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Average Ontario Real Estate Agent Commissions on Track to Drop $45K – Storeys

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There’s no denying that 2022 has been a year of reckoning for the housing market. Coming off an unprecedented pandemic bull run — 2021 was the biggest year on record for sales — the average Canadian home price skyrocketed over 40% from April 2020, to what we now know was the peak this February, a dollar difference of over $320,000.

Things chilled rapidly thereafter, once the Bank of Canada kicked off its hiking cycle in March; prices have since plummeted $170,000 from early spring with transactions culminating in a nearly 40% drop this October.

The losses are more acute when drilled down into the Greater Toronto Area — the October data from the Toronto Regional Real Estate Association shows sales down across the region by 49%.

Of course, fewer deals equal shrinking real estate commission — and today’s agents are feeling the financial pain. In fact, the average agent can expect their annual earnings to be chopped by $45,000, says broker and real estate analyst Daniel Foch, who crunched the numbers based on year-to-date Ontario transaction data as reported by the Canadian Real Estate Association. 

According to his calculations, the province’s market is on track to lose out on $3B in real estate commission this year when compared to activity in 2021, with the average agent commission dropping from $125,000 to $80,000. This is based on a total sales volume of $227B in 2021, which would have netted $11B in total commission, compared to the forecasted $151B sales volume expected this year — bringing in just $7.5B in commission.

“We’re seeing a lot of defeatedness from people in the profession, a little desperation for sure, and almost denial because people are saying, ‘It can’t stay this bad,’” he tells STOREYS.

“Things were so good for two years during COVID — if you look at the Canadian Real Estate Association website and look at their number of transactions, it was well above the 10-year average over the last two years during COVID, and now it’s plummeted way down below that… and that recoil is going to hurt.”

READ: Ontario Expects Housing Starts, Sales and Prices to Fall in 2023

As well, Foch adds, “If sales are down 30%, prices are down 8.5%, you can compute the contraction of what is basically 1% of our GDP in Ontario. It’s a lot of income taken out of the economy.” 

Veteran agents, of course, have seen their fair share of market boom and bust — but even they are in awe of the ferocious sellers’ conditions that prevailed over the course of the last two years. Virginia Munden, realtor at Munden Realty and CEO and Founder of The Buzz Conference, says that while today’s slowdown is “no different” than previous down periods, 2021 remains an outlier in terms of demand — and the resulting whiplash is a lot for newer agents to bear. 

“In my three decades in the business, I haven’t seen a year like last year. Ever,” she says, recalling one particular property with over 41 offers. “It went for a million dollars over the asking price; that is not a normal market.”

In comparison, today she’s seen properties sell for 20 – 35% less than they would have since last spring, and agents making 30 – 40% less in compensation. Others, she adds, haven’t had a deal since this past March.

The ones who will make it through will be those who take the opportunity to invest in themselves.

“If realtors are struggling right now, I would not call it a struggle — this is a changing market, and every single market has an opportunity,” she says.

“…I think it’s really important to settle realtors down [from negative news media], especially this new generation of real estate agents that have never seen this market before. My husband and I have seen this market over the years maybe three, four, five times in our almost three decades in the industry. It is normal. This is the time to stay educated, to look for those opportunities where buyers are going to jump back in.”

Munden remains optimistic about the market in the short term, given the number of buyers who — rather than contend with rapidly rising interest rates and historically low inventory — have simply put their purchase plans on hold. Once the Bank of Canada starts to ease up on their rate hiking cycle, many prospective buyers will come back out of the woodwork, she asserts, pointing out that today’s interest rates remain low from a historical perspective.

“I think we’re heading into a buyers’ market in 2023,” she says. “I still think, whether it’s five or five-and-a-half to six-and-a-half percent, those are still really good rates. When I bought my first home almost 32 years ago, the rate was 14.25%. So these rates right now, are still considerably low, if pricing has come down. If buyers can get back into the market, and if they feel comfortable, based on their current situation — work, life, etc. — it is a great time to buy real estate.”

But even in a best-case scenario, market recovery remains a few months off — and the industry is doing what it can in the meantime to staunch the bleeding.

One such move is a fee reduction from the Real Estate Council of Ontario, which informed member agents via email that as of March 1, 2023, their costs will drop from $390 to $306 for all new, renewal, and reinstatement applications. Agents transferring from one brokerage to another will only need to pay $25 compared to the previous $100.

Brokerages are also getting creative with their compensation packages in order to keep agents engaged and recruitment flowing.

