Daniel, this is a burning topic for me.

I posted this yesterday as "No more realtor fees":

my new dealbreaker is realtor fees ......
2.5% for an agent, are you kidding me.
i am internet savvy and can do my own research, once they open up the mls data this industry will change forever.
if i were an agent right now i would try to figure out a better way to add value to my customers, because signing me up for automatic mls update just isn't going to cut it anymore.

AGENTS BEWARE, IF YOU DON'T CHANGE YOU'LL BE FORCED TO CHANGE.

--------------------------------------------------------------------------------

The reason they are offering rebates is that competition is fierce. The commission dollars they are collected are not representative of the work and effort put in, and therefore they are able to offer rebates. This type of competition will drive rates down to where they should be. My moto is they wouldn't do it for less if they weren't making money, so they are all willing to do this then it will become the new standard. Bye bye 2.5%!

Stephen said:
Daniel, this is a burning topic for me.

I posted this yesterday as "No more realtor fees":

my new dealbreaker is realtor fees ......
2.5% for an agent, are you kidding me.
i am internet savvy and can do my own research, once they open up the mls data this industry will change forever.
if i were an agent right now i would try to figure out a better way to add value to my customers, because signing me up for automatic mls update just isn't going to cut it anymore.

AGENTS BEWARE, IF YOU DON'T CHANGE YOU'LL BE FORCED TO CHANGE.

--------------------------------------------------------------------------------

The reason they are offering rebates is that competition is fierce. The commission dollars they are collected are not representative of the work and effort put in, and therefore they are able to offer rebates. This type of competition will drive rates down to where they should be. My moto is they wouldn't do it for less if they weren't making money, so they are all willing to do this then it will become the new standard. Bye bye 2.5%!

Its true we have a lot of competition. And I agree that simply putting you on a system where you get emails is a bad way to earn money. That being said, it is not that we are making money and can afford to give rebates. On the contrary, its the agents who make the least that offer the biggest rebates. I have only ever given a rebate once and that was when I was a rookie agent and I beleived I could buy business. That is a bad way to do business though and it is the rebaters and comission cutters that are the least experienced so as the modo goes: "you get what you pay for"

And stephen you may be very internet savvy and im sure you will do great due diligence on any property you buy but as realtors we have access to a lot more information then the public. And its fair for us to have access to that because we spend tens of thousands of dollars for that access.

Stephen said:

The commission dollars they are collected are not representative of the work and effort put in, and therefore they are able to offer rebates. This type of competition will drive rates down to where they should be. My moto is they wouldn't do it for less if they weren't making money, so they are all willing to do this then it will become the new standard. Bye bye 2.5%!

Not sure how you think that 2.5% on the average GTA home is so much money.
For example, let's say it takes 3 months to find a buyer a perfect home and you take them out an average of twice a week for 2 hours at a time. So, you have 24 outings x 2 hours thats 48 hours of work.
$450,000 for average home in GTA
2.5% = $11,250 commission
subtract 20% company split = $9000
subtract $500 for gas and parking (in the city) = $8500
subtract 30% for taxes = $6300
So, do you think $6300 is a lot of money for 3 months of evening and weekend work away from family and friends, risk and stress associated with commissioned work, hundreds of dollars in extra payments for fees and professional development and maybe a nice little gift for the buyer when the transaction closed???? Personally, I dont think so.
The issue is when it comes to the much higher end homes. Many times, the luxury agents put in the same or less time then anyone else and make 3-5 times as much for the similar work, just because their client has more money to spend. This is where I think the system has gone a bit wrong.... It's just a part of the game though, so what can you do.
Just my two cents....

Michael

I would support fixed fees for Realtors and agree that buying a 400,000 dollar home and a million dollar home probably takes the same amount of work.

I'm not bashing all Realtors, but from my experience there are only a small percentage that really add value, and those ones that add the value are probably under paid.

I just support buyers these days doing more of the research and carrying the load so that they can save money. I think we are in a time where this is reasonable.

