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Real estate in the age of COVID-19: Bidding wars still, but a reckoning is near – TheChronicleHerald.ca

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By rights, Ottawa’s real estate industry should be flat on its back. It’s a sector that relies heavily on buyers with secure jobs, direct personal contact and confidence in the future.

Yet, despite all the pernicious effects of social distancing, including lost jobs, shrinking wages and disappearing revenues in core parts of the economy, the past week has been anything but quiet.

“In the last seven days, we’ve seen 576 new listings, 119 of them in the past 24 hours,” says Bill Meyer, owner of HomeTeamOttawa, a real estate firm that markets services under the Remax Hallmark Realty banner.  “We are still in this period of pent up demand.”

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Indeed, the COVID-19 virus smacked into Ottawa’s real estate industry just as it was scaling rarely seen peaks. Residential resale prices had soared 20 per cent year over year in January and February, the highest such gains in nearly four decades. Residential properties last month sold for a record average $564,000, while condos fetched nearly $350,000.

Even so, momentum will carry the sector only so far. A reckoning is coming and there’s a whiff of desperation in the air.

“We aren’t doing open houses anymore,” Meyer says, “but this market is strong because some people still have to sell. They’re changing jobs or they’ve already bought a house and need to sell to pay for it.”

It could be a much different picture once all these urgent sales clear the market.  “This could all come to a screeching halt,” Meyers observes. “I can’t imagine people listing their homes in this (COVID-19) environment unless they have to.”

Certainly working conditions have changed. The firm’s 15 agents and staff are working out of their homes. Meyers goes to the office for a couple of hours each morning and evening, when he is the only one there, and catches up with colleagues by phone or email.

Like many other real estate firms, Meyer’s company has stringent protocols in place. Agents still arrange showings, but there can be no overlap of potential buyers. Hand sanitizers or wipes must be available, and all inside doors must be kept open so no one has to touch surfaces.

Meyer on Tuesday arranged an estate sale in which all papers were signed electronically.

It’s a similar scene at Paul Rushforth Real Estate, an agency with 13 realtors. “We’ve closed our offices, but our front desk is still taking queries from home,” Rushforth says. “We’re not doing open houses, and showings (of houses) are just one person at a time.”

Rushforth says he has been surprised by the briskness of sales activity this past week, but can see underlying weakness. As with Meyer, many of his company’s new listings are from people who absolutely need the cash after buying another house earlier and fully expecting to pay for it by selling their existing home into a hot market.

So far prices are holding up, but Rushforth notes some telling patterns. “We’re still seeing bidding wars for properties,” he says, “including more than half our ten most recent deals.” But he notes that a property that might have attracted 10 bids early in March now gets just two or three. This, in turn, means sellers are not getting as much over their initial asking price. “This week we listed a property for $699,000 and it sold for $708,000,” Rushforth explains, “Two weeks ago, it would have got $770,000.”

John King, the broker manager for Engel & Völkers Ottawa Central, says he also notices the start of a shift. On Thursday evening, he fielded six offers for a property at 480 Brennan Ave., in the Hampton Park district. It sold almost immediately for $747,000, more than $100,000 over the original listing price.

On Friday, though, he was somewhat surprised to discover there were still no requests for showings for two new listings in the highly popular district of Westboro. “It’s day by day now,” King says.

For the moment, Engel & Völkers is keeping its Ottawa offices open with a skeleton staff. “There’s just one employee per floor,” King says, adding he is also making greater use of video by doing tours of his listings through Facebook. If people like what they see virtually, they can sign up for a showing in person, “one group at a time.”

The difference between what was and what will be in Ottawa’s real estate market promises to be stark.


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Stay home, practise social distancing, Ottawa’s medical officer of health urges

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Will the NAR, U.S. case impact the CREA lawsuit in Canada? – Business in Vancouver

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Two North American court cases are taking the real estate industry to task over commissions paid out to Realtors.

While the Canadian lawsuit has the potential shake B.C.’s housing market, experts don’t agree on what the fallout might mean just yet.

“The fundamental issue … is that there’s a belief that a buyer’s agent will steer their client to listings that have higher commissions offered by the listing agent,” said Tom Davidoff, an associate professor at the UBC Centre for Urban Economics and Real Estate.

