Are real estate commissions too high?

The federal Competition Tribunal is in court this week, rehearing a suit brought by the federal Competition Tribunal against the Toronto Real Estate Board (TREB) that accuses the board of restricting public access to home-sales data. Says the Globe and Mail, “… many in the industry see it as a game-changer that will set a precedent for how real estate is sold in Canada.”

The suit has been in the making for about three decades, and hinges on public access to the MLS, or Multiple Listing Service. The trademarked entity owned by the national Canadian Real Estate Association does allow public access through the realtor.ca website to selected data, but keeps some data for the eyes of licensed real estate agents only, including the number of days a listing has been on the market and the home’s current and previous selling prices.

TREB allows its member agents to share the information with the public, but only through fax, email or in person, which means you have to engage an agent to access the information instead of finding it on, say, their office website.

With traditional real estate commissions in the neighbourhood of 5% and home prices soaring, the suit alleges that real estate commissions are artificially high, and prohibitive of home sellers’ opting to sell through discount agents or on their own. Although I recognize that real estate professionals are an integral part of the process, worth a reasonable fee for the amount of hassle they save you in listing and selling your house, I’m inclined to agree. With the hot sellers’ market we’re facing, and home prices now averaging well over half a million dollars, it’s hard to imagine justification for a $25,000+ fee for what boils down to a few hours spent back-and-forthing some paperwork.

In more sought-after neighbourhoods through which I pass on my daily travels, I see “coming soon” signs go up one day and “sold” signs on the same property three days later, which means it's likely that very little advertising and no open houses have taken place. Someone has seen the coming soon sign and made an offer sufficient to get the house off the market before any such measures are even necessary. Yes, some homes are a harder sell, needing professional photography, multiple showings and the like, but many aren’t.

When a friend of mine recently asked an agent to take her to see a property for sale by a certain broker, he told her that he didn’t take clients to see their homes because their paperwork often wasn’t in order and they were too big a “hassle.” A hassle for whom was not specified, but certainly clear. A hassle for him, one likely accompanied by a cut-rate commission. Easier in a market like this to take her to see traditionally listed homes for which she needs him for access.

I’m not knocking real estate sales as a profession – I’m of the “whatever the market will bear” school of thought for the most part – but I’m also pro-competition. Sites like Uber, whatever you may think of it, have cracked open the monopoly of the taxi industry, and sites like Zillow in the U.S. have begun to crack open the real estate market as a result of a similar non-competition suit.

While in recent years this ongoing head-butting has resulted in for-sale-by-owner listings appearing on the MLS, said owners remain restricted from entering their own contact information, and so are forced to go through a broker to get their listing posted, and then pay a commission to the buyer’s agent.

I’m wary of cracking open the industry completely – imagine the mayhem if you had to trust your closing to someone whose day job is arranging flowers or fixing plumbing leaks. Or doing heart transplants, for that matter. It just seems like a recipe for disaster. But with real estate commissions largely unchanged since the 1980s and house prices having more than tripled, is it time to have another look at the paradigm?

Since those commissions are obviously worked into the selling price, it’s ultimately the buyer who pays. Would you be comfortable handling your own house sale, right down to the point where the lawyers step in? A week of hearings in October in Ottawa will follow this week’s Toronto hearings – which side will you be rooting for?