Gentlemen,
This is certainly a harsh reality for the industry and I know it is a practice that has been around for years. The precedent has been set in many communities and I have not decided whether I am for it or against it, but what I do know is it is a reality of business in my everyday dealings with potential clients. Like Stephen mentioned, it will force many Realtors to step up and provide the service level worthy of the commission rate they decide to charge (whatever that may be) otherwise they will be left outside of the industry.
Canada and in particular Toronto is becoming a much more competitive place so everyone in this industry will need to take note, adapt and move quickly otherwise you will lose business. The prime example is what we are seeing in the telecom industry with smaller players offering better service at a lower price and likely with tighter margins. Ultimately in a competitive market environment such as ours (we are not socialist or communist), who is going to win??? I think we all know what the answer is to that question..

Considering there are over 29,000 agents and brokers in the GTA it is not surprising that some are offering some level of incentives to secure a listing. Any fool can put up a For Sale sign, upload the listing to MLS and schedule open houses but what you pay for is the closing ability of an agent once an offer hits the table and his ability to negotiate favorable terms and conditions for the vendor. If an agent is offering cash back and free toaster ovens does this not smack of desperation? If the agent is prepared to offer deep discounts to his commission on the front end how effective will he be negotiating terms and conditions and the ultimate selling price of your property on the back end?
The last property I sold was a non standard loft space in a bad location andI had spent considerable sums of money to renovate the space. I researched the market carefully through the internet and determined in my own mind a fair selling price for my home. I interviewed 3 agents that specialized in the property I was selling and focused on what was their marketing plan. I chose the agent who seemed to get the space I was selling and suggested I list it at $150,000.00 more than my research indicated it was worth! Before I listed it I asked him are you sure? He said, without blinking an eye, absolutely! The property was listed on MLS and on the same day my agent brought me an offer that was 110% above the asking price. The purchaser then came back to us and asked to pay for all of furnishings and paid our original cost. We moved out of our home with only our clothing and personal effects. This was astonishing but the value of the agent came in how the deal was closed. The buyer needed a high ratio mortgage to close the deal and spent the next 2 months following up with all the stake holders to make sure the deal happened. It was a challenging close but we got all of our money. We paid the agent a commission of close to $40,000.00 but he returned a premium of $150,000.00 plus our furnishings of $60,000.00 for a total of $210,000 on an investment of $40,000.00. Who wouldn't make that deal in a heartbeat!
The point of this exercise is that you usually end up with what you pay for.
Select your agent carefully and do not be enticed with deep discounts to commissions and other incentives unless you have a drop dead gorgeous property in the best possible location and priced to the market. If that is not the case, which the majority of listings fall into, then you need an experienced realtor who specializes in your property and is dedicated to providing real value in a variety of ways to justify their compensation.

Michael, I understand your opinion but I dont understand your calculations.
I have no problem with realtors and their commission rate, I was just wondering about the rebate and incentives
realtors give out...

I thought 4~5% was commission rate when it comes to pre-construction,
in any case, I see that you have done all the calculations and come up with $6300 profit.

Definitely you would have spent more time and work than just 48 hours with the customer, but
most realtors don't spend 48hrs with the customer. Even if they did, 6300 devided by 48hrs is 131dollars an hour.
I would definitely consider that a lot of money earned per hour. Plus it's not like realtor only works with one customer for 3 months..

All in all, I am also not bashing realtors but I understand where Stephen comes from.
For one, My cousin just recently bought a place with a realtor for $1.3m (pre construction)
I heard that the commission rate was around 4% which calculates to be $52,000
even if he goes 50% with the company that is still more than 25,000 and that is a lot of money earned
after helping him for less than 10 hours. My cousin already knew what he wanted and just chose the realtor
he felt comfortable with. 25,000 for $2500 an hour. yay
just like you said in your last paragraph..

Stephen said:
I would support fixed fees for Realtors and agree that buying a 400,000 dollar home and a million dollar home probably takes the same amount of work.

I'm not bashing all Realtors, but from my experience there are only a small percentage that really add value, and those ones that add the value are probably under paid.

I just support buyers these days doing more of the research and carrying the load so that they can save money. I think we are in a time where this is reasonable.

I would be totally for a fixed fee. But how can you set a fee when you just said yourself that some agents offer value and others don't? If you spend 10k more on one agent and got a return of 20k, wouldn't you want to net more money?

Like in any industry, there is good and bad. The real question is, do you trust the agent who buys your business or someone that specializes in what your looking for?

But then again, I believe that most realtors who are just in for the money are never on forums like this discussing or expressing their views.

