The battle of the real estate agents

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Donald Hewie is a renegade in the real estate business – an agent who believes real estate sales commissions are way too high.

Don Hewie. (Photo by Mark Holleron)

The chief reason for these large fees, he says, is there are far too many real estate agents.

Mr. Hewie cites 2009 figures from the Ottawa Real Estate Board. Last year, 14,742 homes were sold in the Ottawa area through the board’s multiple listing service. There were 2,547 real estate agents registered with the board. Do the math, says Mr. Hewie, and you find that the average agent sold about six homes last year.

No wonder, says Mr. Hewie, that most homeowners who sell through a real estate agent pay five per cent in sales commission: The agent has to earn a living from the sale of about one home every two months.

A typical real estate commission takes $15,000 out of a sale price of $300,000, which is about what most people pay in Ottawa today for a resale home. In other words, sell your home for $300,000 and you’ll wind up with a cheque for $285,000.

The industry is comfortable with the way things are, according to Mr. Hewie. Since agents work on commission, they only get paid when they make a sale. “You have to feed the herd, and it’s a big herd,” Mr. Hewie says.

Mr. Hewie does not expect to see much improvement as the result of a recent agreement between the federal government and Canada’s real estate agents. The Competition Bureau says the agreement is designed to eliminate anti-competitive rules imposed by the Canadian Real Estate Association, which represents real estate agents.

Says the Competition Bureau: “Under the agreement, the Canadian Real Estate Association will eliminate its ability to adopt anti-competitive rules that discriminate against real-estate agents who are hired by consumers only to list, or merely post, a residential property on the multiple listing service.”

The new rules will make it easier for a homeowner to list his or her home on MLS without necessarily paying for all the services offered by a real estate agent. But the homeowner will still have to pay for some services. In addition, the homeowner will probably have to pay as dearly as ever if another real estate agent finds a buyer for the home, says Mr. Hewie.

This is how the system works if you sell your home through a real estate agent: Upfront, the agent quotes a fee, typically five per cent of the eventual sale price. If the agent finds a buyer, the agent pockets the five-per-cent fee. If another agent produces a buyer for the home, the two agents split the fee, with 2.5 per cent for your agent and 2.5 per cent for the agent who brings the buyer to the table.

You may be able to negotiate a lower commission payable to your agent, either by getting him or her to cut the price or by doing some of the work of finding a buyer yourself. But you probably won’t be able to reduce the 2.5 per cent to the buyer’s agent.

The new rules won’t change that, says Mr. Hewie. He’s a discount real estate agent, but he says he doesn't advise his clients to offer a commission of less than 2.5 per cent to the buyer’s agent. Why? It would discourage, or dissuade, other agents from bringing their clients to inspect the home, he says.

One Ottawa real estate agent, who spoke to me on condition of anonymity, says it’s “standard” for a buyer’s agent to receive 2.5 per cent if his or her client purchases a property.

Any MLS listing must state what the commission to a buyer’s agent will be, says Mr. Hewie. So the buyer’s agent knows in advance if he or she is being asked to accept less than 2.5 per cent in commission.

Mr. Hewie himself advertises that he offers a rebate when he acts for the buyer of a home. Take, as an example, a home that sells for $400,000. As agent for the buyer, Mr. Hewie’s share would usually be 2.5 per cent, or $10,000. He says he splits this 50-50 with the buyer, who thus saves $5,000 off the purchase price.

For clients who engage Mr. Hewie to sell their home, he says his current rates are two-per-cent commission in cases where he finds a buyer and three-per-cent commission in cases where another real estate agent represents the buyer. (In the latter case, Mr. Hewie would collect only one half of one per cent in commission, with the other 2.5 per cent going to the buyer’s agent.)

Of course, it’s possible to sell a home without any assistance from a real estate agent. In Ottawa, Grape Vine has become a big player in the resale housing market. Craig Osborne, president and part-owner, says the business helped in the sale of more than 2,200 homes last year by listing them on its web site. Grape Vine charges from about $250 to $800 for listing a home, depending how much assistance the seller requires in pricing and showing the home.

If you’re selling a home, you take your pick: Full-service real estate agent. Discount real estate agent. Do-it-yourself.

But unless you’re willing and able to do it yourself, you’ll pay highly for help, and that is unlikely to change in the foreseeable future.

Organizations: Ottawa Real Estate Board, Competition Bureau, Canadian Real Estate Association

Geographic location: Ottawa, Canada

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Recent comments

  • mikky
    May 07, 2014 - 19:45

    It is amazing to me a real estate agent that the ones doing the posting are often dishonest and the Brokers who do these "POSTINGS" do not have any liability for measurements nor statements. As an agent you end up advising the Seller as they do not know what is done if there is a problem from inspection about the roof. They do not want to talk to their lawyer because He is too expensive. They want the deposit with their Lawyer but unlike Brokers if there is a problem with inspection or finances try to get it back.(N0 Rules). Even visits can only be arranged via the Seller who do not answer or say can you come at 5:30 rather than 2:00PM as we do not get home until then. It is very dicey dealing with these types.

