Renovated real estate

Garry Marr, Financial Post · 

It’s akin to a land rush. But instead of land up for grabs, it’s the right to sell land that is about to attract prospective real estate agents from far and wide.

And why not? Total sales activity through the Canadian Real Estate Association’s Multiple Listing Service was $150-billion in 2009. Even at a modest 4% commission — I sure didn’t get a rate that low last time I sold my house — that’s $6-billion in fees for the taking.

The only problem until this month was that CREA had built a wall around the MLS system, restricting how real estate could be bought and sold. In March, the group, which represents about 100 boards across the country, reversed course and changed its bylaws to allow all types of buying and selling models through the MLS.

The move brought change almost immediately with agents jumping into the field with offers to list property on the MLS for a flat fee and let the consumer do everything from showing houses to negotiating themselves. But CREA still reserved the right to change its rules and put in new restrictions.

This month, the group approved a 10-year agreement which the Competition Bureau, setting changes to the MLS in stone, and ensuring a slew of new options become available to consumers.

The floodgates are about to open and home buyers are going to being facing business models that incorporate everything from hourly rates to retainers to the good-old fashioned commission structure the real estate industry maintains has worked so well for years.

One-man real estate show Tyler Ross, the broker of record at Toronto-based Synergy Real Estate Consulting Ltd., is an example of the new wave. Armed with two technical support guys, he’s raring to go with a model that offers a flat fee based on an hourly rate.

“We can say ‘Pay us what you would a lawyer, an accountant or any other professional service’ and when it comes time to get a commission, we’ll wave it,” Mr. Ross says. “We couldn’t do this before March.”

His next step, and the one everybody is now eyeing, is the buy side of the transaction. Offering a flat fee on the listing side via the MLS is one thing, but how are you going to get agents to come visit the property if you offer no commission? Even private for-sale-by-owner sites are prone to offering fees to the buyer’s agent.

The typical commission for the buyer’s agent is about 2.5% of the value of the property — a rate most assume is not going anywhere. But even that is coming under attack.

Lawrence Dale, the lawyer who helped start failed discounter Realtysellers in 2001 and has battled CREA for years, announced this week he’s back in business.

His new company, Realtysellers Real Estate Inc., is offering to post your home for sale for free on the MLS–with no service. Go for the full-service model and the commission is 0.5%. How can he do it?

“That’s still $2,000 [on a $400,000] home, four times what you pay your lawyer,” Mr. Dale says, referring to a typical real estate transaction.

While no fee is obviously tough to compete against, Mr. Dale’s real challenge to the industry is his offer to rebate the 2.5% commission he would get as a buyer’s agent. He is willing to give back up to 75% of his commission to the customer.

He’s not going to be alone. “There are going to be people who get into this because they couldn’t cut it as full-service agents,” says Mr. Dale, in a gentle shot at the competitors who want to mine the same real estate gold as him. He maintains his new company will employ experienced realtors who just happen to work at a fraction of the price.

Where does that leave the full-service agent? Up until now, when you started looking for a house, you usually picked up an agent. That agent would act for you under the premise that they would get paid when you eventually bought a home. What happens if the home you eventually buy is from a seller offering a commission that can now be as low as 1¢?

There is a vehicle already in place called the buyer agency agreement, which ties a prospective home buyer to an agent for a specified period of a time. Those agreements, rarely signed these days, can include a guaranteed minimum payment for your realtor.

“It’s a guarantee if the realtor spends the time finding a perspective home owner a place to live and negotiates the agreement, they’ll get paid,” says Phil Soper, chief executive of Royal LePage Real Estate Services. “There is no structure set in stone. Every deal has the ability for a certain amount of negotiation on the way the agent involved is going to be paid.”

Given the new competition about to enter the field, even if you do go with a full-service model, something many people will always want to do, there is no saying you can’t use these discounters to knock your selling fee down and grab a bit of a rebate on your purchase.

As Mr. Soper and others maintain, the real estate community was always willing to negotiate fees. Why not take the industry at its word?
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