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“Somebody who buyers are trusting should be looking out for the buyer’s best interest, not shopping offered commissions. So anything that can be done to avoid that, I think is helpful.”

A proposed class-action lawsuit filed in January alleges that the Canadian Real Estate Association (CREA), alongside dozens of provincial and local real estate groups “conspired, agreed or arranged with each other to fix, maintain, increase or control the price for the supply of buyer brokerage services for residential real estate.”

South of the border, the National Association of Realtors (NAR) agreed two weeks ago to a $418-million settlement, as well as changes to the standard six per cent sales commission. This brings an end to a lawsuit that accused the industry association of artificially inflating real estate agent commissions.

“This is about fair play between participants in the real estate industry and in the public, and these rules are just not fair,” said lawyer Garth Myers, a partner at Toronto-based Kalloghlian Myers LLP, who filed the proposed class-action lawsuit in Canada.

There are 10 B.C. real estate boards named in the Canadian suit and eight brokerages.

Myers said that changes to the standard commission in the NAR case “eviscerates any defence that the Canadian defendants will have in relation to the necessity of these rules.”

“The fact that NAR walked away from these rules in the States, we think is very important,” he said.

“The main defence that we expect in Canada … is that these rules are so important to the proper functioning of the system, the whole system would break down in their absence. And the fact that the NAR was able to walk away from these rules in a system that is virtually identical, is proof positive that this system can function just fine without them.”

Trevor Koot, CEO of the British Columbia Real Estate Association, said that there is no question that the NAR case has captured the attention of the real estate industry and Canadian consumers. 

“Canada however, is a different country with a differing legal and business framework than the US. As the CREA has indicated, they deem the case in Canada to be without merit,” he said in an email to BIV

In Canada, real estate commissions can vary from three per cent to seven per cent of the sale price, however, there is no set commission or standard. However, because this is a percentage of what a home sells for, as home prices rise so too is the price of commission, said Myers.

“People are queued up to be upset about anything to do with the real estate market, mostly because housing is a human need and there’s a lot of people who see themselves at risk of not having the housing that’s going to make them reasonably happy,” said Davidoff.

“I don’t think this litigation is really fundamentally about housing affordability.”

If successful, Myers said that the case will put money into the pockets of sellers who have overpaid for commissions.

“I think it will make it less costly to buy and sell real estate generally. Will that have a downstream effect on the buyer? I don’t know. But we’re seeking to represent sellers and that’s who we’re acting on behalf [of],” he said.

When it comes to whether or not the CREA lawsuit will result in lower home prices, Davidoff said that it may not be the case.

“If there’s more homes on the market, there’s lower prices, but the people who are selling their homes are very likely moving to another owner-occupied unit. It’s not common for people to transition from owning to renting. So the net increase in houses available isn’t great and with more transactions, usually prices are actually higher,” he said.

“Buyers may have to start compensating Realtors out of their own pocket. I don’t see this as a win for first-time buyers. … This is not a silver bullet or magic carpet ride to affordability.”

This is not the first time that the Canadian Real Estate Association or other real estate boards across the country have been challenged when it comes to commissions.

A 1988 order of prohibition from the federal government’s Competition Bureau states that the CREA and all real estate boards that are members of the association are prohibited “from fixing, establishing, maintaining, suggesting or controlling in any manner commission rates or fees for MLS.”

“The real estate industry at various times in various forms, both here and in the U.S., has faced various legal actions on that. And usually the end of these agreements [is] not to do that, but the world doesn’t seem to change much. Every once in a while somebody comes along with a new law, a new lawsuit, a new government action,” said Ron Usher, general counsel for the Society of Notaries Public of B.C.

“It’s a front-page story that’s been going on for 30 years.”

The Competition Bureau said it is aware of the proposed class-action lawsuit.

“We remain focused on ensuring that consumers benefit from innovation and competition in the provision of real estate services and will take action whenever we find evidence of conduct that is prohibited by the Competition Act,” the agency said in an email to BIV.

Andrew Carros, managing broker of Engel and Völkers in Vancouver, said that he is not concerned about the case and that for him, nothing changes.

“It doesn’t worry me one little bit, because I have always disclosed agency, my clients know exactly what I get paid, they understand my value. … In fact, it gives guys like me the ability to be able to explain this better and be able to get better documents out there,” he said.