  • donadl k
    August 10, 2013 - 20:35

    5% real estate commission made sense when the average house was $200-300,00. House prices have increased much faster than inflation over the past 20 years. Now many residential agents make well over $100,000 year due to higher house prices. They are very few jobs than pay over $100,000 that do not need a rigorous 4 year university degree, plus five or more years of climbing the ladder. Compensation of residential agents is out of line with value of the service they provide today in the GTA compared to compensation of other professionals. I believe the max. residential agents should charge is 4% with 2.5% going to the buyer agent and 1.5% to the listing agent.

  • Kendra
    June 29, 2013 - 16:31

    People need to understand that sales has nothing to do with an hourly wage because its all based on results. Realtors are not overpaid just like lawyers and doctors are not overpaid. You are paying them for results. I for one would never list my home without an agent just like I wouldn't represent my self in court or conduct sugary on myself. A good realtor will charge 5% to handle the sale of your home. If you sell your home privately you are not saving this 5%. Your still have to pay 2.5% to the realtor representing the buyer, you still have to pay $1000 to Grapevine, you still have to pay for all other marketing costs. this adds up to 3%. So really you are only trying to save 2% in commission by not using a Realtor. I don't know about most people but I am pretty sure a professional who does this for a living, has all these connections with other agents and buyers, has access to the comparables and understands the market, can get 2% more than I can. Also anyone who is buying a for sale by owner will want a deal. If I am offering on a for sale by owner and I know that they are saving money on commission, I am the one who is going to want that savings. In the end its simple, By listing your home by yourself you are advertising to a much smaller % of the market, You have a significantly smaller chance of selling your home and there is a much larger chance you are going to get ripped off because you are an amateur competing against a professional. You are only saving money if you assume that you can sell your home for the same amount that a realtor can sell your home. Its just not going to happen. BTW I looked up the stats: 15% of FSBO sell, the other 85% eventually get listed with a realtor; the agent who sold my home sells 97.8% of his listings There are 100 time more lawsuits against FSBO than against homeowners who used an agent The average FSBO loses 3.5% (it only costs 2% more to use an agent) proof that using a realtor actually saves you money. By not accepting offers from agents you are advertising your home to 3% of the market as 97% of buyers use agents as it is a free service for them. (if you do not pay the buyers realtor 2.5% they will just incorporate their loss in commission in the offer so you will indirectly be paying them anyway) Quit fooling yourselves, you have no idea what you are doing selling your home by yourself.

    • Alain Quirion
      October 09, 2013 - 12:44

      This is totally false. If you sell your house 300k without an agent, you WON'T have to pay the buyer's agent 2.5%. The buyer will have to pay it not the seller. If you sell your house without an agent, it is commission free...that's it! Also, comparing a real estate job with Doctors and Lawyers is totally RIDICULOUS.

  • RFS
    April 13, 2013 - 20:16

    In my view, why not abolish the percentage structure altogether and instead opt for a scale that is fair and reasonable? Say any home or unit up to $250,000 a fee of $5,000 in all tax inclusive. For a property between 250M+ & 500M (M=1,000) a fee of $7,500 would be just fine and anything over $500M+ a fee of $10,000. Of course, these are my thoughts.

  • Tim Blake
    November 13, 2012 - 16:02

    I honestly do not understand and find illogical this whole agent/commission vs sell own your own tension. People complain agents make $10000 working only 30 hrs or so. Sure it may be true if a specific listing sells quickly. That 30 hrs turns into much more if the home does not sell for weeks and months. Furthermore not every listing sells even in a good market. If on average 3 out of 4 or 3 out 5 sells well ... the $300/hr becomes a lot less. Noone ever discusses how many homes agents work for nothing when it does not sell. The buyer side is no different. All a private buyer sees is an agent showing up demanding 2.5% for 3 hrs of paperwork and negotiation. They never ever ask or care how many homes they showed that buyer, how many offers they already gave that was not accepted, how many calls they made investigating properties the buyer is interested in. People seem to have no issue selling their car at a used car dealership or auction. Do you think the dealer does not take a profit from your vehicle? You outgrow your car you drive it in and sign for a new one. You negotiate some, think you made a good deal. Well a home cannot be moved so agents come to see you and offer services for whatever $amount. It is just like a car or any resale product you have to sell. Sell privately or accept that the intermediaries will demand a payment for getting your product sold. Each to his own.

