A few months ago I probably bored all 4 of my steady readers by pounding the living crap out of the whole Competition Bureau versus CREA story. I believed that real estate commissions were due to come down in a hurry, as discounters came onto the market once CREA bowed to the force of The Competition Bureau. CREA was making life miserable for discounters by forcing them to offer a full gambit of services at a discount price. Once the charges came we knew it was only a matter of time before CREA settled and on Sunday they made it official.
Shortly after the announcement, I pounded the table about commissions going down. To re-read that post, take a click here. Much like the travel or investing business, the business would be drastically changed by the elimination of a largely pointless middleman. While this brings me pleasure, I’m not anticipating this to be a short process.
The American real estate market went through a very similar change back in 2005. And while discounters down south have grabbed some market share, (I’ve seen it estimated at 10-20%) for the most part it’s business as usual for the full service agents, providing they didn’t go hungry during the worst real estate meltdown ever. Maybe the U.S. example isn’t the best, but it’s all we have to work with.
The main reason why commissions aren’t coming down anytime soon is you people. Well, not you specifically, but other people. People are, it seems like, complete idiots. They press already lit elevator buttons. They read The Simple Dollar. They take on credit card debt, often at alarming numbers. And they feel that hiring a discount real estate company is a risk not worth taking.
The average person has way too much of their net worth tied up in their house. It’s their only investment of any substantial value. And when it comes to selling it, the process becomes emotional. With so much riding on the sale of that one asset, it’s hard for it not to. And because of that, they’re not likely to trust the process to a discounter.
Real estate agents don’t mind competing with discounters. For the most part, people pay inflated commissions with only a minimal amount of complaining. The people who are proactive enough to pound an agent on commissions aren’t exactly the best customers anyway. If you were an agent, who would you take on as a client- the one who complains that you make too much or the one who pays full commission without dispute?
Discounters will come on the market and people will expect them to provide a full service experience at a discount price. They’ll expect extras like virtual tours, newspaper ads and the like, but will only want to pay a small price. They’ve come to expect that level of service from full service agents.
Discounters do themselves no favors by listing their prices at a ridiculously low value. I’ve seen American discounters offer a limited time offer of $99. While they admit that’s a lost leader, the damage of creating an unrealistic price point is done.
One last advantage to the full priced realtors is the fact that their service doesn’t cost the seller anything until the house sells. There are plenty of homeowners who throw their house on the market without being very serious about the whole thing. If their house sells, great, and if not, they’re hardly screwed. Not having to pay anything until the property sells is appealing to sellers, even if they’re paying dearly for that privilege.
I do think real estate commissions are going to go down long term. 20 years from now I think only a minority will pay a full commission. I don’t think the full service brokerages are going away anytime soon. It’ll be business as usual for a little while. Being a discounter is a tough, uphill battle with victory not anywhere in sight.