The expose

With $1.2 billion a year from the feds, the CBC does a great job in showcasing feminist authors, LGBT++ issues and throat singing. When it comes to finances and real estate, turn it off.

Days ago, the Corp used secret cameras and deception to ‘expose’ illegal activity on the part of realtors who don’t want to deal with FSBO sellers. The allegation was that agents guide potential buyers away from do-it-yourself vendors who are selling privately in order to avoid paying commission. In other words, sellers can steer away agents but agents can’t steer away purchasers. And this is an outrage.

Here’s the context. Normally houses sell in a regulated marketplace and a commission (say, 5%) is paid by the seller to the agent who orchestrated the deal. That listing agent then gives half this commission to the agent who represented the buyer. Then both share the commission with their brokers, or corporate partners where they work as independent agents. So a $1 million house sale might throw off $50,000 in commish, of which each agent gets half and, after paying their brokers, ends up with $12,000 or $15,000. And, of course, agents pay their own expenses. Car. Gas. Phones.

Now even more illuminating is that lots of realtors in our hot, pandemic, crazy-stupid market are starving. One in five licensed agents in Toronto, for example, sells nothing in a year. About 70% sell fewer than six properties. In fact, just 20% of agents sell 80% of the houses, and usually with large teams of expensive employees.

There are 258,000 people in Canada working in residential real estate sales, and about half of them are commissioned salesfolk. By the way, same story in the US. The average agent there sells 4 to 6 homes a year and has a gross median income (before professional expenses) of $49,700. Is this something you really want your daughter pursuing?

But I digress.

FSBOs have but one motivation: greed. They want to maximize the money they can get for their property by trying to weasel out of paying commission. But if a buyer shows up who is represented by an agent (as all intelligent buyers should be) that agent expects to be compensated for the work done – and, on average, a buyer’s agent spends about six months helping people find a home. Without pay.

A CBC reporter pretending to be a buyer called three random agents and asked to view a home the ‘journalist’ knew was a FSBO, with a seller offering just a 1% commission to the agent of a purchaser. One agent complied. Two found excuses not to waste their time (without even knowing the CBC was deliberately wasting their time in a trap) and steered the pretend buyer away from the sell-it-yourself home. This was the basis of the ‘expose’ on realtor crime.

Wow. And we all paid for that.

As this blog has spelled out in the past, smart people never buy from a FSBO. Lots of reasons. You’ll probably pay too much, since a FSBO never discounts a price to offset the commission being saved and inflates the ask. They want it all, usually with scant room for rational negotiation. Second, there’s little or no protection against misrepresentation, vendor lies or deception as would be the case when dealing with a reputable real estate market entity. The provincial regulator is not involved in a private sale. The only recourse is the courts. Expensive. Slow. So if you save nothing, probably pay more and increase risk with a FSBO deal, why do one?

Meanwhile agents hate DIY sellers for reasons other than cheap. Showings are hard since most FSBOs insist on being present (a really bad idea as that inhibits buyers) and lack lockboxes that allow agents to schedule things conveniently. Moreover, FSBO properties are usually overpriced, since sellers are amateurs who get their market info from the hyperventilating media or their brother’s friend’s cousin’s sister who sold with multiple bids. There’s also too much emotion flying around, since a FSBO is trying to market, negotiate, sell and close their own family home without the benefit of an experienced intermediary.

In short, everyone wishes to avoid these people. As they should. Especially when your livelihood depends on it, in an eat-what-you-kill industry with no benefits, pensions, employee protections, public love or stable income.

Greed is unseemly, but understandable. Entrapment and distortion? Unforgiveable.

About the picture: “I am a long time daily reader of your blog.  I love the photos,” writes John. “I thought you might enjoy this photo I took up the street from my house in Kitchener.” Seems appropriate.