  • DMartin
    October 31, 2012 - 13:22

    I recently sold my house this spring in Ottawa with NO agent. We listed on grapevine and paid a fee for service charge of $200 to list on MLS. I wrote my own MLS descriptions, provided my own photography, posted my own Kijiji, created my own sell sheet, performed my own renovations and staging, and hosted all my own viewings. (we had 10 viewings) Total time invested excluding renovations was approx. 30 hours. We also offered 2% to buyers agents. - The house sold at market value in less than a month. Now I should state that I am in sales. Most people who arrived for viewings commented that I should try being an agent, including many of the agents. Not everyone has the writing, photography, and design chops to do it on their own. My point though is that 30 hours is not worth 10k+ that the selling agent would have earned in commissions. That's $300+ dollars per hour! If I was selling an $800,000 home it would be $600/hour. Sorry agents, you do not have the educational investment of a lawyer or doctor to warrant that hourly wage. The number of agents should be controlled so that fewer agents can sell more houses per year, allowing them to still make a very decent living off of 1-2% or a flat fee. What the Real Estate Association is so blind to see is the potential increase in quantity of home sales per year if the commissions were lower and it became much more cost effective to buy/sell ones home every few years. This would also increase the speed of housing price increases. But I guess when you make $300-$600/hour, why rock the boat.

  • Eva
    November 10, 2010 - 10:53

    The day that an agent could come along and simply place a sign on the lawn of a sellers house has long passed. Today, sellers expect and get staging services, painters, cleaning ladies and expensive advertising all at the agents expense. At the end of the day this type of home presentation to the market gets the seller top dollar. There will always be people who want qualified, service providers who bring value and get top dollar. People who have an issue with paying 5% clearly have had bad experiences with agents that offer no value add. I would suggest to anyone thinking of listing their home to interview all three types of agents (discount brokers, semi full service and full service) and think carefully about their decision. You only get one chance to be a new listing on the MLS and if you blow it you could end up getting much less than what the real market value is worth.

  • FSBO
    November 08, 2010 - 11:53

    I am selling my house on my own (FSBO). I have a Grapevine listing, and an MLS listing (Joe William @ $109). I've also created a slide show on Picasa (free) and listed on 8 other free services (i.e. Kijiji.ca). In all, I've invested $500 in marketing. I’ve been watching Grapevine and MLS closely. I perform a daily web site query on both sites. I look at how many houses are for sale, and what sold in my area. I focus on homes that are comparable to mine (4 bedroom, 2.5 bath, between 400K and 550K). I also use Google analytics to monitor site traffic on Picasa (slide show and additional photos). FSBO and agent sales in my area are equal, and both are very slow. Some may argue that Grapevine homes may have been sold by an agent… Perhaps true, likely at a rduced commission. Selling your own home is inexpensive, simple, and safe (any offers should be vetted through your lawyer before you sign). Recent newspaper articles (contributed by Brokers) say that FSBO will reduce home prices. This is true on the Gross side of the calculation… not the Net side. With FSBO, there are no commissions coming out at the end. I say that sellers who use and agent have built in the cost of the agent into the asking price of their home and are flexible in negotiation. FSBO leaves the seller in a position to share the commission savings with the buyer. After doing all the marketing work myself, buyers agents still expect 2% to 3% commission… That’s 10K to 15K! I reluctantly offer 1.5%... but the offer has to be top dollar for me to accept. On the other hand, I’ll pay a buyer up to 1.5% on closing. For fun I counted… I’ve received 133 emails related to my home sale – 95 emails are from agents trying to sell me full service. It’s a good thing I didn’t tell anyone that I was painting my own house, who knows how many painters might have called! I’ve received 16 phone calls related to my home sale – 12 where from agents trying to sell me full service. My home is still for sale. The market is very slow. Realtors will call it a balanced market. I have not sold , nor are there any comparable homes sold by realtors in the area. I don’t plan on hiring an agent anytime soon.

    • Alex
      May 28, 2014 - 17:50

      I would rather pay a 15k commission and sell my house for 50k more than do it myself and get screwed...

  • Tracy
    November 05, 2010 - 15:49

    Wow... everybody knows the 80/20 rule, right? In most work places, 20% of the staff do 80% of the work. REAL ESTATE is no different. BUT GOOD LUCK TO YOU - Mr. Hewie.

  • daveM
    November 04, 2010 - 12:08

    Some agents are a lot more productive than others and can afford to offer the public a better price as they have the ability to get things done. Many agents are less than productive and, as the agent on the article implies, they have to get a lot more income per unit. The industry does not, in general, focus on selling skills, very few of the agents have much competence in actual sales, hence general low productivity. At some time in the future brokers may decide to have better production per agent and that will allow them to staff their offices in such a way that they do not need 'bodies' to pay their overhead, in this way they will be able to offer a much more productive and professional service to the general public.

  • broker
    November 04, 2010 - 10:16

    Perhaps the Boards should consider capping the number of agents to a representative sample/ratio based upon years of statistics of transaction history. Perhaps the Ontario Real Estate Association should consider a cap on the number of students entering the agent educational program. There are multiple vested interests involved here, not the list of which are shared commission profitability potential, customer service, and brokerage priorities.