Do you still need a Realtor to access MLS?

 

The short answer is “yes”.  There has been much confusion in the Media around the Realtor MLS access.  Not since the HST (and no, you do not pay HST on a Resale home purchase-just the services) has there been so much head scratching about what the impact is for the consumer and their Real Estate.

Essentially, nothing has changed other than Realtors are able to offer fewer services than before if they decide to and the consumer may decide to hire a Realtor who does this if they feel they need fewer services. However, the Realtor is still integral in the usage and responsibility of the MLS data.

So what does this really mean? It means that a consumer can hire a Brokerage to merely post the listing on MLS and offer the property for sale to cooperating brokers and their clients.  At this time, around 1 in 4 properties posted on MLS actually sell.  What that means in reality is that a mere posting on MLS doesn’t typically sell a property. So why would someone be tempted to pay for something that will likely not work in 75% of the cases and put themselves at risk in an unrepresented position throughout the sales process?

There are a number of factors that are essential to realize a successful sale.  They include but are not limited to: a thorough price analysis, posting of the listing, verifying the details for MLS, preparation of the marketing materials, exposure of the property to cooperating brokers and their qualified buyers, vetting of potential latent defects and other pertinent information about the property, following protocols in compliance with the Real Estate and Business Broker’s Act and the Code of Ethics, FINTRAC, The Privacy Act, Board rules and bylaws, coordinating showings, home inspections and facilitating negotiations to insure that their client’s interests are represented, following the transaction to closing including buyer visits and appraisals.  When these factors are aligned, a successful transaction will occur and close.  In the case of most listings/postings, this is not achieved despite the best efforts of the Realtor.  That is the truth.

It is a difficult process and your traditional Realtor is constantly competing  and striving against the odds for a successful outcome in which he or she is fully vested.

In my opinion, when it comes to the management of the biggest cornerstone of your wealth portfolio, you should hire a trained, full service licensed Realtor.  Do some homework and find one you trust.  Someone who does this all day.  For a living. It is the best decision you will make when it comes to your Real Estate.

The Competition Bureau: The MLS X Files

Some of my best friends are lawyers so I am the last one to make “those jokes” at dinner parties. I do however note that the base tendencies of Lawyers and Realtors are different.  My brokerage recently represented a successful Toronto solicitor in the sale of his home.  The initial focus of the offer was the actual fine print of the OREA form.  The content of the agreement of purchase and sale was incidental to our client.  He thoughtfully dissected the preprinted clauses and we engaged in a lively debate during which he conceded (with quite a bit of surprise) that the provincial association of Realtors and the boards had actually gotten it right.  We proceeded to a very successful conclusion and he is now a big fan of Realtors.  He no longer wants to reinvent the Real Estate wheel. 

Organized real estate experienced more than a little seismic shift last week when the Competition Bureau came at the private MLS system with a crowbar and pried it open to non represented sales.  In the subsequent week that followed, the editorials have exposed a poverty of knowledge about what has been achieved in this ratified deal with CREA.  Both for the consumer and the Realtor.

Peter Foster of the Financial post in his article: “CREA cartel not broken yet” makes the claim that the system is still rigged.  A number of his assertions are mildly confusing to me.  “if buyers were simply able to see what’s available on the MLS then they wouldn’t need a percentage-based agent at all”.  The realtor.ca site (formerly mls.ca) provides an almost exhaustive list of our inventory.  The buyers can peruse this site  for free.  The newspaper is also full of listings.  That’s what we do.  We promote our inventory at considerable expense.  Most Realtors will even set up a search service so that the distilled inventory  is then sent to the buyers mailbox. We like to do that.  They may buy our client’s listing.   There is no motivation to a Realtor to not expose his listings to potential buyers.  

Peter also goes on to state in his Economics 101 article that Micheal Polzler should not encourage the regulator to tighten the license and apprenticeship programs.  The culprit in Peter’s mind is that there are too many agents in the industry that the consumer is burdened with this fact and must fund the fruitless efforts of these agents and compensate their unsuccessful  work.  He is arguing that less agents will increase the fees.  But in my Economics 101 class at the University of Toronto, they told me more supply equals reduced pricing.  He stumped me again. I am also confused as to why Peter, in his Financial Post article would criticize a call for higher standards.  That’s weird. 

In reality, the MLS is a powerful tool for the successful sale of real estate.  It is a factor in 90% of the transactions.  What the consumer may not realize is that in a balanced market, 1 in 4 listings on MLS actually sell.  That means, a failure rate of 60-75% in a good market.  What that tells me is that there is more to the process than just a posting on MLS. The new rules provide for the Realtor to charge a service fee for every listing they take.  I am no economist but it occurs to me that if the average Realtor can charge a fee for entering a listing on the system, the 75% of listings that have not sold will still provide a nice revenue stream for the compelling innovative models that some Realtors have lobbied for.  The retainer has emerged.  Wait a second….retainer?  I guess we are just not used to getting paid for services unless we sell something. 

I almost dropped my iPad when I read that some discount brokerage may even offer the MLS exposure for free in the hopes of selling other services to the seller. What an innovative idea…..I have been a Realtor since the 80s and have never charged for an MLS posting.  The Realtor funded MLS system has always been offered as part of the system we use to sell listings.   We have always offered the use of our privately funded, broker to broker system in the process of a successful sale.  And as an added bonus, the Realtor works on commission and  has a vested interest in the success of the sale.  He pays the adverting, MLS fees, flyers, photos, floor plans, features and 1 out of 4 times he gets paid.  AFter reading a number of articles in the Post, the Star, the Globe… it occurred to me….Wow, does anyone understand how this industry works?

