Government vs Realtors

Government vs Realtors

Where Will the Dust Settle?  (January 2010)

To kindle favour with the electorate, Stephen Harper’s Conservative government has taken direct aim at the real estate industry.  Perhaps it is nothing more than saber rattling, but right now their sabers are stabbing at the very heart of the industry’s MLS (Multiple Listing Service) system. They are demanding that Realtors open the system to the public for direct low cost access to the MLS marketing system. At present, it can only be accessed through Realtors. Using the Competition Act as a lever, they are suggesting the MLS system is a monopoly which Realtors are using to demand exorbitant commission rates, and in so doing, driving up house prices. 

Government Bullies

The real estate industry is very concerned.  They are very proud of the MLS system.  Our perception is that government, to garner favour (votes) with the electorate, is trying to bully their way into a system that has taken decades and millions of dollars to create.  Indeed the Canadian MLS system has evolved into the most sophisticated property marketing system in the world.  It is so successful that it is estimated to be involved in 90% of all residential real estate transactions.  Yet it’s a huge stretch to suggest that those sales would not take place were there no MLS.   

The Multiple Listing Service began in the fifties.  At that time, Realtors were disorganized.  Their ethics were often questionable.  The opportunity to swindle the public existed with each transaction.  Competition for listings was fierce.  A Realtor who sold in the 1950’s once told me that he came out of his office to attend a listing appointment only to find his tires deflated. He suspected the culprit was the agent who signed up the listing while he was fixing his tire.  Real estate agents, they weren’t called Realtors then, sometimes supplemented their commissions by buying houses from unsuspecting sellers for low prices then selling them for big profits.  From my research, it was not a pleasant business.  In fact, A.E. Lepage would not call himself a Real Estate Agent at that time because of the reputation of those then working in the business.  Real estate before MLS was mostly competitive compared to the cooperation there is between Realtors today.  There was less advantage for agents to be cooperative.  It was the advent of MLS that provided the platform for the seamless, uncomplicated, safe, educated and ethical real estate industry we have in Canada today. 

A Competitive Cooperative Paradox

MLS for realtors is more than just a catalogue for houses.  It is at the very hub of the competitive-cooperative nature of their business.  It is a paradox that may exist only in the real estate industry.  Realtors compete with each other for customers, but cooperate to find those customers homes. 

MLS leveled the competitive playing field for Realtors by creating a catalog of available listings and archives of historical comparable data for establishing value.  Prior to this, it was a much more hit-and-miss process.  Buyers would have a difficult time finding comparable data to support their offers and could be easily manipulated into paying too much.  Sellers were often left wondering if the sale price was fair as the only source of sale information was the Provincial Land Registry Offices.  Before MLS, it was a lot of work to keep track of sales and search their titles for details of the terms of sale.  Unscrupulous real estate agents could easily take advantage of an uninformed public. 

Today, the public is much more likely to be aware of fair value as all current MLS listings are only a few clicks away on a computer.  Sold information could be readily and inexpensively made available to the public through Provincial Land Titles data which is also accessible through their computers. 

Do Realtors Make Too Much Money?

            We believe that government has taken an unreasonable stance against the real estate industry because Realtors are easy targets - especially when inflation is driving up house prices and there is little government wants to do to prevent it.  Yet it still wants to look like it is doing something to curb rising prices.  Rising prices and the high incomes of top real estate sales producers (5% maybe) tend to add to the perception that Realtors make too much money.  One is lead to believe that all Realtors’ incomes are right up there with bank executives, CEO’s, lawyers, doctors, CA’s and

Bay Street

brokers.  Shots have been taken at all at one time or another to win favour with the average voter. 

The Price for Making the Big Bucks

Very few Realtors make seven figure incomes, more make six figures but most make five figures or less.  The bottom 20% makes less than four figures and usually don’t survive as Realtors.   This Darwinian remuneration philosophy and continuous education contribute to the high degree of expertise among those who ultimately prove successful. Those Realtors who make the big bucks do so because they have spent years developing a clientele, creating and funding a marketing strategy, educating themselves and most of all, dedicating countless hours to their profession, often working seven days a week with many ten and fourteen hour days.  The top producers in real estate work hard for their executive incomes.  The bottom 20% of salespeople who make little or no money are not a burden to taxpayers as they cannot collect unemployment insurance. 

Government Smoke and Mirrors

There’s a little smoke and mirrors going on here as well.  Have you ever wondered how real estate prices can increase by 20% in one year yet the CPI remain less than 2%.?  It’s because house sales are not included in the CPI.  If house prices were included interest rates would be much higher already as government responded to their pledge to keep inflation below 2%.  Government is the institution responsible for driving house prices into bubbles and beyond affordability for many buyers.  Government policy has evolved to magically make the cost of housing disappear from the Consumer Price Index.  Yet more than sixty percent of consumers own one.  We feel that Mr. Harper is living up to that old adage - If you can’t dazzle them with brilliance, baffle them with bulls---.  Instead of letting the public blame government for sky high real estate prices that will ultimately strangle a generation, let’s blame the Realtors for rising prices. 

           

More Harm than Good

Realtors are concerned that public access to the MLS system will result in incorrect or misleading information being included on listings.  Who will protect the buying public?  Would sellers have to pay fees for services like advertising, MLS administration, appraisal, consulting even when their house did not sell?  Would errors made by uninformed buyers working with uninformed sellers result in costly litigation?  Would the whole process return to the chaotic days before MLS existed?  Whether public access to the MLS system would slow price increases is unstudied by government and may increase the cost of selling a house. 

Have You Ever Been Gazumped

            Our government can not turn to any other jurisdiction in the world and say its system of marketing real estate works better than ours.  England has very low commission rates by North American standards.  On the other hand, they have gazumping.  It allows a seller after making a contract with one buyer, to cancel it at any time prior to closing in favour of another offer.  You can expect to be moving into your new home tomorrow only to find someone offered a higher price today – one that you can’t afford.  Would you go for that even if commissions were lower?  

Discount Brokers Already Exist

The real estate industry found common ground when discount brokers were allowed onto Real Estate Boards.  Commissions can no longer be set by real estate’s Federal or Provincial associations and there are many low commission companies (discount brokers) from whom to choose.  Those who charge low commissions are hoping to capitalize on a large volume of listings offered by sellers who don’t want to pay higher rates of commission. 

Some argue that discount brokers are systematically squeezed out by full service Realtors.  The fact is their failure is more the result of poor business practice, sales skills and marketing.  Those whose listings are slow to sell should not blame others in their profession but look to their own sales tactics.  In fact, a strong case can be made for the exposure gained by offering more commission being well worth the cost. 

Common Ground

The real estate industry found common ground before with government policy and they will compromise to find it again.  Regardless of the outcome, one thing will remain regarding commissions.  Those with the greatest skill, knowledge and experience who offer a valuable service to their customers will always be in demand.