Cheaper real estate fees are coming- The Toronto Star

Tony Wong's article in The Toronto Star:

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The Canadian real-estate market is expected to get much more competitive with a new discount agency partnership that would offer cheaper real-estate fees to consumers and present the most serious threat yet to traditional bricks-and-mortar realtors.
The deal between Moncton, N.B.-based PropertyGuys.com and Toronto-based Realtysellers Real Estate Inc. is expected to be announced Thursday, the Star has learned.
The agreement will result in a powerhouse for discount real estate. PropertyGuys bills itself as the largest and fastest-growing private-sale franchise network in Canada, where sellers can list and sell their own properties without an agent. Realtysellers, which has had a history of litigious tangling with organized real estate, is considered the bad boy of real estate due to its aggressive low commissions and flat fees.
The combination will create a company that promises to be an industry game-changer.
“We now have the size, sophistication and financial muscle to fundamentally change the way Canadians can buy and sell a home,” said Lawrence Dale, president and CEO of Realtysellers.
Realtysellers formed last year after the Competition Bureau signed an agreement with the Canadian Real Estate Association (CREA) to open doors to real-estate companies offering flat-fee services.
Home prices in the Toronto market have virtually doubled in the last decade but traditional commissions have stuck at the 5 per cent mark.
Although all commissions are negotiable, a traditional listing agent might charge 2.5 per cent commission, while the buyer’s agent may also receive 2.5 per cent.
Dale’s company charges 0.5 per cent to list a home. (If the buyer is represented by a traditional agent, then another 2.5 per cent may have to be paid for a total of 3 per cent in commissions).
If his company represents the buyer, then a rebate is given up to 70 per cent of the commission if the buyer has done the legwork of finding their own property.
PropertyGuys was a service for homeowners who didn’t want to pay a commission and wanted to sell their own homes.
Elizabeth Lipcsei, 80, listed her $1,299,000 North York home with PropertyGuys because she thought agent commissions were “outrageous.”
If she sold the house at full price, total commissions could be as much as $65,000. With PropertyGuys, Lipcsei says she expects to pay about $1,300 to sell her property.
She will likely still have to pay commission to the buyer’s agent.
But because her 5,000-square-foot ravine-lot home is not currently listed on the Multiple Listing Service, she has received few calls.
In the three weeks she has been on the website, the majority of calls have been from traditional agents fishing for her listing.
“There is a need for alternatives that are affordable for consumers,” said Lipcsei.
PropertyGuys lists homes privately online, and is part of the burgeoning sale-by-owner segment of the market. The company says it makes more than 10,000 transactions annually.
With Dale’s undisclosed financial investment in PropertyGuys, Realtysellers now has access to a database of customers to expand its reach, while PropertyGuys will be able to offer traditional brokerage services.
“This new union will give our current and future customers access to brokerage services that were previously off limits,” said Ken LeBlanc, president and CEO of PropertyGuys.
The two companies are expected to operate under their own brands but will pool their services and resources. PropertyGuys’ clients, for example, can use Realtysellers to list their homes on MLS, where the vast majority of deals are made.
Whether the new innovators make inroads into the Canadian market remains to be seen. Longtime franchises such as ReMax and Royal LePage spend millions every year marketing their well-established brands.
In the United States, a 2008 Justice Department agreement with the National Association of Realtors stopped the association from using rules to treat traditional bricks-and-mortar brokers differently than online brokers, ushering in an explosion of Internet-based companies.
However, traditional realtors still dominate.
“It will take time for the more innovative companies to make inroads,” said John Andrew, director of the executive seminars on corporate and investment real estate at Queen’s University.
“But this is the first really significant merger in the market, getting two of the largest players together to get a critical mass to take on the traditional brokerages.
“I think we may see more convergence in the industry with the smaller players getting together in order to create the volume needed to survive.”
The move toward cheaper commissions in many ways started with Dale, who has had a well-publicized acrimonious relationship with organized real estate.
His company claimed it was the first in Canada to offer a basket of different-priced services, including a “flat-fee” program that would allow consumers to list on the MLS for a few hundred dollars. Realtysellers closed in 2006 and Dale sued CREA and the Toronto Real Estate Board (TREB), saying they enacted new rules to put discounters out of business.
That got the attention of the Competition Bureau, which started to investigate the industry. Dale restarted Realtysellers last year with Toronto businessman Mark Litwin and longtime realtor Allan Spivak after the bureau reached an agreement with CREA.
“Because of the Competition Bureau, companies such as PropertyGuys and Realtysellers have been able to come together,” said Dale. “I would certainly not have re-entered the market without the bureau cleaning up the landscape.”
While an agreement has been made with CREA, the bureau last month decided to take the Toronto board to court in a move to further open up the MLS to consumers.
The bureau is arguing that TREB is restricting how its agents can provide MLS to customers, thereby “denying member agents the ability to provide innovative brokerage services over the Internet.” The bureau wants consumers to have the ability to look at historical data such as sold prices and comparables from their own computers. By doing their own work, fees might be lowered.
Dale says the new combined company will provide services and data not available previously on other websites.
“We intend to introduce to customers access to data that we can lawfully provide,” said Dale.
The two companies will have competition not just from traditional realtors but from other for-sale-by-owner sites that have bulked up in anticipation of competition.
For example, Ontario-based Bytheowner.com, now known as ComFree, joined forces last September with four other commission-free real-estate companies.
“You will see an ongoing convergence. But it makes sense to be among the first and the biggest because you crowd out the space for potential competitors coming in,” said Andrews.