Just like my post about Investors Group and mutual fund advisors may enrage financial advisors, I think this post about not necessarily needing realtors may enrage a lot of realtors/ real estate agents.
So please accept my apologies in advance.
Because of the higher home costs (and subsequently higher commission costs) in Canada, more and more Canadians are opting to sell their home themselves. However, this may prove difficult because the main way more and more Canadians are searching for their homes is through the Multiple Listing Service (this is how we found our current home). The handy MLS is sponsored by the Canadian Real Estate Association.
Many Canadians are choosing to save $20,000+ (in some cases, even more) because of the high costs of real estate agents. This is especially so for markets that have pricey homes like Vancouver. For example, on a $500,000 home, the real estate commission will cost $21,000 for the seller. As mentioned in an earlier post, the commission that a real estate agent receives is split between the buying and the selling real estate agent. Of course, the real estate agent has to pay for their overhead and expenses, including payment to the real estate company (e.g. Re/Max or Sutton).
Do It Yourself Real Estate
With an increasing number of people choosing to DIY investing (e.g. through index funds or ETFs), it is no surprise that people are interested in DIY real estate. However, this can be more difficult for the seller than one would think. There is a high amount of resistance from the real estate agents, real estate boards to support people who are selling their own homes. For obvious reasons, a real estate agent would most likely NOT take their client to an open house of a person who is selling their own home.
Why?
Because they won’t get any commission from the selling homeowner. This is why it can be very difficult for someone to successfully sell their own home, especially when real estate agents are turning a blind eye to these homes.
This is much the same for real estate agents who opt for lower commissions, like that of 1% Realty (where the maximum commission they get is 1%, instead of the typical 7% on the first $100K and 3.5% on the remaining balance… but at the same time, you can get a full MLS listing).
In addition, people who are on their own in terms of selling their home may not have access to the Multiple Listings Service. However, if they pay a small fee (usually in the range of $250-$500, they can get their home listed in the MLS).
In my own experience, my boyfriend and I looked at MLS regularly ourselves. We had a real estate agent WANT to show us around and she was quite upset that we found a place without asking her to tag along (because that means she lost out on some potential commission). Instead of using her, we employed dual agency with the selling realtor to save commission costs. However this is risky and my be rife with conflict of interest, so definitely proceed with dual agency options at your own risk!
Canadian DIY Real Estate Websites
There are more and more Do It Yourself Real Estate companies out there, and the quality and attention to detail from these companies is pretty remarkable. For example, certain companies take care of everything for you, including the custom signage (you just need to hammer it into the ground pretty much) and the legal documents you need to finalize your transaction.
These websites are great in that they could potentially save you tens of thousands of dollars. The downside is because everyone uses real estate agents, there isn’t much selection for independently sold homes.
Here are some of the bigger DIY real estate websites:
- ComFree has an easy to use website interface. It includes homes for sale in all of the provinces across Canada and lets you choose which geographical area your home is in. It is indeed very professional looking. They have been around since 1997 and claim to have helped sell 100,000 homes in Canada. As part of their commission free package, they include detailed information on sale transactions in your area (so you know roughly how much homes in your neighbourhood sell for) and even a customized “FOR SALE” lawn sign. They even have marketing support at least 12 hours of the day. How’s that for attention to detail?
- Property Guys also has an easy to use interface (especially if you are looking to buy a property, IMO) because you can “save” your searches and it has a cute legend which tells you if the house is an income property, if it is eco friendly, or if the price was recently reduced. They even have an “Offer Maker Tool” in case you’re shy with negotiations and don’t want to do it face to face. They also have lawn signage and offers access to Realtor.ca (aka Multiple Listings Service)- though I would assume you would need to pay an additional fee for this.
- For Sale by Owner has many different sites, the main one is for homes for sale in the US. For the one in BC, it is very simple and just includes homes listed for sale by owners, how big the home is/ was, and how many square footage that is.
One word of caution- if you are planning to “DIY” to sell your own home, make sure you do not DIY when you close the sale. Lawyers and notary public are so important for this process.
Readers, what do you think? Do you think this trend for DIY real estate will catch on?
