Properties listed with reduced commissions sell for less or sit on the market for longer due to illegal manipulative practices
A CBC Marketplace investigation is exposing a pervasive issue among Toronto area real estate agents who have been by steering clients away from properties that offer lower commissions to brokers.
The investigation by CBC’s Tiffany Foxcroft and David Common found that Toronto agents would persuade clients away from sellers who list their own homes and offer less than the standard 2.5 per cent to the buyer’s agents.
The CBC reporters worked alongside homeowners Joanne Petit and her husband Frank, who self-listed their home in a Greater Toronto Area (GTA) neighbourhood on MLS through a discount online brokerage. They were offering a one per cent commission to buyer’s agents.
The Canadian network sent reporters posing as buyers to three real estate agents who topped Google searches for that neighbourhood, looking for homes that matched the criteria of Petit’s home. According to CBC, two of the three agents lied about the home, saying it was over-priced or the sellers wouldn’t pick up the phone, deliberately steering the undercover reporters away from the home because their earning potential would have been slashed by from an estimated $36,500 to about $14,600.
In light of the CBC investigation, the Real Estate Council of Ontario issued a warning to agents about such practices: “In addition to being illegal, the conduct undermines consumer protection, consumer confidence and the reputation of the real estate profession as a whole.”
Toronto Real Estate Agents react to steering practices
“I definitely see it happening,” RE/MAX Hallmark Realty broker Meray Mansour tells NOW about steering. She agrees with the CBC investigation, which also surveyed 50 real estate agents across the country, finding that the steering issue is pervasive in Toronto and beyond, and offering a lower commission to buyer’s agents will get your home black balled. “I notice just from my research, if they’re offering one-and-half or two percent, the property sells for less or takes longer to sell.”
Mansour adds that she too warns her clients against reducing buyer-agent commissions for these reasons.
“I will take less money than take a chance of offering less money to a cooperating agent, because I know [steering] is something that does happen in the industry.”
Phil Kocev, broker and managing partner at iProRealty, found the CBC’s findings, “very disappointing” and “unfortunate.” He hasn’t noticed steering as a practice happen too often. And he also explains that real estate agents, who are obligated to show clients every property that meets their needs, have more honest ways of dealing with reduced commissions in the Buyer Representation Agreement (BRA), where all the terms and percentages are laid out.
“If we come across a property where the commission is lower than what you and I agreed to in the BRA, then we have to have a discussion and decide if we want to proceed and go forward,” says Kocev.
He adds that it may already stipulated in the BRA that the buyer could be on the hook for the gap in the commission.
“You as the client can decide, ‘no, you know what, I’m not going to pay that price for that house plus have to deal with the commission. So let’s move on.'”
And while Mansour and Kocev understand why some sellers may choose to list properties without representation to save tens of thousands, they also point out why agents can be helpful and dealing with the paperwork and presentation of a home is not for everybody.
“Lots of agents have a difficult time dealing directly with sellers,” says Kocev. “It definitely goes smoother when you’re working agent to agent because we know the process. We know the properties in the area. Often sellers are not really informed of the process. They’re not familiar with the forms, the clauses, how things work, how you even do counteroffers back and forth. It can be a challenging process.”
“It’s a different ballgame,” says Mansour. “I know how to present properties in a certain way to appeal to the demographics of the neighborhood. All these things are important in terms of selling your property. Saving one percent on average is going to be 10 or 20 grand on a property. I could probably negotiate and get you 50 grand more revenue. You got to weigh it out.”