Real Estate: A Changing Industry in Alberta

Recently “Alberta Venture” magazine published an article on the state of Real Estate and examined the differences between selling on your own and using a REALTOR who markets their property through the Multiple Listing Service.

Since I was interviewed for the article I have a couple of thoughts that I’d like to share. My initial reaction is that this article was written with the perspective that real estate transacted through a Realtor is passé.  As far as the article is concerned it does try to peer into many aspects of the industry and asks some tough questions. 

The great thing about free enterprise is it finds its equilibrium. If the Real Estate industry didn’t have value it wouldn’t exist. The reality is that it has significant value for many people and for some it doesn’t matter they just don’t want to pay the fee. Fair enough. Not everyone shops at Sears, Wal-Mart or Holt Renfrew and all of these businesses offer different levels of service at different price points as does the real estate industry. The problem I have is that people tend to lump everyone into one pot, saying that we all do the same thing for the same price and get the same results.

Regarding Fees

For some the main issue is real estate commissions. This week alone I went on several listing presentations and was confronted by sellers who had received a range of offers on commissions from different brokerages. 

There seems to be a perception that Realtors are overpaid and the money is easy. The failure rate of people entering the industry lured by dollar signs and easy commissions is incredibly high. I’ve heard as many as 50% of new associates are out of the industry within a year of being licensed due in part to intense competition and exorbitant costs to maintain mandated thresholds.

If it was such an easy business then the free enterprise model would tell us that the fees would have come down by now. The fact is in many cases they have and in other cases they have risen as true professionals who know their value charge accordingly. However, the marketing companies who pitch to people that they will sell your home don’t care in the end if it sells or not since they get their fee up front.

A Changing Industry

One of the conversations I had with Scott (the author) was about how the Internet had changed the travel industry and would it could do the same to real estate. This is an argument I love. Yes, the Internet has changed real estate and will continue to do so. I don’t know how often people make travel plans in the hundreds of thousands of dollars, but I’m certain those who do still use a travel agent. 

The internet has augmented my business. This blog is a perfect example, as is the online marketing we do for our listings. Not everyone in this industry has embraced the Internet but it will not be long before these people are relegated are completely marginalized by consumers’ demands for better marketing. When you look at the amount of viewings, impressions and my bet is showings I think hands down our marketing blows them out of the water. We’re the best of both worlds. Fantastic, innovative online marketing with the strength of the MLS. 

Business Models

One thing I have to admit is that these marketing companies have a great business model for the business owner. You get people to pay you - up front - to advertise your business. It’s like paying your electrician in advance. Here’s the money now do the work. 

The reality is that these companies talk about offering great support but this is support is extremely limited (by law) and so is the advice they are able to give (none). 

I’ve stated before that I believe the actual transaction costs are increasing due people trying these companies out and realizing that they are not for everyone. These companies in a sense pray on the “save a buck mentality” and if it doesn’t work then you have to go out and get a REALTOR which just increases the overall transaction cost. Not to mention the seller has probably put themselves in a more motivated position by wasting marketing time. 

Service Levels

One common misconception the article does not address is that there are different tiers in the industry in terms of fees, abilities and services provided; the article actually brushes the whole industry with a broad stroke feeding the perception that all Realtors are the same. Many people incorrectly assume - as does the author - that everybody provides the same level of service, advertising, and results at the same fee. To be fair, I’m sure the article had to be limited somewhat in length (lucky for you I can go on as long as I want).

My favorite quote in the article was from one of the DIY owners who said “I don’t want to work after 5, if a Realtor does that’s up to them.” Of course he doesn’t want to work after 5, who really does? The majority of properties sell after 5 so most Realtors spend a lot of time working after 5.

Competition

The author tried very hard to get me to look at Comfree as my competition; unfortunately that is just not the case. The have actually helped my businesses. By the time people have exhausted themselves trying to do it on their own and contact us they are much more appreciative of the work that our little company does. 

The points I made to the writer about marketing companies were this:

• Their stats don’t add up. At least I can’t get them to add up. I’m required to be factual and support my claims. He alluded to this in his article as well.
•  Their claims about commissions saved are FALSE. If I said there was a standard commission in the industry I would be investigated by the competition bureau and fined. (The last fine they handed out in Calgary that I am aware of was $100,000).
•  There is room for numerous types of companies and business models in real estate. That’s what makes free enterprise fantastic. We all have to keep evolving. I am constantly told by potential clients that so and so will do it for this and someone else will do it for that - all of which are different from what I charge. So when Comfree states there is a set fee this is BS and actually probably helps lower tier industry members get higher commission. (Just a belief)
• I did say that I believe some of these companies have forced some people in the real estate industry to improve their level of marketing.  I could also say we’ve been lifting the bar as well. People in industry contact us regularly about some of the things were doing. 

Reality

The other thing that the DIY’s said which shows a complete disconnect from reality is that – “the buyer and seller will sit down and work out the best price, it’s that easy.” Some people clearly have better negotiating skills than others . Then there’s always those who find out the hard way that things should have been discussed earlier and weren’t only to have it come up and bite them in the ass big time. Be it a lawsuit or some obligation that causes the deal to crater costing the seller time, money and lost opportunity.

One seller who contacted us had six deals come apart in the heat of the market. Saying it’s that simple is not being even close to realistic. In this case we sold her property and netted her $12,000 more after paying us then her highest offer would have netted her. 

I received an email from someone who was really upset with the person and company they had used in the sale of their home. They actually took them to court and won a substantial settlement. So he told me my argument of the value of a Realtor was mute. My comment back to him was, based on their situation that they would more than likely have made the same mistake on their own, possibly even compounding it causing the buyer to be entitled to even more damages then they were. More importantly though he recognized that because the Realtor had errors and omission insurance (mandatory in Alberta) he received compensation, whereas if he had done it himself it would have been a very costly mistake to sell on his own.

Results

In the end it’s results that matter. After all the fees paid up front, the lack of expertise in such an important area, the lack of a support network to get things resolved and the potential loss in value while sitting on the market, I believe that it’s easy to justify the industry’s existence. But lets face it, no one wants to pay anymore than they have to. At the same time there’s a reason the saying “you get what you pay for” exists.

One thing I think article proves is that people should be aware of the choices. The most important thing they can do with one of their most important assets is to do their research thoroughly and make the decision that’s best for their family. 

As the world changes the relative value of the real estate industry may fluctuate, but more likely the consumer will get what they have paid for. Professionals who have extensive knowledge that can benefit their clients in real time have value for such important investments.