All of this raging towards Realtors with their clandestine, closed, secret inventory – who is hiding the inventory?  Making “absurd commissions” as one publication stated.   The average Realtor makes $37,000 annually before expenses. Hardly up there with the Lehman brothers.  You should hug your Realtor for creating this reliable, predictable marketplace for your largest investment.  If all 100,000 Realtors went on strike tomorrow, what would happen to your investment? 

In the US, the system has been open to the fee per service and the average commissions have remained virtually unchanged. The beauty of a free market system. The serious seller who wants to sell will likely chose to hire a Realtor who will represent him.  The average unrepresented sale (NAR 2006 study) yields 15% less than a represented sale.   The buyers who are looking for private or unrepresented sales are typically looking for the benefit of the commission.  Most buyers are not willing to risk representation in an effort to save an abstract commission.  Their instincts are that they need help in the process of selecting a home.  As a Realtor, the first thing I would do when looking for property out of my area is refer myself to a local Realtor.  I don’t want to be that buyer who knows it all and buys the rural property with an environmental issue and a dry well next to the new windmill farm backing on to the site of  last year’s triple homicide.   I would not risk my capital in an attempt to save a service fee.  I also don’t e trade.  I leave that to my financial adviser.  I also don’t cut my own hair.  I am aware I may save a fee.  But these people are trained and experienced in an area that I am not.  And they do this all day.  I am a Real Estate broker by day.

My hope is that the consumer is fully aware that paying for a posting on MLS will not automatically result in a sale at all.  In reality, they will likely need to hire an agent to represent them when their “posting” doesn’t work.  Where is the economy? There are a lot of homes for sale on MLS-the competition for a buyer is brisk.  Do you really want to  bring a knife to a gun fight?

Anyway, I am off to the secret Cartel  meeting at the docks so I had better sign off.  We are drafting our service menu today.  Was that $50 per sign back…..?

The Market/ Summer 2010

The TD has projected a 10% drop in home prices.  According to Tony Wong of the Toronto Star dated August 16th: “Canada’s real estate market is due for a “moderate correction” with homes that are anywhere from 10 to 15 per cent overvalued, says the TD Bank.

“The excessive pricing of Canadian housing in relation to fundamentals is now clearly correcting,” TD Bank economist Grant Bishop said in an economic note Monday. “We expect a moderate correction in prices over the coming year.”

But are Buyers really going to expect to see lower prices? We have some real supply issues emerging in the GTA.  Seasonally adjusted figures for New Listings show they have declined  by 7.2% in July from June. Inventory is in decline.  Buyers shopped early this year! The slow down is likely due to fear – and the widespread misperception about the HST, fear of higher interest rates (which caused a rush to market).  It is anecdotal, but I had people approach me and say they were worried about the HST on resales. When I explained that the HST was only on the service portion, a parallel tax to the GST, they were very surprised.  Just how widespread was this misnomer?

Ontario and BC have led the decline in sales activity. But the year to date transactions are still up by 5.6%.  I don’t think we will see prices come down substantially. At the peak of the recession, sellers removed their homes from the market as opposed to reducing the prices. That is what aggravated the supply and caused the market frenzy in the first half of the year.  We went from 1 in 12 MLS listings selling to 1 in 3.  If the supply continues at this 3 month retreat, what is to say we won’t see another wave of multiple offers as supply retracts?

CREA and the Competition Bureau

Has the real estate industry created a protectionist environment?  The answer clearly is yes – Canadian real estate systems are designed to protect the consumer.

 The real estate industry, at the suggestion of the Competition Bureau, is once again taking a hard look at a structure designed to protect consumers and share quality information between Realtors.  It is notable that this level of scrutiny was levied years ago by the bodies that govern and regulate realtors – hence our current structure and legally binding code of ethics.  Yet, Ms. Aiken seems determined to undermine the credibility of the data, systems, and professional processes that are the foundation of the real estate industry as we know it.  How will this help the consumer, why fight a battle already won, and what are the repercussions?

The current system for real estate in Canada should not necessarily emulate the US system any more than the  banking system should.  The Canadian MLS system is but one part of the real estate industry structure.  It was designed to create, store, and share amoung Realtors the quality of market information required to serve and protect the consumer.  The credibility of that data is central to accurately reflecting the market, and even more importantly, mitigates false or misleading data.  Why undermine a cohesive, credible, and reliable data management process only to introduce more consumer risk and potentially influence market valuations?  All this is intended to further the emergence of competitive models.  But, these already exist.

Realtors operate in an openly competitive market, free to negotiate fees, provide services, and create innovative business models.  To protect the consumer this is done under the umbrella of strict governance, education, and insurance.   In fact, the credibility of the Canadian system is much envied by other countries such as Britain and the US..  Working within such a highly regulated industry bestows significant responsibilities upon Realtors.   The MLS system currently extends privileges ONLY to members of this highly regulated and responsible body.   This system is coveted as it is highly effective. The old adage, “garbage in garbage out” rings true to me in this case.  If the system’s data and process is compromised, how effective will it be and how will that impact the fairly predictable system we have all grown to rely on?

Not every process is a “Do it yourself” opportunity.  Realtors in the Canadian real estate system take responsibility as do other professionals.  The process of selling a property is neither easy nor intuitive.  It requires skill, prudence, education, and masses of documentation to comply with agency, privacy, Fintrac, ethics, codes and accurate data management.  

The quest for competition has to intersect with common sense.  The bureau should recognize the fact that the consumer has and always will have commission options.  In this day of electronic consumerism, there are also many venues for consumers to list and market properties without using the MLS system.  The MLS system is sought after because it is credible; that value proposition would soon be lost if opened up to less responsible data input and less responsible management of the selling and buying process.

Author  Tina Gardin, Sutton group quantum realty broker of record. February 2010

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