Oakwyn Realty Ltd. broker Steve Saretsky said that while there is some uncertainty among real estate agents, it’s too soon to tell what the impacts will be.

“People are drawing massive conclusions, but I don’t think we know enough yet,” he said.

“What’s going to happen is you’ll probably see a bunch of different business models coming out of it, lower fee structures, things of that nature.”

[email protected]

Editor’s note: This story has been updated to include comments from Trevor Koot. 

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NAR settlement explained: Why Realtors like me are scrambling

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One of my favorite “Modern Family” episodes depicts the hilarity and nonsense of a real estate agent’s daily life as Phil Dunphy rattles off deed restrictions and the proper pronunciation of the word “Realtor” (real-TOR).

A registered trademark of its originator, Realtor is a title only real estate agents who pay membership to the National Association of Realtors (NAR) are allowed to boast.

Today, after more than 10 years as one myself, the “Realtor” prestige has lost its allure.

Just when it felt like NAR was bouncing back after a sexual harassment scandal in 2023, we real estate agents and brokers now find ourselves in the aftermath of this month’s multimillion dollar NAR settlement.

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While I am nervous about what these NAR settlement changes mean for my residential real estate business and community, I am pleased that we’re all turning our eyes and ears to a company whose pockets have gotten too big and too dark for too long.

But enough about NAR.

Brokers, their agents and our local associations are scrambling to decide how to restructure serving residential buyers fairly without undervaluing our work. It feels a bit like a bomb just went off, and we’re running up to each other screaming, “Can you hear me talking? Are you talking? What are we going to do about this?!”

We have only until mid-July to figure it out.

Here’s what we know now: Buyer broker compensation is no longer allowed to be included on the Multiple Listing Service (MLS). And buyers are now required to sign a Buyer Representation Agreement, which includes the buyer broker’s compensation.

Real estate agents are worth it. So how do we get paid?

Buyer services are harder and more unpredictable, I think, than seller services (even in a buyer’s market!). Some buyer clients take years to find a property, while others take only a few weeks.

The stories we agents could tell would make anyone roll with laughter or cry – probably both. Being a real estate agent is like a reality TV show. How will we divide our whole job into billable hours? Billable tasks?

As an agent, I’m not only giving advice about market data and negotiating terms for sale. I’m also an on-call therapist, a babysitter, an interior designer, a cleaner, an exterminator … agents gladly do an endless list of tasks for our clients. Just ask your favorite agent what she keeps in her car for emergencies!

One thing I can predict with much certainty: Buyers will have to do more work to buy a property in the future. Private tours will be less common and replaced by 3D tours, video tours and open houses. Buyers might also have to meet with their inspectors, contractors and others without their agent.

Maybe buyers really will do it all themselves without losing money.

Buying a house?Don’t go it alone. A real estate agent can make all the difference.

If you’re hoping to buy in the next three months, my recommendation would be to close by July 1. Most first-time homebuyers have no idea what has happened or how it will affect their ability to negotiate.

In the past week, I’ve had to explain the NAR settlement to every friend, neighbor and client outside the industry. I can only tell you that we’re all racing to get it figured out by the time it does affect everyone.

NAR settlement explained: How will this impact home sellers and real estate prices?

Seller-paid buyer broker commissions were created with equitable rights to good representation in mind. Specifically, so that first-time buyers could afford to have a fair negotiation, instead of being swept under the rug by a seller’s agent signed to protect the seller (a law in most states).

My heart breaks for those sellers who were swindled into commissions. As much as I’d like to blame NAR, this error is also on agents, brokers and local boards who clearly violated our ethical code. It’s maddening to watch agents and brokers feed right into the stereotype that real estate agents are lazy and just in it for the biggest paychecks.

So, who will pay the buyer’s agent now, and how will this affect home prices?

Real estate prices:Will home prices fall after Realtor lawsuit settlement? You shouldn’t count on it.

It’s commonly acknowledged that the 5-6% sales commission was “baked into” the sales price. Investor agents and builders have been using low-to-zero percent buyer broker commissions as leverage for years.

While I do think that 5-6% sales commissions will be a thing of the past, there is a chance that sellers will find a way to simply advertise buyer broker commissions through a different medium. This compromise walks a fine line with the new restriction.

