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.