Bringing Down the House

Five years ago, James and Nicole Schutz bought a new home in Summerside, a subdivision then staking claim to southeast Edmonton farmland

Oct 1, 2007  

by Scott Messenger

“As the market cools in Alberta, you’ll see a flow back to real estate agents,” she predicts. “The prevalence of the for-sale-by-owner companies is really market-driven, because when the prices are high the savings on commission are so attractive.”

At the same time, she says, “it’s really important for the public to know that they choose not to use a real estate agent at their own risk. In a market that is really hot there are experienced buyers or sellers that would happily and easily take advantage of less experienced parties in a transaction, and I think from that perspective the real estate agents are a layer of protection.” That’s certainly the message of a television ad campaign launched in August by the Canadian Real Estate Association that ridicules the use of underqualified people (symbolized by a personal trainer and a mother-in-law) as advisers in real estate transactions.

To the dot-coms this is just scare-mongering. “Real estate agents have really brainwashed people into thinking they need [them],” says Terry Leighton, owner of Calgary-based Housemaxx.ca, the property marketing company he started last January that, unlike ComFree and Property Guys, steers clear of personal consultations. “All it takes is you sitting down and negotiating a price with your buyer, you each sign the contract, you each take that contract to your lawyer and your lawyer finalizes the deal. It’s as simple as that.”

Michael Simons, a real estate lawyer with McCuaig Desrochers LLP Barristers & Solicitors, would agree. Mostly.

“It’s easy to sign the paperwork,” he says, “but it’s a little more challenging to understand what’s being signed. If you don’t have a Realtor involved in putting in additional terms or requirements or conditions, people have the opportunity to be creative, and creativity and law don’t always combine.”

Most commonly, he says, deposits are too low, or terms and conditions aren’t really enforceable. “We end up doing some of the work that a Realtor would normally do when they’re dealing with the transaction,” says Simons. It costs more at this end, but still doesn’t offset the savings on commission. Overall, says Simons, “More often than not, problems that arise on these transactions, whether they’re dot-com or Realtor-involved, get resolved.” It’s a business transaction, after all.

With no guarantees coming from either side, James Schutz feels justified in asking for the best of both worlds. Why not a new player, he wonders, who might straddle the border between both camps? Why not someone with all the access of a licensed agent but willing to parcel out services at set rates? Basically, he’s after an overhaul of agents’ fees. “That seems like a good solution to me,” he says, “rather than the commission model where Realtors just make out like bandits.”

Something in this might appeal to agents as well, given that the industry currently operates on a kind of feast-or-famine structure. Hot markets mean money comes often and in rising amounts, if not easily. Conversely, sluggish ones require tracking down and cajoling buyers. Schutz suggests, at least as a start, cutting commissions in hot markets. Saber and Messigner recommend standardizing buyers’ agents’ fees, relieving the seller. And then the agents have their own ideas.

Motivated as much by interagency competition as by dot-com pressure, some agents might partly satisfy Schutz’s wish-list by offering MLS listing and nothing more for a flat fee. Others, like Brent Tezcan at Calgary’s Discover Real Estate, are actually offering full service at flat rates, cutting commission at his end (but not at the buyer’s agent’s) if clients subsequently buy with him at regular commission. While Woodman at ComFree Calgary thinks upstarts like Tezcan will be blackballed out of the business by other industry members, Schutz thinks otherwise. “This market is ripe for that kind of situation,” he says.

He might be right. The dot-coms, in giving consumers fewer services, have given them a new and burgeoning appreciation for calling the shots. And with Internet savvy being second nature to upcoming generations, the market is probably only in its earliest stages of differentiation, the players only really beginning to adapt. Though fee structures might only just be starting to soften, they’re nonetheless becoming a bit amorphous, and therefore ready for further reshaping.

But as Realtor Sheldon Johnston might say – part warning, part sales-pitch – to anyone ready to take on that challenge, “You get what you pay for.”

Consumers, of course, will insist on nothing less.

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