I know people who saved quite a bit by listing their houses themselves. It did take longer for them to sell as agents have a better exposure to the markets. But what they were able to save outweights all the benefits agents can offer.
@Aloysa- Definitely, it would take longer, it would be more stressful, and it would take much more effort. Some people are willing to do this though to maybe see that they can do it (and do it successfully)
We had a 1% Realty start-up in Lethbridge and from what I’ve heard, their listings get less showings because the other Real Estate agents are pissed off that they won’t get a regular commission if their buyer chooses that house. As we know from Freakonomics, Real Estate agents are influenced by incentives. What incentive do they have to show you a home listed by 1% Realty?
As you pointed out, that’s the problem with many financial advisors who would rather put their clients in high MER mutual funds than direct them to invest in low cost index funds and ETF’s.
@Echo-Yup, when a realtor shows a home listed by 1% realty, they pretty much have zero incentive. It’s a broken system really
Hopefully there’s enough momentum that this changes somehow (or maybe I should have gone into real estate LOL).
re maybe should have gone into real estate. After 6 years full time I can tell you its not an easy gig at all nor is it cheap. My costs last year to be in business (and Im not a put a sign up, stick it on mls and disappear realtor) were in the 36k range. That is more than I ever took home as a nurse working for $23 per hour. The cheaper companies stay in business by listing cheap (which attracts buyer “leads” to them) and then they take the buyers and sell big company listings that pay a good commission. The stat i was told is out of 5000 people who start the courses, at the end of the courses and two years in business there are 36 left. If it were easy, the survival rate would be alot higher i suspect.
@Carol Day- I guess I should have made that statement in context, referring to Vancouver. The housing prices in Vancouver are incredulous and I’m sure realtors make a pretty penny of selling homes here.
Definitely will seriously consider to sell it myself when I cross that path one day. I have a co-worker who once said that he would never do something like that as he knows nothing about the housing market. Me on the other hand, I am driven to learn if it’s not overly complicated and it saves me money.
@SRL- That’s true. I think I would probably TRY the DIY route and if that didn’t work I would go the realtor route. There are lots of drawbacks to selling it yourself though, but hopefully that changes.
When I sold my first house years ago I used Comfree. It worked really well and it didn’t cost me a bundle. As far as staging goes, my Grandma and I did it. I sold my house for well over the list and I didn’t have to pay a Realtor half of that. It was great.
@Miss T- Great to hear your experience with Comfree! Your grandma sounds really helpful and handy- you sound like you have great family to influence your financial decisions in your life
I’ll try FSBO next time I sell real estate. There are more fixed fee agents now so that might be the way to go as well.
@retirebyforty- So it sounds like in the US, the FSBO is picking up, I suppose.
Years ago I used to think this was the way to go, but experience has made me wiser. Not only is your home shunned by the realtor community, but potential buyers expect to share the windfall savings – there is a two tiered price structure out there – listed homes and private sales. So your upside is often less than you envision.
Then my thinking evolved to “well, if it’s a super hot market, then for sure DIY.” But I no longer think that, since a really good realtor can squeeze so much from a multiple offer situation that s/he will often cover much of the commission costs.
Finally, mortgage lenders view private transactions dimly, and it can be challenging to get an approval – especially if there is some ‘hair on your deal’ already.
If you feel strongly about the cost issue, ask your realtor to discount her listing commission. It’s not usually wise to discount the selling commission since the realtors will tend to direct their clients elsewhere first.
So in sum, while I would not argue strongly and say you are wrong Y and T, my own view is different – again, based on a lifetime of experience in the personal finance industry.
Keep up the great work ! Cheers, Ross
@RossTaylorMoney- Very very true- about the multiple offer situation- so it depends on how good the market is of course. Some realtors can cause bidding wars, and those realtors are probably worth their weight in gold
It can be scary to DIY and there are a lot of drawbacks (like the ones you have mentioned, which are extremely valid), but I think some people may prefer to DIY, probably because they have been burned by realtors in the past, or they are averse to salespeople (I myself am not one to be swayed by sales pitches, I don’t think).
Thanks for your insight- really appreciate it!