“I think you’re seeing a lot of brokerages exploring alternatives,” says Foch. “A lot of people are getting more into the leasing space; residential leasing has been pretty popular in Toronto and a lot of brokerages are encouraging people to just do that to keep the deal flow going.“

He adds that he’s seeing many brokerages introduce fee capping structures for agents, or reduce their overhead by going cloud based rather than hanging on to their brick and mortar. Others are offering stock options, and incentives for existing agents to recruit new ones.

“Brokerages, whether big brands or boutique brands — if they are bringing opportunity to their agents, and they’re compensating them through these new models, they’re going to win in 2023, because this younger generation specifically, they want to be compensated for their time, they’re pretty savvy, they know they hold value right now, there’s a lot of them doing really great things,” adds Munden.

According to both Foch and Munden, there’s one type of agent unlikely to survive the downturn — part timers. 

“I know an agent who only had two deals last year and he made himself $180,000 just through two listings,” says Munden. “But will you have those opportunities again? The agents that are not working on their business, innovating and adding to their designation portfolio, improving their value proposition, updating their website, adding pre-construction to their service repertoire; agents that continue to adapt and innovate and add are the ones that will win in 2023.”

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Former B.C. Realtor has licence cancelled, $130K in penalties for role in mortgage fraud

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The provincial regulator responsible for policing B.C.’s real estate industry has ordered a former Realtor to pay $130,000 and cancelled her licence after determining that she committed a variety of professional misconduct.

Rashin Rohani surrendered her licence in December 2023, but the BC Financial Services Authority’s chief hearing officer Andrew Pendray determined that it should nevertheless be cancelled as a signal to other licensees that “repetitive participation in deceptive schemes” will result in “significant” punishment.

He also ordered her to pay a $40,000 administrative penalty and $90,000 in enforcement expenses. Pendray explained his rationale for the penalties in a sanctions decision issued on May 17. The decision was published on the BCFSA website Wednesday.

Rohani’s misconduct occurred over a period of several years, and came in two distinct flavours, according to the decision.

Pendray found she had submitted mortgage applications for five different properties that she either owned or was purchasing, providing falsified income information on each one.

Each of these applications was submitted using a person referred to in the decision as “Individual 1” as a mortgage broker. Individual 1 was not a registered mortgage broker and – by the later applications – Rohani either knew or ought to have known this was the case, according to the decision.

All of that constituted “conduct unbecoming” under B.C.’s Real Estate Services Act, Pendray concluded.

Separately, Rohani also referred six clients to Individual 1 when she knew or ought to have known he wasn’t a registered mortgage broker, and she received or anticipated receiving a referral fee from Individual 1 for doing so, according to the decision. Rohani did not disclose this financial interest in the referrals to her clients.

Pendray found all of that to constitute professional misconduct under the act.

‘Deceptive’ scheme

The penalties the chief hearing officer chose to impose for this behaviour were less severe than those sought by the BCFSA in the case, but more significant than those Rohani argued she should face.

Rohani submitted that the appropriate penalty for her conduct would be a six-month licence suspension or a $15,000 discipline penalty, plus $20,000 in enforcement expenses.

For its part, the BCFSA asked Pendray to cancel Rohani’s licence and impose a $100,000 discipline penalty plus more than $116,000 in enforcement expenses.

Pendray’s ultimate decision to cancel the licence and impose penalties and expenses totalling $130,000 reflected his assessment of the severity of Rohani’s misconduct.

Unlike other cases referenced by the parties in their submissions, Rohani’s misconduct was not limited to a single transaction involving falsified documents or a series of such transactions during a brief period of time, according to the decision.

“Rather, in this case Ms. Rohani repetitively, over the course of a number of years, elected to personally participate in a deceptive mortgage application scheme for her own benefit, and subsequently, arranged for her clients to participate in the same deceptive mortgage application scheme,” the decision reads.

Pendray further noted that, although Rohani had been licensed for “a significant period of time,” she had only completed a small handful of transactions, according to records from her brokerage.

There were just six transactions on which her brokerage recorded earnings for her between December 2015 and February 2020, according to the decision. Of those six, four were transactions that were found to have involved misconduct or conduct unbecoming.

“In sum, Ms. Rohani’s minimal participation in the real estate industry as a licensee has, for the majority of that minimal participation, involved her engaging in conduct unbecoming involving deceptive practices and professional misconduct,” the decision reads.

According to the decision, Rohani must pay the $40,000 discipline penalty within 90 days of the date it was issued.

 

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Should you wait to buy or sell your home?

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The Bank of Canada is expected to announce its key interest rate decision in less than two weeks. Last month, the bank lowered its key interest rate to 4.7 per cent, marking its first rate cut since March 2020.

CTV Morning Live asked Jason Pilon, broker of Record Pilon Group, whether now is the right time to buy or sell your home.

