3 Reasons Why Edmonton Area Real Estate Commissions Should Trend Down
by Stuart Neal
on Tuesday, October 31st, 2017 at 9:13am.
I’m originally from the United Kingdom where real estate sales commissions have always been lower than those that we find here in Canada.
REALTORS® have historically provided higher levels of service in our Edmonton market than estate agents back in the UK and in Europe generally. However, most home buyers purchase directly through the seller’s agent. Whilst our market favors buyer agents, meaning there are 2 agents to pay, commissions will likely remain higher.
On a global level, commissions are trending down. According to one study I found by Natalya Delcoure & Norm G. Miller there are only 2 markets where commission have gone up, i.e. Hong Kong and Japan where buyer brokerage has been introduced.
Here some examples of typical commission rates:
Mexico – 5% to 10% USA – 6% to 7% UK – 1% to 3% (sellers will often cover the cost of advertising & no buyer agents) Canada (Edmonton) – 7% of the first $100k & 3% of the balance (most agents handle 3 to 6 sales per year)
Source - International Residential Real Estate Brokerage Fees and Implications for the US Brokerage Industry
In my view there are several factors that will eventually force the industry here in Canada to change its approach:
Due to the internet, it’s never been easier to obtain global advertising exposure. Gone are the days when newspaper advertising and open houses were effective marketing tools. See this link for more information about where buyers REALLY come from: 5 Ways to Find Your Home Buyer
Also because of the internet, REALTORS® are no longer driving offers across town and presenting them over the kitchen table late at night. These days negotiations are often finalized over the phone, by text or email and documents can be signed electronically in seconds using tools like DocuSign.
Buyer agents also spend a lot less time showing buyers homes. According to one NAR report before the internet, buyer agents used to show home buyers 20 or 30 homes before they purchased. These days because of websites like www.AmbergateHomes.com home buyers do most of their own research before going out with their REALTOR® of choice. The modern home buyer will purchase after seeing between 5 and 10 homes.
Cost-effective and efficient marketing, easier client servicing and less time spent with each client should equal lower commissions.
2. Conflict of Interest
Paying your listing REALTOR® a percentage based on the sales price they negotiate might be a good idea. However, flat fees might be better. See this link for details: Ambergate Flat Fee Program.
Paying a buyer agent a percentage based on the final sales price is clearly a conflict of interest. Traditional REALTORS® in our market usually offer half of their 7/3 commission to other agents. This is perhaps a throwback to the olden days when both agents worked for the seller. Today this is not true. The buyer’s agent owes fiduciary care to their client not the seller. They should not in my view receive compensation based on how much their buyer client can be convinced to pay for the home, but rather when and if their client purchases. Therefore, a flat fee is a better way to go. And because the buyer agent spends a lot less time helping buyers than in the past, that fee should be lower than half of a traditional commission.
3. Educated Consumers
Younger consumers, especially generation Y are a much more independent and somewhat cynical bunch. They are tech savvy and they can do a lot for themselves. However, we talk to many consumers of every demographic whom question the sense of paying expensive traditional commissions, which is why we have seen the emergence of for sale by owner companies, discounters and flat fee brokerages like Ambergate Realty Advisors.