Real eState

The way real estate agents are paid could be changing

Published

11 months ago

December 13, 2023

Real estate agent Barb Lebrecht was giving a tour of a bucolic, 10-acre property she recently sold in Garden Valley, a town of a few thousand people about an hour northeast of Sacramento, California.

If you squinted past the seafoamy paint job, the hillside home looked like something out of a Vrbo ad for a rural weekend getaway. Emphasis on rural.

“I actually wore boots the last time I was here because I was worried about rattlesnakes,” Lebrecht said.

Rattlesnakes weren’t the only hazard Lebrecht dealt with. There were squatters who refused to leave, she said. One time a bull got loose from a neighbor’s yard and just stood behind her Lexus.

It took two years to sell the place. It’s finally scheduled to close before year’s end for around $500,000.

Lebrecht will get a 2.5% commission on the final purchase price, roughly $12,000. The buyer’s agent gets the same cut for a total commission of 5%, technically paid by the seller. It’s the standard way real estate agents are compensated.

Despite two years of essentially uncompensated labor, Lebrecht is a big fan of the commission model. She’s made a solid living out of it for 20 years.

“I have a real affinity toward buyers,” she said. “And I think that if buyers were forced to come in and pay their own commission … it’s difficult. A lot of my buyers are barely able to scrape a down payment, much less closing costs, and then in addition to that also pay their agents.”

She was referring to a possible consequence of a recent wave of litigation that threatens how agents traditionally are paid.

In October, a jury in a Missouri civil case found that the National Association of Realtors and several high-profile brokerages colluded to inflate the commission rates home sellers paid to agents. The crux of the class-action case was a requirement that for a home to be placed on the multiple listings service — essentially the master list of homes for sale in an area — sellers would have to offer buyer’s agents a commission. The jury awarded $1.8 billion in damages to recent Missouri home sellers.

There’s a raft of similar lawsuits targeting the commission model. The National Association of Realtors plans to appeal the Missouri verdict, maintaining that sellers have always had the ability to negotiate commission rates.

But real estate finance professor Andra Ghent at the University of Utah doesn’t really buy that.

Sellers occasionally can negotiate, Ghent said. “But the negotiation is between 5 and 6 [%] on the overall transaction. I think it’s extremely unlikely that you could negotiate down. The Realtor education teaches Realtors against going into an agreement with less than 5%.”

Ghent said the commission model doesn’t work well for buyers either. Even though home sellers are technically paying the commission, in reality, Ghent said, the market incorporates those commissions into the transaction price of the home. And the more a home costs, the more the buyer’s agent gets paid.

“Realtors have a really big incentive to push homebuyers into the most home they can qualify for a mortgage on,” she said. “And for a lot of homebuyers, this is just not the right decision.”

Nate Johnson, vice president of advocacy at the National Association of Realtors, argues that misalignment of incentives between buyers’ agents and buyers is overblown. He said good agents are more concerned with getting repeat clients than marginally bumping up commissions.

“When we look at the sort of pennies and tens of dollars that may result in me encouraging you to pay for more of a property as opposed to less, it’s just not worth it,” Johnson said.

An advantage of the current model is that buyers are effectively paying their agent through their mortgage. Johnson said if they have to pay out of pocket, many buyers might risk making the biggest purchase of their lives without expert help.

Which is actually how homebuying works in plenty of other countries.

“It’s hard to make a comparison to the United States,” Johnson said. “I don’t know exactly what real estate looks like in terms of if there is fair, you know, fair and equal treatment in terms of buyers in the market. There may not be.”

Commissions in most other countries are significantly lower than in the U.S. In the United Kingdom, total commissions are on average about 1.5% of the home price.

“So buyers will just call the listing agent and say, ‘I’d like to view that property, please,’” said Charlie Lamdin, who has worked in the U.K. real estate business for two decades. “And if they like it, the buyer will make an offer to that agent. The buyers generally don’t have representation.”

But Lamdin said there’s a downside — the closing process in the U.K. can be a nightmare.

“Over here, it’s currently an average of five months. That’s how bad it is.”

Lamdin said American real estate agents have it much better than their British counterparts.

At least, for now.

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Real eState

Greater Toronto home sales jump in October after Bank of Canada rate cuts: board

Published

3 days ago

November 6, 2024

Anne Joseph

TORONTO – The Toronto Regional Real Estate Board says home sales in October surged as buyers continued moving off the sidelines amid lower interest rates.

