realtors. I have happily sold my properties to realtors’ clients and paid a generous 50% commission (here in Calgary 3.5% / 1.5%).

This system has the potential to weed out a lot of:

· part-time realtors

· the not so stellar realtors who have been coasting on the backs of those hardworking realtors

· those realtors who are not adaptable to change

Thus, creating more opportunity for the real “professional realtor”. The fees lost by those exiting the industry can be made up by the fees now being paid by Owners using the system. Unfortunately, up until now not much was being done to weed out part-timers and “shady” realtors. Many realtor violations have been treated with a slap on the wrist but as long as the realtor kept paying their fees, they continued to operate within the system. Trust me, this is not just a wild statement I am making, I have had many conversations with past CREB board members and a CREB employee who actually rented an apartment from me; they shared with me some mind blowing violation stories involving realtors who are still active.

Sellers Be Not Naïve

If CREA allows owners to list their property it certainly will be a huge advantage but don’t think it’s going to be cheap. There will be fees to be paid and yes, even commissions should a realtor present you with a buyer. As I mentioned before, if you want equal opportunity to try and sell your property on MLS then you better be willing to extend that same courtesy to realtors. Realtors will and should have the right to sell your house and be paid a commission if they have a buyer.

Be prepared for a lot of work! As mentioned above, chances are you will have to abide by a set of rules & regulations and industry code of conduct. There will be tremendous due diligence involved and liability now on your shoulders.

So there you have it. Feel free to pick it apart.

Cheers from a hopeless and simple thinking optimist.

RedlineBrett · Oct 6, 2010

QUOTE (jwilbrin @ Oct 6 2010, 02:05 PM) As mentioned above, chances are you will have to abide by a set of rules & regulations and industry code of conduct. There will be tremendous due diligence involved and liability now on your shoulders.

Well thought out post and the end result of the settlement may end up being not too far from what you`ve drafted.

The stumbling block will be that CREA won`t allow a non-member to access their system. They feel it is in theirs (and the consumers) best interests if there is a member responsible for uploading data and properly representing the property, making sure the sellers have the capacity to sell etc (as in all titled owners are on the listing contract and there is enough equity to sell and pay commissions etc). Fines are routinely handed out and licenses are suspended for infractions when it comes to listing and showing property so to maintain the integrity of the industry I can`t see this being opened up to the general public.

There will no doubt be an ultra-discount brokerage that will offer you all of these said services (they`ve existed for years) but CREA and the local boards will still want someone to be liable for mistakes. They`ll want this to be an industry member that they have leverage over rather than an unrepresented member of the public whom they`d have to pursue in a civil action in the event things got ugly.

Rickson9 · Oct 6, 2010

Regardless of what ends up happening, I`d just be happy to be able to get my property up on MLS for a hundred bucks!

RedlineBrett · Oct 6, 2010

QUOTE (Rickson9 @ Oct 6 2010, 02:36 PM) Regardless of what ends up happening, I`d just be happy to be able to get my property up on MLS for a hundred bucks!

You can get it up there for free tomorrow. You only pay your realtor when they get it sold for you.

JohnS · Oct 6, 2010

A quick thought just popped into my head. Everyone knows that realtors, like in everything, run the whole gamut from great to horrible. I think that people who tend to have had good realtors are going to be more pro-realtor, and those that have been burned by one will tend to be more anti-realtor.

So, why doesn`t CREA, or the local boards, just set up a simple, anonymous ranking system, like a 5-star rubric for their clients to fill out after they`re done using their services? This would inform realtors of the job they`re doing (or, at least how it`s perceived) thereby giving them the chance to improve, if they so want. And, it would give clients an opportunity to see how others have perceived their realtor. I think something as simple as this would help realtors, in general, to become more professional, and those that aren`t that good wouldn`t be able to stay in business and would be driven out sooner.

Anyway, just a quick thought.

Have a good one, all!

JohnS

Welcome!

Radical changes coming for CREA

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