When Lisa hired a realtor to buy a home last year, she wanted to ask if she could get part of the commission to help her make down payments for the home. To her surprise, the agent voluntarily offered $2000 rebate before she started to talk.
It has become increasingly common that realtors offer kickbacks or commission rebate to clients. Some agents even advertise that they offer commission rebate. Some rebates offers reach 60% -- which is about $18,000 for a $600,000 dollar home. The agents’ commissions are so flexible that they are willing to drop the prices to any level to win the clients’ business.
You may assume that agents who offer commission rebates and kick backs to buyers are usually those who are struggling to get by. But many experienced, long-term realtors are also willing to drop the pen. According to CBC, a newly launched fee-negotiating cyber platform – where clients can negotiate a deal with realtors without leaving the house – has attracted many mainstream players since its inception.
The fact is that the realtors’ landscape is getting increasingly crowded. The barriers to entry are pretty low in this industry. You can get your license in about 6 months; university or college degree is not required; neither is experience. You just need to pay the fee, take the courses, and write an exam.
The bar has been set even lower since the format of the realtor exam was changed to multiple-choice. It is particularly in favor of Chinese applicants who have commanded all the tricks and tips of passing the exam.
As new realtors have flooded the market, the market has become increasingly competitive. In 2007, there were only 27,000 realtor members in TREB, but in 2014, the number has jumped to 40,000, an increase of 48%. Meanwhile, home sales have grown by only 4%.
“It’s almost like everybody knows somebody who’s a realtor,” says Ray Chan, a realtor who got his license in 2011. “I think there’s a misnomer that people think it’s an easy way to make a lot of money.”
Breaking up TREB control
As technology has increasingly dominated our daily life, clients have become increasingly less reliant on realtors to sell their homes. For years, the competition bureau has intended to create a market that is more open to competition. It has been running a battle with TREB, trying to break up TREB’s control over MLS for consumers to sell or buy a home. Resulting from an earlier court ruling, consumers have been allowed to private home sellers to list their properties on MLS – effectively saving the commissions paid to a selling agent. But future court rulings may make consumers even more powerful when they sell a home on their own.
According to CBC, if the competition bureau wins a future court ruling (coming out in May), it will allow consumers to obtain more crucial data that can only be obtained currently through an agent – such as previous home listings and sale prices, comparable properties and length of time on the market. Apparently, if more sales data becomes available, a growing number of people will sell a home by themselves.
Realtors face high risks in this highly competitive market. But despite the intense competition, many of them can sustain the business by taking less commission as the home prices stay at a relatively high level. However, if the home price drops as mortgage rates go up, many realtors cannot afford to offer rebate or to take low commission, making a bad situation all the worse.
Note: The story was published in Chinese News in January, 2015.
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