Personal Finance

Lower fees for the asking

JOHN SCHOFIELD May 18 1998
Personal Finance

Lower fees for the asking

JOHN SCHOFIELD May 18 1998

Lower fees for the asking

Personal Finance

Len Deegan didn’t want to do it. For more than a year, he and his wife, Andrée, tried to sell their three-bedroom, two-storey home by themselves, trying to avoid the thousands of dollars in commissions they would have to pay a Realtor. The 54-year-old manufacturing business owner expected no shortage of buyers for the renovated Victorian house, which sits serenely on 98 acres of gently rolling woodland near Orangeville, Ont., 60 km northwest of Toronto. He advertised in local newspapers and on the Internet.

As the months slipped by, however, no one even phoned to inquire. Grudgingly, the couple called in a Realtor to finish the job, despite a commission that will add up to about $17,000.

“Sometimes you need an agency,” says Deegan, who finally sold his home last week. “But I’d rather be putting that money in my pocket than somebody else’s.”

Why not? While commission rates vary across the country, the typical fee averages six per cent of the home’s selling price. And those who attempt to circumvent the system by selling solo often end up concluding, as did Deegan, that commissions are simply the price they have to pay to find a buyer. But increasing competition is giving way to a

range of cheaper options, and the brisk demand for homes in some Canadian cities is putting more power in the hands of vendors.

The biggest change took place in 1988, when the Federal Court of Canada, acting on complaints by the Consumers’ Association of Canada and other groups, prohibited real estate boards and companies from fixing commission rates. Since then, sellers have had the right to negotiate the commission rate, although brokerages rarely publicize the fact. The rate is no longer pre-printed on listing agreements, and sellers are entitled to demand any reduction they want. Agents, however, are not compelled to accept, and

sellers may have to shop around for one willing to accept a lower commission.

Ten years after the court ruling, many sellers are reluctant to negotiate for fear that an agent earning a lower rate may be less committed to selling the house. But in busy markets such as Calgary and Toronto, where listings this spring are scarce and homes often sell within days, that should not

I~r1MLI I Typical commission rates across Canada - -: 60/ on the first $100,000, vancouver /0 2.5 per cent thereafter C `g 60/ on the first $100,000, a~ ary /0 three per cent thereafter Toronto 6% • 70/ for homes under $200,000, 1~.on1rea1 /0 six per cent for those above u 60/ for homes under $200,000, nailuax /0 five per cent for those above St. John's, Nfld. 6%

be a concern, says Alan Silverstein, a Toronto real estate lawyer and author. “Just getting a listing out there is a difficult thing,” he says. “Realtors may be more willing to negotiate now.”

For consumers, it is usually worth it. After all, a homeowner who knocks as little as one percentage point off the commission on a $200,000 property will save $2,000. But those who do should not expect an agent to be grateful. “People feel we earn easy money, but they don’t realize all the work that goes on behind the scenes,” says Brenda Maguire, a Calgary Realtor. There are open houses and advertising arrangements to

look after. And selling agents may spend weeks showing homes to prospective purchasers before making a sale.

One reason agents’ fees are so high is the huge cost of maintaining the multiplelistings service database, a comprehensive catalogue of available properties run by real estate boards across Canada. Sellers also end up footing the bill for impatient homeowners who pull their properties off the market or switch to other Realtors. In some cases, agents may advertise a home for months, only to lose the client. “The public doesn’t understand how the whole industry operates,” says John Kerby, author of the 1997 guidebook For Sale by Owner. “It’s the system that’s flawed.”

Nevertheless, cutrate services have emërged to meet the demand for lower rates. So-called facilitators, often advertised in local real estate publications, charge a flat fee of less than $1,000 to list the vendor’s «** ” home on the MLS

system, but provide no additional service. Other companies, known as discounters, offer commission rates as low as 3.5 per cent.

Vendors who try to skip commissions entirely by selling their own homes often end up disappointed, says Kerby. Most lack the know-how to effectively market their homes. “It’s hard work,” he says. “If it was as simple as putting out a sign, everybody would do it.” Kerby estimates that about 70 per cent of do-it-yourselfers ultimately seek the services of a Realtor.

In the end, says Silverstein, most vendors simply want the highest possible price for their home, and are willing to pay for real estate agents who can deliver that. ‘You’ve got to feel a close rapport because you are entrusting them to sell what is probably your biggest investment,” he says. A fear of damaging that rapport sometimes discourages vendors from broaching the issue of lower realty fees. But as when buying a home, says Silverstein, it never hurts to negotiate.

JOHN SCHOFIELD