The general public has read various reports about the recent agreement between CREA (Canadian Real Estate Association) and the Competition Bureau. Many of these reports have been misleading and some of them completely false. The impetus for this debate sprung from Ontario, where the industry functions somewhat differently than it does in B.C. Here, options have been available to the public for years. The following article gives some context to the issue and hints at the future.
In the U. S. – not much changed 
Recent changes to the MLS rules may result in more flat fee brokerages but that’s no reason for traditional real estate companies to push the panic button.
So says former Canadian real estate executive Sherry Chris, now CEO of Better Homes and Gardens Real Estate, based in suburban New York. Chris’ viewpoint is partly founded on a similar experience in the U.S. a few years ago when minimum service rules for online realty services were approved for use on MLS networks in a number of American states. The sky didn’t fall for traditional brokerages.
Sherry Chris
Chris says discount brokerages will find a niche in the Canadian market but it could be shortlived because consumers expect more than just a discount deal. Over the last few years the role of real estate professionals has been changing in the U.S. to meet a new breed of consumer: the echo boomer. They are young and tech savvy – and they are looking for more than a discount broker might offer them, she says.
In the U.S., real estate agents are no longer “gatekeepers of information.” They are “a collaborator, trusted advisor” – someone who helps their clients make sense of all the information they have gathered in their home search – much of it coming from online sources, says Chris. She believes the same transition will happen in Canada as a result of CREA’s agreement with the Competition Bureau.
Increasingly, American consumers want access to information about real estate properties from many sources and U.S. listing aggregators such as Zillow.com and Trulia.com are examples of online companies striving to meet that need. These companies’ websites offer home buyers a comprehensive search of listings and plenty of information about those properties, including property tax assessments, the number of price reductions and foreclosures in the city or area, the average listing price and open houses planned. These sites can even calculate a property’s worth.
When Zillow and other aggregators first came on stream, agents and brokers in the U.S. were concerned that they would hurt their business but that hasn’t happened, says Chris. “It has enhanced our business.”
She adds that the U.S. has always had a number of limited service brokerages and roughly 10 per cent of the resale market (varying by region) has been by owner. Interestingly, that percentage hasn’t changed during the past few years even though the home sales have been sliding.
Increasingly, there are “alternative brokerage models,” that offer cash back to owners and discounted fees.
A new approach to finding potential buyers is through online sources – the “lead generation model,” Chris says. About 20 per cent of the industry now generates sales through clients found online, while 80 per cent of clients are gathered through traditional means. The online trend could continue to grow – and quickly, she suggests. “It could soon be at 50 per cent and then much higher as technology becomes more sophisticated and more consumers look online.”
Does that spell good times for the limited service broker? Chris doesn’t think so. “The traditional discount brokerages are not going to have the services and technology available to facilitate these buyers. Really all they are offering the seller is to put their listing on an MLS database for a discounted fee. That’s not going to be enough.”
Canadian Realtors need to look at the bigger picture, she says. “The smart brokerages and smart brands will and should be looking at what the future is going to hold.” That means using technology to meet changing consumer expectations.
Chris points out that today’s home buyers are a different lot from those of a decade ago. Echo boomers (18 to 34-year-olds) are taking over from the aging baby boomers as the prime client. “My opinion is that they’re not going to be looking for a discounted fee; they are going to be looking for a good user experience and they are going to be willing to pay for it.”
According to Real Trends, a consulting firm that does extensive research on the U.S. residential real estate industry, there was no difference in the commission rates between the states that installed minimum service rules and the states that didn’t, says Real Trends editor Steve Murray.
Steve Murray
Murray, also the head consultant for Murray Consulting, a residential real estate firm with a diverse portfolio in the U.S. and Canada, says the firm has tracked commission rates across the U.S. for 20 years. Between ’91 and 2005 rates declined. From 2005 rates increased from 5.02 per cent to 5.36 per cent through 2009.
Part of the reason for the increase is the market downturn; sellers need the services of full-services realties to help sell their homes. In a market upturn, sellers are willing to pay for a Realtor’s services to get the best price possible for their home, says Chris.
“That again speaks to the importance of having the right service offering and the right tool set. That is going to be so important in the future, much more important than a discounted fee,” she says.
In the U.S., Murray’s firm analyzed flat-fee businesses and their profitability before and after minimum services were installed in various states. It concluded that there was “little difference” in the way Realtors operated. The small differences that showed up weren’t onerous, says Murray.
“I think the settlement does not harm (CREA or its members).” It is “very reasonable and good for all parties” involved, he told REM.
“If you look at the U.S. as an example, you have to conclude that (CREA and its members’) concerns (about flat fee Realtors) were overblown,” he says, adding that flat-fee service companies haven’t grown in the U.S. market and represent less than two per cent of all Realtors there.
Front Page Nov 29, 2010 By Don Procter