Seller-paid “buyer credits” is my favorite idea bumping around. Buyer credits would be offered on the listing, and could be distributed as the buyer sees fit at the closing table. The buyer could use the funds for themselves, their broker or both.

If buyers are responsible for the buyer broker commission on top of other purchasing costs, the sales prices will have to come down. Lower sales prices should not affect the sellers’ net proceeds in this instance, since the sales price deficit should roughly mirror the now absent buyer broker’s commission.

In short, even though most sellers think they should be celebrating now, these new rules probably won’t affect sellers much, if at all, once the dust settles.

What does the NAR settlement mean for buyers?

Gone are the “Let’s go tour this house for fun!” days.

A signed Buyer Representation Agreement is now required before a property showing. This has always been best practice. For some states this will be a big change.

For example, I usually complete a buyer consultation and one or two property tours before requiring a buyer’s agreement. I do this to be sure we’re a good match for each other. A successful client-agent squad requires a lot of trust and a common communication style.

Take the tours off the table, and I think things will get awkward. Now I spend one hour with a potential buyer and then prompt, “So do you trust me to guide you through your biggest life purchase? Sign here.” I’m sure thankful many of my clients are referrals.

How will the commission change impact real estate agents in 2024?

The part-time agents and small brokerages will likely diminish over time, which will either be great or horrible for the industry. Agents will have to do more with less, and our 60 to 70 hour work week will feel impossible without high sales volume.

Once in escrow, the brunt of the work usually lands on the buyer’s agent, too. If there are more transactions without buyer’s agents, then the seller’s agent will have to pick up the slack.

Emily Ross

I often joke that as a 1099 real estate agent, I’m either overpaid or underpaid on each property. Still, my annual income mashes up into a worthwhile sum despite the work-life balance.

Without that 2-3% buyer’s commission propping up half my income, I am not sure the 11:30 p.m. phone calls, 6 a.m. texts, missing my daughter’s basketball game for an impromptu showing, and never having paid time off or maternity leave will be worth it.

Maybe I ought to go back to copywriting.

It feels like most brokers and Realtor associations are strategizing how to make the buyer agent obsolete with new technologies. I think they’re focusing on the wrong solution, but that’s a story for another day.

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A settlement in a U.S. lawsuit could upend the cornerstone of real estate industry: commissions

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The cost of selling a home in the United States may be about to change dramatically.

A real estate trade group has agreed to a landmark deal to drop what was once a cornerstone of the industry: the six per cent sales commission paid to agents.

In Canada, two lawsuits filed against various real estate bodies want the courts to come to the same conclusion and force wholesale change in the way Realtors charge their fees when a home is sold.

“We got here by a cartel of brokerages and real estate associations that control the rules, and they’ve done it for a very long time,” said Garth Myers, a litigator with Toronto law firm Kalloghlian Myers.

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He filed the proposed class-action lawsuits in Federal Court on behalf of plaintiffs who allege that the Canadian Real Estate Association, the Toronto Regional Real Estate Board and several local brokerages and franchisors conspired to set fees and illegally drive up the price of real estate commissions.

At the heart of both the U.S. and Canadian cases is the opaque way in which real estate agents charge their fees.

Lawsuits revolve around Competition Act

In Canada, there are different fee structures in different jurisdictions. In Ontario, for example, a commission of five per cent of a home’s sale price is split between the buyer’s and seller’s agents.

With the average price of a Toronto home at $1,225,000 last month, Realtor fees would amount to $61,250.

In Vancouver, Realtors charge seven per cent on the first $100,000 of the sale price, and between 2.5 and three per cent on the balance. So agents would split between $29,500 and $34,000 in fees on a $1-million home.

A real estate 'For Sale' sign outside a single-family home.
In Canada, there are different fee structures for real estate agents in different jurisdictions. In Vancouver, Realtors charge seven per cent on the first $100,000 of the sale price, and between 2.5 and three per cent on the balance. (Ben Nelms/CBC)

In the U.S., agents generally charge a commission of five or six per cent.

But what is common among those different jurisdictions is that the fee paid to the buyer’s agent is baked into the price of the home, while a seller can negotiate with their agent and get a better fee.

A potential buyer can look up the details of a home on something called the Multiple Listing Service (MLS). The listing includes everything they would want to know about a property — from size and taxes to upgrades and amenities — but it doesn’t disclose the amount a buyer will pay in Realtor fees.

