Baby steps…

The Competition Bureau and the Canadian Real Estate Association (CREA) just came to a new agreement over the weekend which should lead to some positive change in the way Canadians buy and sell real estate.  As it stands now, the market in Canada is dominated by CREA and its management system, the Multiple Listing Service (MLS).  In effect, the real estate market in Canada is a monopoly.

We’ve had some personal experience of the real estate machine and how it is focused on the transaction not the client.  In 2003, we sold our house in Comox for $367,500 for a cost of about $600.  Initially, we were going to sell it through the agency system; we had three agents give us their market assessments, all of which stated we would list the house around $325,000 and net about $300,000 after costs and commissions.  I felt that $25,000 to match us with a buyer was an unreasonable figure so we opted to try to sell the place ourselves.

We decided to have a professional appraisal done ( which came in with an assessed value of $350,000, a full $25,000 higher than the realtor assessments.  Our appraiser suggested we add 5% ($17,500) to the assessed value to come up with our list price; between this number and the appraisal figure was our ‘wiggle room’.  We listed through, created a house profile, ran an open house, placed some signage and 19 days later sold our house – for $367,500.  Our net profit was about $67,000 higher than had we used an agent.

Now before I receive hate mail, let me clarify that agents may play an important role in a real estate transaction.  I do believe, however, that there are several inherent flaws in the current system:

  1. It is impossible for an agent to fairly represent a buyer when the agent gets paid more if the real estate is bought by the buyer for a higher price.  In a perfect world, the agent compensation should go up the lower the price.
  2. For the average home sale in the Comox Valley, (according to VIREB’s September report the average single family residential dwelling in the Comox Valley was $327,043), the commission would be approximately $13,811 – 16,081.  I realize there are ancillary costs such as advertising, desk fees and licence costs but when for a one time transaction, I feel these rates are high.
  3. As a result of the listing and commission service, most listings are only promoted through the MLS.  An open and transparent listing service would offer different service levels at differing price points so that consumers could gain access to the entire spectrum of prospective buyers and sellers, not just those allowed access to the MLS portal.  In essence, the creation of a marketplace free of monopoly.  If someone wanted to list a property and do all the work himself, the fee would be lower.  If he wanted a full service realtor to represent him, the listing cost would be commensurate with the service provided.
  4. There are too many realtors.  I think (and this is conjecture – I am probably wrong) that at one point we had about 175-200 realtors in the Comox Valley.  In 2009, again according to VIREB statistics, there were 770 transactions involving family residences.  Perhaps the analysis is not accurate because the transaction numbers exclude other types of real estate but for simple comparative purposes, we can see that the 200 realtors in the Valley were involved in 770 property transactions.  It’s like the NHL – too many teams dilutes the talent pool.  A leaner, more competitive and cost effective system would result in fewer agents, better service and more value for the consumer’s dollar.

I think the recent steps taken to creating a more equal playing field in the Canadian real estate market are good ones.  We’ll stay tuned to see how they are implemented and what future changes may take place.

Categories: Commentary, General interest | Tags: , , , | 1 Comment

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One thought on “Baby steps…

  1. Great post Ben. Thanks for the new info on upcoming changes. Thanks also for being willing to share personal details in order to make some points.
    Keep up the good work on the blog.

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