Upstart real estate companies launch war on commissions

June 12, 2010

Tony Wong

Business Reporter–upstart-real-estate-companies-launch-war-on-commissions

One firm promises to post your home on the Multiple Listing Service for a penny. Another boasts that it’s cheaper to use lawyers than realtors. A third encourages agents to bid on listings to see who might offer the best prices and services.

At least half a dozen new innovative Canadian companies have been launched in the wake of a decision by the federal Competition Bureau to challenge the rules of organized real estate.

This has not sat well with traditional realtors, who see their industry under attack. The newcomers are being characterized as upstarts offering more hype than service. But they say the old rules don’t apply anymore.

The winners so far are consumers in what has been an unprecedented spring awakening for the normally stodgy world of real estate marketing.

“The old system was too rigid. I love competition because you have to be dynamic and creative,” said realtor Dawson Pereira. “I have been waiting a long time for this, people finally get to choose.”

Last month Pereira launched his new brokerage touting a one-cent listing service. The former ReMax agent charges an upfront fee of $600 to list a property on the Multiple Listing Service, a key database of homes that account for the vast majority of sales in Canada. If the property sells within 10 days, he will refund the fee minus one cent.

The 10-day rule, while gimmicky, isn’t impossible in the current market. On his website, Pereira lists 20 homes selling for $1 million or more that have sold on MLS in one day during March and April.

“We’re basically selling advertising space,” said Pereira, who is still waiting for his first customer. “If people think that it’s that easy to sell a house then I will give them the opportunity. I can’t give them a year, but I will give them 10 days.”

Since the Competition Bureau declared war on the Canadian Real Estate Association’s monopoly on the MLS earlier this year, emboldened realtors have launched new schemes that challenge the status quo.

They also hope to get a jump on the market by launching a pre-emptive strike before the regulatory dust settles.

Analysts say the current environment is a fragile perestroika that could be fleeting if reforms are not enforced with a court ruling. The Competition Bureau has a date with CREA later this year to settle their differences before a tribunal.

CREA, which owns the MLS system, says they have already opened up the market with rule changes implemented this year, while the Competition Bureau says they need to go further.

“During the early years you’ll see an awful lot of these fledgling companies fail to get off the ground, but some may prove to be truly innovative,” said John Andrew, director of executive seminars on corporate and investment real estate at Queen’s University.

“Hats off to the Competition Bureau for providing the impetus to an industry that has been mired in the past.”

Earlier this year, and under pressure from the bureau, CREA relaxed some of its rules, giving an opening to entrepreneurs such as Pereira.

The fact that so many companies are now appearing is testimony that there is demand out there that has been stifled by regulation, said realtor Ajay Jain.

“It’s crazy that most real estate marketing is mired in the 1970s with bus shelter ads and flyers,” said Jain, who has his own brokerage firm that specializes in investment properties.

Last month Jain launched, where realtors get to bid for prospective customers. Potential vendors place their listing on the sit, and agents send in a marketing plan and other details, such as how much they expect in commission.

“Why not have agents competing for your business? The homeowner wins because he gets the best basket of services and price,” said Jain.

The concept will introduce more competition in the industry as agents compete against each other, possibly having the effect of lowering commissions.

Vendors get to use the service for free, but agents pay $30 to submit a bid. So far 200 agents and about 100 home sellers have registered on the website, according to Jain.

The idea came to the 29-year-old Toronto man after booking a trip to the Bahamas last year on a travel website. Why wasn’t it as easy to find a realtor?

By putting in where he wanted to go, airlines ended up essentially bidding for his business and he ended up finding the cheapest price.

Jain wondered if the concept – essentially a “dating service” for agents and vendors – would work. He decided to put $100,000 worth of his savings into finding the answer.

Because marketing costs are typically the biggest part of an agent’s budget, Jain hopes the idea will be a hit.

For new agents, breaking into the market can be cost-prohibitive. But if they are aggressive and willing to give a vendor good deals, the system will work for them, he argues. There is also a feedback area, which will be familiar to those who shop on eBay, which will allow customers to review agents.

“The good agents who are offering value will love this. The agents who have been getting by in a hot market are not going to be happy,” said Jain.

Murtaza Haider, director of the Institute of Housing and Mobility Studies at Ryerson University, says one big reason the new companies are “coming out of the woodwork” is because they feel the industry is opening up to them. In the past they were discouraged by organized real estate to “upset the status quo,” said Haider.

“With a Competition Tribunal around the corner, they (CREA) will be reluctant to crack down. So that is giving the new start-ups encouragement.”

Haider cautions that the growth of innovative companies might be restricted in the future if there is no resolution on what exactly can be allowed in the marketplace.

“If the Competition Tribunal fails to come up with specific guidelines then this could be a short-lived bloom of competition,” warns Haider. “The danger is that you could be back where we started.”

One thing is for sure. If the market starts to slow in the second half of the year as expected, agents are going to have to work a lot harder.

New discounters entering the market are also going to make it a tougher slog for some realtors. And with the deregulation of the MLS, they’re also under the gun from other professionals, such as lawyers, who are muscling in on their action.

Michael Forcier, a lawyer and one of the owners of, argues it doesn’t make sense to use agents at all if you can use a lawyer.

He is pushing a service he says is cheaper than using realtors and has the security of using lawyers throughout the transaction.

“It only makes sense if you are going to sell your house without an agent; then use your lawyer from the beginning of the transaction,” he said.

Customers still have to market and sell their own home, but it will be listed on the MLS and a lawyer will provide legal advice through the entire transaction for about 1 per cent commission.

That’s far cheaper than the average 2.5 per cent that a vendor’s real estate agent would charge, on top of legal fees for closing, he argues.

Forcier based his model on solicitor-operated offices in Edinburgh, Scotland, where the majority of real estate sales are conducted through lawyers for less than the average 5 per cent total commission it normally takes to sell a home in Canada.

His concept has been around for several years, but the missing ingredient was the ability to list properties on MLS.

He decided to team up with an Ottawa company offering $109 MLS listings after reading about the business in the Star. The listings are uploaded to the national site.

“This is a fraction of the price of the traditional real estate – and you have to use a lawyer anyway,” said Forcier.

Since he started to offer the option of MLS, Forcier says inquires have doubled from customers looking for an alternative way to sell their home and from lawyers looking to join his organization.

The ability to use the MLS and lawyers means you can effectively cut out the middlemen – the agent.

That kind of thinking does not sit well with organized real estate, with many agents already under siege from consumers who see more options available and suddenly want a better deal.

“It’s an exciting time in the real estate brokerage industry,” said Phil Soper, CEO of Royal LePage, who says many consumers still greatly appreciate the value that a realtor brings to the table.

“The public debate surrounding regulatory change has encouraged entrepreneurs to try new things, which is great. Gimmicks will attract few clients, however, and result in even fewer long term business relationships. When you pay a commission fee, you are paying for a professional’s time. As the market cools, the time it takes to sell a home will increase and these penny-novelty businesses will simply fade away.”

Not everyone agrees. Queen’s University professor Andrew says the marketplace has already been irrevocably changed. And he thinks for the better.

“The floodgates have already opened. It’s going to be hard to put this genie back in the bottle,” said Andrew. “And that’s going to be good for consumers.”

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