Daniel,
I was just making sure you understand that the 2.5% is not really 2.5% at the end of the day.
Also, $131/hr is good money, but compared to many other professions is not crazy. Anyone that wants a steady paycheque in the $50-$100k per year job can go out and reduce risk by accepting a job working for someone else. Realtors and Self-Employed people take huge risks and sacrifice much of their time for their jobs, and so the reward is significantly higher IF they can even make ends meet. Lawyers bill out at $200-600/hr to account for their knowledge and realtors make $130hr to account for risk and other factors. I think it's pretty fair.
As for incentives..... We all generally gift our clients after a deal closes. Cash incentives are normally done by agents that have a hard time justifying their level of service. Ask any top agent if they give a portion of their paycheque back to their clients and see what they say.
Just as for giggles, I did an offer a few days ago where the sellers asked if I would kick in some of my commission to make the deal work. I pulled out my wallet, tossed my Visa on the table and said to her that she might as well go spend my family funds because asking for my paycheque is exactly the same thing. She got the picture....and was satisfied with the reasoning, as 99% of people are if the agents can justify their pay.
At the end of the day, this is just my opinion.... Everyone does their job the way they feel they need to.

Michael

Michael said:

Stephen said:

The commission dollars they are collected are not representative of the work and effort put in, and therefore they are able to offer rebates. This type of competition will drive rates down to where they should be. My moto is they wouldn't do it for less if they weren't making money, so they are all willing to do this then it will become the new standard. Bye bye 2.5%!

Not sure how you think that 2.5% on the average GTA home is so much money.
For example, let's say it takes 3 months to find a buyer a perfect home and you take them out an average of twice a week for 2 hours at a time. So, you have 24 outings x 2 hours thats 48 hours of work.
$450,000 for average home in GTA
2.5% = $11,250 commission
subtract 20% company split = $9000
subtract $500 for gas and parking (in the city) = $8500
subtract 30% for taxes = $6300
So, do you think $6300 is a lot of money for 3 months of evening and weekend work away from family and friends, risk and stress associated with commissioned work, hundreds of dollars in extra payments for fees and professional development and maybe a nice little gift for the buyer when the transaction closed???? Personally, I dont think so.
The issue is when it comes to the much higher end homes. Many times, the luxury agents put in the same or less time then anyone else and make 3-5 times as much for the similar work, just because their client has more money to spend. This is where I think the system has gone a bit wrong.... It's just a part of the game though, so what can you do.
Just my two cents....

Michael

You forgot 10-20% for marketing =)

Michael,
HiveRealty my new brokerage was created to offer the full service brokerage experience to clients who seek it and at the same time offer a 25% cash rebate to buyers.
"Cash incentives are normally done by agents that have a hard time justifying their level of service"
That is totally bogus....we have developed a model which involves lower office overhead and expenditures and the cash rebate has nothing to do with my agents or my service level and simply with the fact that unlike the previous high end boutique i used to work i have a different model which allows for a rebate. You also worked at HK which is another boutique and that model couldnt allow it.
I just started hiring agents and two of my new agents both brought deal home this week as well as I did a condo at York Mills and Yonge. The deals total up to about $1,200,000 of sales....$30,000 of commission dollars......$7500 went back to buyers...the office got its share and the agents were happy.
I know you are a good agent but remember your made a sweeping generlization in regards to rebating.
A side note as well -- the Stephen typing in this forum also approach HIVEREALTY about offer preparation for a house he found....we were very flexible and made it work with him as well...no time was spent on gas/parking...limited office resources were used and Stephen is a perfect example of a Real Estate 2.0 buyer -- did his own research and due dilligence and then signed a Buyer Customer Service agreement with Hive and his needs were met and i think he was satisfied.
Failure to change to a rapidly changing marketplace is going to kill many brokerages and realtors. Hive Realty is learning, growing at a slow pace and positioning itself as a new concept.
Gone will be the days of big storefronts, multiple office admins and fancy offices....Buyers/Sellers can still get boutique quality services out there at a reasonable price and Hive is working hard to create and adapt to bring a solid, new and creative product to the marketplace.

