A multibillion-dollar settlement in the United States agreed last Friday has opened the door for alternative models of selling real estate, and likely spells the end to 6% commissions on home sales.
American homesellers excited by the prospect of paying substantially lower fees — and realtors equally fearful of a huge cut to their income — need only look across the pond for an example of what might happen next.
An influx of low-cost, online-only real estate agencies in Britain has shaken up its housing market in recent years, offering sellers highly competitive upfront fixed fees for a basic package of services.
“Sell your home for free. No bull,” promises one such agency, Purplebricks, on its website. The company, founded a decade ago, offers sellers a valuation and a listing — “everything you need to sell your home” — for free.
Sellers can choose, however, to pay for a range of services considered standard among traditional real estate agencies, and many of them do. Purplebricks charges £899 ($1,142) to have one of its agents conduct property viewings, for example, and £699 ($888) for a package that includes professional photos.
But that’s still a much sweeter deal than the typical £2,850 ($3,616) a UK homeowner can expect to pay a traditional brick-and-mortar agent for a property priced at the national average of £285,000 ($362,022).
That’s based on the average agency fee of 1% — a figure provided by Nathan Emerson, chief executive of Propertymark, a trade body representing 18,000 real estate agents in the United Kingdom, including Purplebricks.
Online agencies accounted for just 5.5% of homes sold across the UK in the last three months of 2023, according to property data firm TwentyCi. And that share declines as the value of a property increases.
Even so, Paula Higgins, chief executive of campaign group HomeOwners Alliance, says the proliferation of agencies like Purplebricks has “fundamentally changed” the UK real estate agency market, making it “much more competitive and transparent.”
The National Association of Realtors, a powerful trade group representing 1 million US realtors, said Friday that it would pay $418 million to settle an antitrust lawsuit brought by homesellers arguing that it had forced them to pay inflated rates of commission.
The NAR said it would introduce new rules that effectively dismantle the current homebuying and selling process, in which sellers pay both their broker and a buyer’s broker a standard combined 6% commission based on the final sale price.
The changes should boost alternative models of selling real estate that already exist but don’t have much market share, including via flat-fee and discount brokerages. Real estate commissions are also likely to fall across the board, because of the new rules, according to TD Cowen Insights.
A ‘do-it-yourself’ service
In Britain, upstart online agencies offering flat fees have failed to meet the lofty expectations of the early 2010s, when Purplebricks burst onto the scene.
Their market share has fallen steadily from a high of 8.2% in the final quarter of 2019, according to TwentyCi, which started tracking the data the year before. That could be because they forced the incumbents to trim their fees and improve their offering.
“Having that competition, it (has) really upped the game of the high street estate agents,” Higgins told CNN, noting that traditional players now have a greater online presence and are more open about what their fees pay for.
Several UK online agencies have gone bust in recent years. The HomeOwners Alliance website used to list 15 online agencies. It now only lists five.
Purplebricks, once the breakout star, issued a profit warning last year before its rival, Strike, bought it in a rescue deal for just £1 ($1.27).
Sam Mitchell, chief executive of both companies, told CNN that 60% of people selling homes on Purplebricks pay for an upgraded service. The agency also makes money through its mortgage brokerage arm, and by offering some legal services, he added.
“The cheap fee model hasn’t worked, we’ve seen that with all the businesses that have started and failed,” said Adam Day, who is leading the UK expansion of eXp, a US-based real estate agency. “For Purplebricks to (sell services) for free, what is this model going to look like in two to five years’ time?”
Day, who founded one of Britain’s first online-only agencies in 2006, told CNN it was “impossible to run an estate agency on cheap fees and make a profit.”
Higgins, at the HomeOwners Alliance, suggests an explanation for why these agencies have failed to enchant more sellers: “You might be paying rock-bottom fees, but it can be a do-it-yourself service.”
Sellers, paying these agencies nothing to relatively little, are typically required to put in most of the work, taking photos of their property, finding potential buyers, arranging viewings and negotiating offers, she said. That doesn’t work for everyone.
“If you are selling and you’ve got a local estate agent, they’ll have people on their books that are probably looking for properties on that street, and they’ll know, almost, who’s living in whose house,” she said.
While online agencies offer sellers “flexibility and choice,” says Emerson, at Propertymark, in a tricky housing market where it’s harder to sell properties, would-be sellers tend to opt for traditional agents whose business model is based on completing a sale to get the commission.
Online agencies, in contrast, usually take a flat fee from sellers to list their property, whether or not it eventually sells.
“You’re paying for them to market your property. If it sells, it sells, if it doesn’t, it doesn’t, you still pay…. you’re not paying them to sell your house,” Emerson said.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
