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Great Article I read on Discounting Commissions
May 1, 2015
When Iurii Laiu recently decided to sell his house, he didn't want to pay a real estate agent full price.
He believed his Toronto-area home would basically sell itself in the city's hot market.
"I knew my house was pretty liquid and I would have no problem selling it whatsoever. So I was thinking o
f finding a way to save on commission," he said.
Typically, selling agents make 2.5 per cent on a home's sale price.
But, like Laiu, some believe that fee is too high in cities like Toronto and Vancouver where houses can go quickly at high prices.
So some realtors are dropping their selling commission, agreeing that, in hot markets, it's only fair to charge less.
In March, the average selling price for Toronto-area homes was $613,933. On 2.5 per cent commission, that's $15,348 in the pocket of the selling agent.
"I just think it's an excessive amount of money to make for not a great deal of time and effort," says Toronto real estate broker Fraser Beach.
He claims a desirable property in Toronto, reasonably priced, sells within five days.
Because he believes current selling commissions in the city are too high, Beach has decided to leave his cut up to the client. In other words, he lets the home seller decide how much he will get paid.
"It's kind of turning the whole system on its head and allowing the person to judge for themselves what the process is worth," says the owner of Select/Plan Real Estate.
His last client paid him one per cent commission on the home sale. Beach concludes, "That's fair."
Toronto realty service The Red Pin also recently changed its commission structure to benefit home sellers. If a client both buys and sells a home with the brokerage, it will waive its 2.5 per cent selling commission.
The Red Pin argues that while selling commissions have ballooned along with Toronto housing prices, the effort required to sell a house has not.
"The effort is the same or maybe less, but the compensation has gone up and up and up," says company co-founder Rokham Fard.
$1,000 an hour?
To make its point, The Red Pin conducted a study concluding that, for 8,477 home sales last year, Toronto Realtors made an average of $1,000 an hour.
"With Ontario's minimum wage in at $11 per hour, these Realtors made a shocking 9,090 per cent more than personal support workers, lifeguards and nursing assistants, all of whom earn minimum wage," said the company in a recent statement about its findings.
To crunch its numbers, the brokerage says it tallied all 2014 Toronto-area real estate listings that sold in up to three days. It based its calculations on an average home price of $556,000, 15 hours of work to sell the home and 2.5 per cent commission.
The Red Pin co-founder Tarik Gidamy conceded in the statement that not all homes sell in three days. But he added, "The fact that 8,477 did last year speaks to the need for re-evaluating Realtor commissions. We don't believe agents should be earning in one day what some people earn in a year."
You get what you pay for
"It's a goofy statement," says Phil Soper about the $1,000 an hour calculation, claiming it doesn't look at the full picture.
The CEO of Royal LePage Real Estate Services admits homes can sell easily in markets like Toronto and Vancouver where demand is outstripping supply.
He argues that the selling process may be easy, but many home sellers also buy property. And that job, he says, can take considerable time and effort for an agent, especially "if they're making multiple offers, if they're visiting tens of tens of properties for their client."
Soper sees the slashing of selling commissions as a marketing stunt. He says there are numerous discount agents and that "they have to make some noise to get people to use their services."
He concludes full-priced agents will continue to thrive, because they offer a higher-quality service. "You tend to get what you pay for," says Soper. "The better Realtors charge more than the less-experienced Realtors."
Not on this seller's dime
Home seller Laiu disagrees. He decided to go with The Red Pin, which waived its 2.5 per cent selling commission. Even though he got a discount, he says he didn't feel short-changed by the service.
Laiu says his home sold the day after it was listed for his asking price, and he saved about $10,000 with the commission discount.
"I got the service I probably would have if I paid full commission," he concludes. And, he points out, he had extra cash for renovations for the new home he purchased.