I agree you have outlined many of the potential risks here. There is a 1% company in town and he has had a listing that has sat for about a year. it is a rooming house and with the zoning headaches and all the due dilligence that would be expected from our professional standards it is just way too much work and liability to take on for free or almost free. I have done private offers as a favour to past clients but would never do do on a property like this. usually the listing realtor would be responsible and paid for doing much of the diligence re the property but not in this, it’s a “mere posting” so that leaves the buyer’s rep to do it all. And you are quite right, lenders are super cautious about a private sale because they know that no one bound by professional standards and liability has evaluated the property and priced it. They only know what the seller has told them, and a seller may not know what they don’t know and miss things. Banks know this too.
I probably wouldn’t do DIY unless the market was going crazy. I might “try” it for a few months, but everything I’ve read here in the states says that realtors help prep, stage and promote the place so well compared to a diy-er that much, if not all, of the commission is made up by higher sales price.
I’m not sure that I buy it completely – I find it hard to believe it can make THAT much of a difference. But I’m not completely sold on DIY real estate.
@Nick- That’s true- but oftentimes the realtors (at least many here in Vancouver anyway) do not do much to prep, stage, or promote. My BF’s parents are working with a realtor right now who isn’t bothering to prep or stage or anything.
I guess there are good ones and there are bad ones. Some put in more effort and some put in less effort.
[...] Young and Thrifty said who needs Realtors when you can list your home yourself? [...]
[...] This week Young and Thrifty wrote a great post that asks, Who Needs a Realtor When You Can List Your Home Yourself? [...]
I was just going to mention Freakonomics Echo! It seemed pretty cut-and-dry from that article. I bought my house from a couple that was selling privately. None of us used a realtor, we had a local lawyer draw up the paperwork, and it cost me a very minimal amount for closing costs. We have both been very happy with the whole transaction.
I used to think this way too and I actually bought our current house through private sale. It worked relatively well.
However, for the amount of effort and, more importantly, stress involved I no longer thing it is worth it for busy people. True it’s a lot of money, but the clincher for me is that people coming into a private sale do expect you to split the cost savings with them. I know, because I was one of them and that was one of our biggest bargaining points.
I think if the cards fall right, you can definitely do very well for yourself with DIY – but I no longer think taking the chance is worth it. I may change my mind on that again because I’m only barely over the fence. Time will tell.
@SavingMentor- I think if I were retired and had a fixed income and had the luxury of time, DIY real estate/ private sale would be the way to go. However, I agree, that as busy working people, it would be difficult to show the home when you’re working etc.
Way back when I was a little boy, my parents choose the DIY route for a 2nd home we owned.
This was back in the 80s. No MLS website to search. Common way to get information was the local real estate paper. There was also a home show tv listing that was popular in Vancouver. If you were lucky enough to own a computer with a modem, there was also a bbs listing done by the local real estate paper.
Anyways, during the time my parents did their DIY, no realtor would bring their clients to view our house. Our big forsale sign would often be knocked down or pulled and thrown onto the street. Ads that we taped onto lamp posts were often torn the next day.
In the end, we never did sell that house. We rented it out for quite a long time, going through alot of people. We finally sold it, this time through a realtor, in 2003.
From that, in my most humble opinion, not only will your local realtor community shun you, they will do all the dirty tricks on you.
@VanLarry- MLS has revolutionalized the real estate industry- I can understand the need for realtors without MLS but with MLS (if you’re looking for property anyways) it is very helpful. Mind you, a realtor has “inside” information on the property through MLS (like what the last buyer bought the house for etc.).
I agree that the realtors will shun you. There was a documentary recently on TV talking about how realtors called to threaten this person doing DIY and told them to use a realtor “or else”.
I have really mixed feelings about the access to the mls site by private sellers. It was created by realtors and is paid for by realtors in order to help get exposure for our clients but the cost is millions per year. We don’t need to go into an IBM store to learn of the inventory, because of the IBM website but we still need advice on the specs, features and are not allowed to sell our resale computers on their site, nor is apple or dell etc allowed access to their site. I am very interested in the documentary you mention, and would like to see it. What was it called? thanks Carol
@Carol Day- But realtors have access to more detailed information on MLS right? Like what the house sold for before etc.