Myers said the existing system enables agents to steer clients away from homes that aren’t paying the full commission.

“It’s clear to us that consumers are being ripped off, it’s clear to us that the rules elevate the cost of buyer brokerage commissions,” he said. “Now the open question that the court is going to have to resolve is whether this is criminal conduct under the Competition Act. And that’s what we’re fighting about in court.”

It will likely take years before the cases are resolved.

WATCH | How sweeping U.S. real estate changes could impact Canada:

How sweeping U.S real estate changes could impact Canada

15 hours ago

Duration 6:22

A landmark legal settlement is upending the U.S. real estate market. CBC’s Peter Armstrong breaks down the possible ripple effects for home buyers and sellers in Canada.

U.S. industry pushes back

In the U.S., there is already fierce disagreement over what the court settlement — which ends legal claims from home sellers over real estate commissions — actually means.

On March 15, the day the $418-million US settlement was announced, the National Association of Realtors said fees have always been set by the market, not by collusion among agents. Besides, the group said, those fees have always been negotiable.

“Offers of compensation help make professional representation more accessible, decrease costs for home buyers to secure these services, increase fair housing opportunities, and increase the potential buyer pool for sellers,” the association said in a statement outlining the broad points of the agreement.

Rows of houses are shown in a subdivision.
A housing subdivision is shown in Middlesex Township, Pa., in April 2023. In the U.S., there is disagreement over what the $418-million US court settlement — which ends legal claims from home sellers over real estate commissions — actually means. (Gene J. Puskar/The Associated Press)

Since then, high-profile brokerages have pushed back against the notion that the industry will be forced to change as a result.

“Since the settlement announcement, there have been numerous articles and stories in the media on what this means for buyers and sellers,” Budge Huskey, president and CEO of Premier Sotheby’s International Realty in Naples, Fla., said in a statement released on Tuesday.

“Regrettably, most reflect a profound lack of understanding of the real estate business as well as mistaken claims.”

Huskey said the notion that sellers will no longer pay a fee to the buyer’s agent is simply false.

“There has never been any obligation for a seller to pay buyer agent compensation at any time, yet it has been a historical practice that’s worked exceedingly well since the advent of modern residential real estate,” he said.

Realtors in Canada, such as ReMax, aren’t saying much publicly while the cases work their way through the courts. A spokesperson for the organization would only say that “we do not comment on ongoing litigation.”

U.S. reaction watched closely here

“It’s important to note the litigations in Canada and the U.S. occur in different legal and factual contexts, and the litigations are at a much earlier stage here in Canada,” the Canadian Real Estate Association said in a statement to CBC News, adding that “we’ll continue to review U.S. developments.”

The statement goes on to say that buyers and sellers in Canada “have always been able to negotiate commissions with their agent…. On the buyer side, buyer representation agreements are required in at least seven provinces in Canada. These agreements set out terms like services and fees between an agent and their buyer. This represents more than 80 per cent of homes sold in Canada.”

Real estate experts on this side of the border have been watching the U.S. reaction very closely.

A man with grey hair and a grey beard, wearing a blue overcoat and tie, stands outside a building.
Murtaza Haider, a professor of real estate management at Toronto Metropolitan University, says he thinks the lawsuits in Canada will lead to the same outcome as those in the U.S. because the two real estate systems are so similar. (Pelin Sidiki/CBC)

Murtaza Haider, a professor of real estate management at Toronto Metropolitan University, said the two systems are so similar that he believes the court cases here will lead to the same outcome as those in the U.S.

But, he said, people should temper their expectations.

“We won’t have a system blow up. It’s basically giving the buyer the rights to negotiate with the agent, a commission for the services they may or may not use,” Haider said.

Down the road, he imagines a system where some buyers pay an agent a full commission to help them find a home, figure out a price and close the sale, while others will simply need someone to help them file the paperwork.

Haider warned that there may be some unintended consequences to changing the system. Currently, he said, the fee paid to both the buyer’s and seller’s agents is essentially included in the price of the home. Fees are not an extra closing cost outside the home price.

“Right now it’s baked into the mortgage amount, so you don’t have an out-of-pocket policy. But [if you] have the flexibility and freedom to negotiate, that amount [may be] coming out of your own pocket right away,” Haider said.

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