The board said 6,658 homes changed hands last month in the Greater Toronto Area, up 44.4 per cent compared with 4,611 in the same month last year. Sales were up 14 per cent from September on a seasonally adjusted basis.

The average selling price was up 1.1 per cent compared with a year earlier at $1,135,215. The composite benchmark price, meant to represent the typical home, was down 3.3 per cent year-over-year.

“While we are still early in the Bank of Canada’s rate cutting cycle, it definitely does appear that an increasing number of buyers moved off the sidelines and back into the marketplace in October,” said TRREB president Jennifer Pearce in a news release.

“The positive affordability picture brought about by lower borrowing costs and relatively flat home prices prompted this improvement in market activity.”

The Bank of Canada has slashed its key interest rate four times since June, including a half-percentage point cut on Oct. 23. The rate now stands at 3.75 per cent, down from the high of five per cent that deterred many would-be buyers from the housing market.

New listings last month totalled 15,328, up 4.3 per cent from a year earlier.

In the City of Toronto, there were 2,509 sales last month, a 37.6 per cent jump from October 2023. Throughout the rest of the GTA, home sales rose 48.9 per cent to 4,149.

The sales uptick is encouraging, said Cameron Forbes, general manager and broker for Re/Max Realtron Realty Inc., who added the figures for October were stronger than he anticipated.

“I thought they’d be up for sure, but not necessarily that much,” said Forbes.

“Obviously, the 50 basis points was certainly a great move in the right direction. I just thought it would take more to get things going.”

He said it shows confidence in the market is returning faster than expected, especially among existing homeowners looking for a new property.

“The average consumer who’s employed and may have been able to get some increases in their wages over the last little bit to make up some ground with inflation, I think they’re confident, so they’re looking in the market.

“The conditions are nice because you’ve got a little more time, you’ve got more choice, you’ve got fewer other buyers to compete against.”

All property types saw more sales in October compared with a year ago throughout the GTA.

Townhouses led the surge with 56.8 per cent more sales, followed by detached homes at 46.6 per cent and semi-detached homes at 44 per cent. There were 33.4 per cent more condos that changed hands year-over-year.

“Market conditions did tighten in October, but there is still a lot of inventory and therefore choice for homebuyers,” said TRREB chief market analyst Jason Mercer.

“This choice will keep home price growth moderate over the next few months. However, as inventory is absorbed and home construction continues to lag population growth, selling price growth will accelerate, likely as we move through the spring of 2025.”

This report by The Canadian Press was first published Nov. 6, 2024.

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Homelessness: Tiny home village to open next week in Halifax suburb

Published

2 weeks ago

October 24, 2024

Anne Joseph

HALIFAX – A village of tiny homes is set to open next month in a Halifax suburb, the latest project by the provincial government to address homelessness.

Located in Lower Sackville, N.S., the tiny home community will house up to 34 people when the first 26 units open Nov. 4.

Another 35 people are scheduled to move in when construction on another 29 units should be complete in December, under a partnership between the province, the Halifax Regional Municipality, United Way Halifax, The Shaw Group and Dexter Construction.

The province invested $9.4 million to build the village and will contribute $935,000 annually for operating costs.

Residents have been chosen from a list of people experiencing homelessness maintained by the Affordable Housing Association of Nova Scotia.

They will pay rent that is tied to their income for a unit that is fully furnished with a private bathroom, shower and a kitchen equipped with a cooktop, small fridge and microwave.

The Atlantic Community Shelters Society will also provide support to residents, ranging from counselling and mental health supports to employment and educational services.

This report by The Canadian Press was first published Oct. 24, 2024.

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Here are some facts about British Columbia’s housing market

Published

3 weeks ago

October 17, 2024

Anne Joseph

Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.

Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.

Average residential home price in B.C.: $938,500

Average price in greater Vancouver (2024 year to date): $1,304,438

Average price in greater Victoria (2024 year to date): $979,103

Average price in the Okanagan (2024 year to date): $748,015

Average two-bedroom purpose-built rental in Vancouver: $2,181

Average two-bedroom purpose-built rental in Victoria: $1,839

Average two-bedroom purpose-built rental in Canada: $1,359

Rental vacancy rate in Vancouver: 0.9 per cent

How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent

This report by The Canadian Press was first published Oct. 17, 2024.

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