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Flat-Fee Commissions and Boycotting their listings! Click for larger graph of Toronto CMA Housing Starts

How are flat fee commission rates affecting your markeplace

I received the following email with questions about flat fee commissions and more and thought I would post the questions and my thoughts here on my blog.

Questions: I would like to ask you what you think of agents/brokers who do flat-fee listings. Do you show their homes in the same way as you show homes listed traditionally? Do you think agents boycott these homes in general? As home prices have increased, there has been concern that agents' commissions have increased higher than the rate of inflation and don't reflect the actual hours put into a transaction. What are your thoughts about this? Thanks so much for your time, Shelly

Hi Shelly,

Good questions!

I do not have a problem with flat fee commissions. As with every marketplace there is plenty of room for all types and levels of service and fees. Some companies compete on service and others need to compete on price to get their business. This is a reality of economics. I've noticed over my 19 years in the business that most of the low commission companies do not survive in the long term. There are some that have weathered the storm, but for the most part, it costs large dollars to run a real estate business and expenses are ever increasing.

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Regarding showing flat-fee commission company listings, the law is that we must show all listings. Personally, I show any home to my buyer's, regardless of the listing company. Most brokers offer almost the same fee to the co-operating broker (the selling agent), so it does not matter to me which listings I show. I want my buyers to have all possible home buying options and ultimately they must be happy with their purchase.

I do not agree that commissions have risen higher than inflation, we are now getting less % overall (compared to the days of 6% and 7%) and it's extremely competitive for the listing side of the commission in my trading area. As you know, there are 2 sides to the commission, the listing broker side and the selling or co-operating broker side. Some agents are offering huge discounts on the listing broker side to obtain the listing so that once the listing sells, they can help their sellers buy their next home. Commission cutting has been around as long as I've been in the business, since 1987. So, when I say that I don't agree, I mean that after all expenses, taxes and fees and splitting our commissions with our broker, we are not really earning much more than anyone else who puts in a 50 to 60 hour work week. Problem is that agents tend to flaunt their wealth with "bling-bling" and people usually only remember the top flashy agents and forget that 5% of the agents do 95% of the business. The average wage of a realtor in Ontario, I believe is just over $30,000 per year. I could find the link to those stats if you like.

I love your comment, 'don't reflect the hours put into a transaction'. This is a common criticism of our industry, but again, I don't think it's realistic. When the market is 'on fire' and houses are selling in two or three days on the market, this makes up for the very slow times of the market. As well, we cannot convert 100% of the buyers and sellers that we deal with and there are many listings and buyers who do not create any income for us. Thus, as with all commission industries, the level of commission and pay is high for a sale to compensate for the zero commission sales that do not happen. This is a reality of economics. As with any sales position there is high risk and slow periods throughout the year. It's still exceptionally difficult to obtain listings and/or buyers in our marketplace and the competition with other agents is fierce. There are just over 24,000 agents who are members of TREB (Toronto Real Estate Board) and usually only 20,000 to 25,000 listings at any one time, not great odds of each agent having more than one listing. The truth is that only about 1/3 of those listings sell and historically there are about 75,000 sales per year on TREB, so if you do the math, it's not a great business for many agents.

Summary

I this helps a little and gives you some insight into what's really happening in our industry.

Mark



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Thank you,

Mark

 

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