Regulation should protect consumers, not real estate agents

At the heart of the matter are two major issues that the real estate industry needs to address: transparency in how fees are collected and the misalignment of incentives for real estate agents.

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The Canadian residential real estate industry is broken. Case in point? A BC couple has to pay $52,500 in real estate commission fees for a home sale that never even happened.

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When did the industry lose sight of why it exists in the first place?

Unfortunately, the situation in which the Armstrong family finds itself is a glaring example of the inflated and hidden fees of real estate agents in British Columbia and elsewhere in Canada. It’s also a reflection of an industry clinging to outdated regulations that protect agents rather than their clients.

In this case, it makes absolutely no sense that the trigger for the Armstrongs to pay selling agent commissions is tied to a binding agreement instead of an actual sale, exchange of money and a transfer of ownership.

It is time for a major overhaul of the real estate commission structure in Canada.

Let’s not waste our time debating weak policies that have no substance. The federal government’s proposed policy to end blind bidding is good in theory, but doesn’t work when, as we’ve seen in Ontario, agents are allowed to choose whether and when they reveal multiple competing bids. .

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At the heart of the matter are two major issues that the real estate industry needs to address: transparency in how fees are collected and the misalignment of incentives for real estate agents.

The current percentage-based commission structure incentivizes buyers’ agents to only show high-priced homes and encourages buyers to bid higher. And yet, most consumers are under the impression that hiring a buying agent is free.

Having selling agents collect and pay buyer’s agent fees is archaic, opaque, confusing, and contributing to skyrocketing real estate costs in Vancouver and many other Canadian cities.

We need Canada’s real estate industry to step up and admit that our system desperately needs to be modernized and aligned with consumer interests. Canada has the highest property price to income ratio in the G7 and our costly and inefficient transaction system is a key contributor.

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A good start would be to adjust regulations so that buyers pay buying agents directly for services they have understood and let market forces and competition dictate the rates offered to buyers.

I also think the time has come for a fixed fee versus a percentage based commission for buying agents. This would eliminate incentive misalignment, where an agent is paid more to persuade a buyer to pay more for a property. A package is not linked to the price of the house, but rather to the services rendered.

The accessory technology industry in Canada is growing and agents are under significant pressure to evolve. Innovative Canadian companies are designing technology solutions that empower rather than manipulate consumers.

These apps and platforms offer more transparency, more data, and simple online tools to make the transaction easier. A significant and growing number of Canadians are ready, willing and able to take complete control of their home-based, agentless transaction experience, while saving money in the process.

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Consider this example:

Two competing bids on a $1 million listed property with 5% paid in commissions, 2.5% to the buying agent and 2.5% to the selling agent.

Offer A, $1 million to seller of agent-represented buyer: $1 million – $25,000 selling agent fee and $25,000 buyer’s agent fee equivalent to 950,000 $ of net proceeds for the seller.

Offer B, $975,000 to seller of non-agent buyer: $1 million – $25,000 selling agent fee and $0 buyer’s agent fee means net proceeds of $950,000 for the seller.

Which offer is best for the buyer? Both offers represent the same net proceeds to the seller, while the buyer with offer B saves $25,000.

Other industries have modernized, applying thoughtful technology to automate the value of intermediaries and their associated fees. Let’s think about the evolution of travel, banking and investments. The real estate sector needs to catch up.

Changing the commission structure is a start. This would help provide transparency on how agent fees are paid and instill trust and integrity in the real estate transaction process while improving home affordability for Canadians.

Robert Price is the CEO of Bōde, an online real estate marketplace allowing Vancouverites to buy and sell homes without the services of a real estate agent.


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