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Monday, May 17th, 2021

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Nelson Bennett
Western Investor

 Everything Should Be Better: Can you think of any other job that got a 100 per cent raise over the last 10 years?

After a brief lull due to COVID-19, Canada has resumed its default condition of having an absolutely unhinged real estate market. This time around, some of the most meteoric growth has occurred in secondary markets, with price spikes of up to 20 per cent in a single year. So on that note, here’s a video about why real estate agents might be making too much money (or, at least, more than you expected).

Watch the latest Everything Should Be Better video or read the transcript below.

Oh hi there. If you’re watching this video in a part of Canada that speaks English, chances are good that the ground beneath your feet has spent the last couple of decades getting obscenely expensive.

There are a few reasons why this is not a great thing. First of all, it turns your major cities into unlivable hellscapes occupied only by the super-rich and anyone willing to raise their families in a glorified hamster cage. Also, when all of your national investment capital is constantly being poured into property, it doesn’t leave a lot left over for the stuff that actually makes economies grow, like innovation.

But I can tell you who does like a good generation-long housing bubble: Real estate agents.

Now don’t worry; I didn’t come here to bash realtors. One of them raised me, in fact. But before you sell your next house, here’s a few numbers to contemplate.

We’ll start with the obvious: Realtors are paid a percentage of every sale. Typically it’s seven per cent of the first $100,000 and three per cent of everything after that. With the commission usually being split between the buying and selling realtor, your realtor gets about 2.5 per cent of the sale price for selling your house.

In the last 10 years, Canadian average residential real estate prices have doubled. In hotter markets like Vancouver, prices have gone up more than 300 per cent since 2005. Can you think of any other job that got a 300 per cent raise over the last 15 years?

 Aside from this guy’s job, of course. Photo by Reuters/Michele Tantussi

Realtoring isn’t as easy as just showing houses to people: You’ve got office expenses, licensing considerations and all manner of whatever new paperwork the government has decided to throw at you. But, as with many things, the internet has made key parts of the job easier. A prospective buyer can now find your property, review its relevant details and even do a virtual walkthrough without your agent ever needing to pick up a phone.

Also, did I mention we’re in the midst of a crazy red hot real estate market right now?

When I sold my house in Edmonton a few years ago, my realtor had to flip a meh home in a not-great neighbourhood in the midst of a plummeting provincial economy. It was a months-long grind of showings, open houses and fruitless negotiations. Commission well spent, in my view.

But in Vancouver right now, the average property sells in 30 days. And oh look: This townhouse just sold for 30 per cent over its asking price. Far be it from me to say that, in certain markets, when buyers are literally throwing money at you, sales become a bit easier.

So why doesn’t anybody care? You have a profession collecting annual pay raises of up to 20 per cent for work that is staying about the same or getting easier. You would sure notice that kind of price differential at the grocery store, but people barely bat an eye at it when it comes to the real estate trade.

The reason is that, basically, when everybody is making crazy amounts of money for, just, owning land, you don’t get as concerned about the little details. When this is selling for $2.5 million, we’ve already thrown away the normal rules of economics, so yeah, $67,000 for two days’ work sounds about right.

This Vancouver house literally sold for $2.5 million; $100,000 over asking. 

So, screw the realtors: I’ll sell my own danged house. After all, I can turn it into a hotel room with Airbnb, so why can’t I sell it? You can: Services like Purplebricks will let you sell your home through an app for a flat fee, usually around $2,000. They’ll even put you on MLS! Quebec loves private sales: A single for-sale-by-owner website, DuProprio, is now responsible for 20 per cent of all Quebec real estate sales.

Why is Quebec much more open to private home sales? Probably because Quebec’s housing prices haven’t been nearly as insane as the rest of Canada. When you’re selling the family home for about the same price as you bought it, you become a bit more discerning about someone wanting to take five per cent of that.

Now don’t get me wrong: The occupation of real estate agent isn’t a scam. There’s plenty of folks every year who pay their realtor commissions with gratitude.

But if you’re handing five figures to someone who’s just going to post it on MLS and answer a few emails, you might want to consider whether an algorithm could do it just as well.


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