Hey Cary,
I apologize for coming off a little harsh in my last comment regarding rebates and I commend you for creating a very effective business model that works. I've always been more about the business aspects of selling real estate too, and your reasoning makes a lot of sense. Reading it over again, it did sound a little too generalized.
My only differing opinion is not really based on people such as yourself coming up with a creative model for selling. My issue is with those agents who use rebates to attempt to either steal business from other realtors by offering "kickbacks" if they use them to purchase, or those agents who rebate their commission so low (on both the buying or selling end) that it really downgrades our profession. Offering 25% back on a fairly simple purchase makes sense....but I've seen agents offer 50-75% back because they just wanted to make a quick buck (that said, the agent who did that couldn't even write up a contract properly and omitted so many important clauses).
I completely agree that real estate is going to change and many agents who don't adapt will suffer and probably end up dropping out of the game. You guys at HIVE may be onto something as long as the volume and the quality is there (which I am sure it is).
Michael

I'm not even going to address the above conversation regarding weather or not agents deserve their commission because that is based on that individual's work ethic...and to be frank...it's such a tired ongoing topic of discussion..that said...I work my butt off for all my clients weather they are buying, selling and or even leasing.. A client is a client...always put people first and you shall be rewarded. I also believe in giving back once the deal has closed...a gift or a unexpected reduction in my fees really helps and goes a long way!
There are a lot of greedy Realtors out here...with no service or current market info...so for me...I do very well because I treat people fairly and with dignity.
Peace out
Tony

^^If the BuzzBuzzForums allowed for a "Thumbs Up", I would give @Tony's comment a Thumbs Up!
The line that really speaks to me is, "There are a lot of greedy Realtors out here...with no service or current market info...so for me...I do very well because I treat people fairly and with dignity."

Working with HIVE really gave me the flexibility I needed to get things done on my own and save money. I think there needs to be more options out there for less service and more do-it-yourself than the traditional full service Realtor. I feel the opening up of MLS data will give buyers more power to do that.
As for full service Realtors, Tony you're probably in the top 5% and add value to your clients as a full service agent. To most people's dismay you're not the majority.

Stephen wrote: As for full service Realtors, Tony you're probably in the top 5% and add value to your clients as a full service agent. To most people's dismay you're not the majority.
Stephan...I've been a Realtor for 6 years and have always believed in this philosophy of putting people first...treat them fairly and with dignity. This basic fundamental component regarding my services are not just for my best clients...they're for everyone. Again, this is the general perception that most consumers unfortunately have regarding our industry.
So my advice is... don't assume!...and by the way...I'm NOT in the top 5%
Tony

That’s a little bit like saying that a doctor is offering you a cut rate on surgery because his or her business is slow.
I imagine you, like me, would be suspicious, wouldn’t you?
Maybe they’re offering to cut their pay because they might be in survival mode right now, and experience shows that may hurt your chances of selling your home.
Your next best step is to select an agent, who is skilled enough to protect his own money, because then they will be equally skilled at negotiating for your money.
Just saying ;)
http://www.notapennydown.com/blog

Mark said:
Your next best step is to select an agent, who is skilled enough to protect his own money, because then they will be equally skilled at negotiating for your money.

Great point but it's a little backwards.

What's wrong with agents who give rebates?
Especially in cities such as Vancouver and Toronto where housing is so expensive; agents are making a killing for not doing near as much work as in less expensive cities.
As Stephen mentioned, as a client, you now do most of the work! So, if the agent is just doing the "deal" part, then they should be negotiated with.
Of course, as also mentioned above, if the agent is doing all the work and the client is not doing any of the looking, then do not negotiate!

I tend to agree with those who argue that the in 2011 Realtors should be able to streamline their services to accomodate the aforementioned "Real Estate 2.0 Buyer"
As a mortgage broker who deals almost exclusively with first time home buyers I see these clients every day. Maybe it is more obvious in the suburbs where inventories are lower but I see a lot of clients who found their houses themselves, as their level of enthusiasm and time to surf MLS eclipsed the Realtors.
I can understand in places like Toronto which huge condo inventories this is different as there will presumably be property not on MLS that Realtors will have access to.
There are obviously invaluable services that Realtors offer in terms of negotiation and market insight which is why they are afforded the commissions they are.
With that in mind how many Realtors respect the difference between Buyer 2.0 and the traditional buyer?
I support Realtors being able to take in whatever the market allows for with commissions, Im just curious because it seems to be that offering rebates is a touchy subject regardless of the contention that many buyers now are lessening the work load for the buyers agent.