When it comes to the next interest rate announcement, Pilon says the bank might either lower it further, or just keep it as is.

“The best case scenario we’re seeing is obviously a quarter point. I think more just because of the job numbers that just came out, I think more people are just leading on the fact that they probably just gonna do it in September,” he said. “Either way, what we saw in June, didn’t make a big difference.”

Here are the pros of buying/ selling now:

Pilon suggests locking in the rate right now, if you don’t want to take a risk with interest rates going up in the future.

He says the environment is more predictable right now, noting that the home values are transparent, which is one of the benefits for home sellers.

“Do you want to risk looking at what that looks like down the road? Or do you want to have the comfort in knowing what your house is worth right now?” Pilon said.

And when it comes to buyers, he notes, the competition is not so fierce right now, noting that there are options to choose from.

“You’re in the driver seat right now,” he said while noting the benefits for buyers.

Here are the cons of buying/ selling now:

He says one of the cons would be locking in the rate right now, then seeing a rate cut in the future.

The competition could potentially become fierce, if the bank decides to cut the rate further more, he explained.

He notes that if that happens, the housing crisis will become even worse, as Canada is still dealing with low housing inventory.

An increase in competition would increase the prices of houses, he adds.

Selling or buying too quickly isn’t the best practice, he notes, suggesting that you should take your time and put some thought into it.

Despite all the pros and cons, Pilon says, real estate remains a good investment.

According to the latest Royal LePage House Price Survey for the second quarter of this year, the average home price in Canada is $824,300. That’s up 1.9 per cent from the same time last year, and up 1.5 per cent from the first quarter of 2024.

In the Ottawa Housing Market Report for June 2024, the average price of a home was up 2.4 per cent from this time last year to $686,535, but down 0.6 per cent from May 2024.

Experts believe many potential buyers are still hesitant of jumping into the housing market and waiting for another interest rate cut of 50 to 100 basis points.

“I don’t think it’s going to be the rush that we see in the past, because people are used to more of a conservative approach right now,” said Curtis Fillier, president of the Ottawa Real Estate Board. “I think there’s still a bit of a hold back, but I definitely do think with another rate cut, we’ll probably see a very positive fall market.”

With files from CTV News Ottawa’s Kimberly Fowler

 

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Real estate stocks soar to best day of year on rate cut bets

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(Bloomberg) — The stock market’s worst group notched its best day of the year as a cooler-than-expected inflation report stoked bets that the Federal Reserve will start cutting interest rates in September.

Shares of real estate companies jumped 2.7% Thursday for their biggest gain of 2024, climbing to their highest level since March as investors snapped up homebuilder, digital and commercial real estate stocks alike. Real estate also was the best-performing group in the S&P 500 Index Thursday, with volume that was around 30% higher than the 30-day average, according to data compiled by Bloomberg.

Arguably the most significant news to come from the latest consumer price index reading was a pullback in housing-related inflation. Shelter costs rose just 0.2% for the slowest monthly increase in three years. Homebuilders, which have risen 7.1% this year, were up 7.3% for the session, the most since 2022. Shares of D.R. Horton Inc., which is scheduled to report earnings next Thursday, gained 7.3%.

“Housing has really been the last shoe to drop in terms of winning the battle against high inflation,” Preston Caldwell, chief U.S. economist at Morningstar wrote in a note to clients Thursday. “Leading-edge data has strongly indicated for some time now that a fall in housing inflation was in the works.”

A rally in real estate stocks is bad news for short sellers who have been piling into the group, which is the worst performer in the S&P 500 this year. To start the week, short interest as a percentage of float hovered near 49% in the SPDR Homebuilders ETF, the highest level since February for the exchange-traded fund, according to data from S3 Partners.

Property owners are rallying as well. Real estate investment trusts, which were brutally penalized during the two-year run up in borrowing costs, advanced by as much as 3%. And the outlook for the group appears to have turned a corner, according Rich Hill, senior vice president and head of real estate strategy and research at Cohen & Steers Capital Management.

“We think this is a compelling backdrop for listed REITs especially as fundamental growth remains on solid footing,” he said, referencing the latest inflation data and rate outlook. “The rally that started in October of 2023 pushing returns more than 20% above their trough looks set to continue if inflation cools and interest rates continue to decline.”

Shares of industrial REIT Prologis Inc., which reports second-quarter results on Wednesday, rose 3.3% to hit their highest level since April. U.S. Treasury yields tumbled, with the 10-year bond falling to 4.2% and the policy-sensitive two-year note slipping to 4.5%.

(Updates indexes and stock prices for market close.)

 

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