[...] and Thrifty, discusses becoming your own realtor in Who Needs Realtors When You Can List Your Home Yourself. Yup, no controversy there Y&T! I smell a Globe and Mail mention for this [...]
I don’t know about in Canada, but in the US it always seems like the FSBO houses are on the market a lot longer, too.
[...] and Thrifty:Who Needs Realtors When you can List your Home Yourself? Good question! I will have to try FSBO the next time we sell our [...]
[...] Young and Thrifty wrote a good post last week about do-it-yourself home selling. It’s called “Who needs realtors when you can list your home yourself?” I really liked the comments and feedback from her readers. A number of issues have been raised which make the money saving angle seem less realistic and desirable. Arguments against include: [...]
When selling a house with the help of a real estate agent, that 6 percent real estate commission can eat into any profit the seller might receive from the sale. In today’s depressed real estate market, that fee could even result in an overall loss. Even with the funny accounting used when people sell their homes — the accounting that doesn’t consider all the costs of owning and selling a home as part of the cost basis — in a bad market, it’s difficult to show even a fake profit.
@Sugel- Is that what the commission is where you are? Is the 6% not tiered?
[...] Who Needs Realtors When you can List your Home Yourself? (Young & Thrifty) [...]
[...] Young and Thrifty with ‘Who Needs Realtors When you can List your Home Yourself?‘ [...]
I hope this trend for DIY real estate will catch on, the internet is certainly making it easier. When we bought our last house, our agent did nothing more than unlock the door. The agent did not have any more information on the house than what we had already read on MLS.
@Kanwal Sarai- I agree- the internet is making it much easier. I really think its hit or miss who you get as a realtor. There are some who seem to do a lot and some who do so little.
A detailed pricing analysis should be done for buyers and sellers by realtors and unfortunate that you found someone who did nothing but unlock a door. also keep in mind that any information put on mls is collected by realtors and the (and they can be liable for error both by lawsuit and ethical violation unlike a private seller) and those who data input and maintain the system are all paid for by realtors. there is a high cost to being in real estate, and i don’t know why this was kept quiet for so long. I have been disclosing more of this to my clients in the last year, for example that one 1/4 page ad in Homes and Land that fit two was costing me $395, the half page in our local real estate section is 2k per month. I am preparing to release a more formal disclosure of costs in the near future. In Ontario in the Toronto area and Peterborough area the average realtor sells 4 homes per year. If that is all they are selling they are just ‘getting lucky” and not likely a full time realtor. I can see that the experience level here would be in question, and likely the quality of the service and advice
@Carol Day- Wow, I had no idea!! Thanks for sharing.. I think sharing your costs is a good idea.
Understand First How Agents Are Paid. Splits vary among brokers, depending on policy and production. A top-producing agent who closes 100 transactions a year is paid more, a higher split, than an agent who closes one deal every couple of months. Only licensed real estate brokers can receive a commission. Brokers have written agreements employing agents and, in turn, pay the agents, typically as independent contractors. Commissions paid by a seller are divided with about half going to the listing side and the rest to the selling side; it’s not always a 50/50 division.
Commissions on sales are the main source of earnings of real estate agents and brokers. The rate of commission varies according to whatever the agent and broker agree on, the type of property, and its value. The percentage paid on the sale of farm and commercial properties or unimproved land is typically higher than the percentage paid for selling a home.
Who Needs Realtors When you can List your Home Yourself?
Hmmm, who needs a roofing company when you can look up online how to shingle, who needs a plumber. Heck, who needs a surgeon when you can cut yourself open yourself? Anyone who would ask who needs a realtor has no idea of how little they know of the process. It is not to say that one cannot list and sell one’s own house, hot area, hot market etc some people can. After 6 years full time in the business, I still ask realtor advice when buying or selling myself–I listed my own property but was happy to pay someone else to work with the buyers.
[...] real reason is likely because they are selling $45,000 real estate training classes and want to pressure you enough to impulse buy that on your credit card. The [...]