This week we have a question from Steve who lives on the East Side. He asks:
Q: My wife and I are looking to downsize from our house on the East Side to a townhouse/condo. I am struggling with the escalation in real estate agent fees.
For example, the standard charge for selling this house if it sells for $1 million will be $29,500. Our house sold in 2004 for $600,000 and the fee at that time would have been $22,000. In my business, if I had a client in 2004 and did a project for $22K, today I would charge that same client $25,777 (I increase my rates in step with the consumer price index each year). It seems that real estate agents are charging a $3,700 premium for doing the same work to sell the same house. If I go further back to when I sold my house in North Vancouver in 1995 (which I think is comparable) the premium is now over $7,000. I'm sure this is not a new issue for you, but I would appreciate your perspective.
On a different front, it got me thinking what it would be like if I sold my own house. I am curious-although not really serious-as to what happens to the buying agent's fee when there is no selling agent (or fee)?
A: I think we're talking about apples and oranges here. If, as is the case in many parts of the U.S. and some parts of Canada, your house had not appreciated in value, the commission would be the same today as it was in 2004. Or if real estate prices had increased at the same rate as the Consumer Price Index, commissions would have increased at that rate as well.
Commissions then, as now, were negotiable, but typically around seven per cent on the first $100,000 and 2.5 per cent on the balance. By my reckoning, in 2004, you would have paid $19,500 or 3.25 per cent. Since your home has significantly appreciated in value, the commission, as you have noted would be $29,500 or 2.95 per cent. The difference is based entirely on the increase in your property value on Vancouver's East Side. (Note: the seller pays the commission, which is typically split between the listing and selling agents with slightly more going to the listing agent.)
Of course, as I mentioned, commissions are entirely negotiable. Since sellers pay the commission, it is up to them to determine how much value they will receive from the listing agent. There are discount options that usually offer a flat fee with additional charges for promotional materials and other advertising. And of course some people choose the For Sale by Owner (FSBO) option. All of these are possible. At this time, most sellers choose full-service realtors but the marketplace is continuously evolving.
I've read a lot about how easy it is for realtors these days. One column said that today's buyers search the internet, find houses or apartments they want to look at and only talk to their realtor when they want to look inside. That hasn't been my experience.
The agents that I work with are very hands-on with their clients and provide a lot of expertise about many aspects of Vancouver real estate, including building integrity (think leaky condos!), contract law, valuation, contract negotiation, financing, contingency funds, strata council issues, zoning, government programs and more.
On the listing side, the new era of real estate sales has made internet marketing including professional floorplans, photos, video and virtual tours, on-line feature sheets, weblinks, QR codes and other promotional materials, a key component of the marketing plan for any property. These are not inexpensive and the costs are usually born by the realtor.
Your second question was about the FSBO option and the buyers' agent's fee. Depending on the market, sellers often offer an inducement to buyers' agents to show their property. I have seen both cash and commission offered. The rationale being that if an agent has been working with a buyer for some time, they will be more motivated to show your property if there is some compensation.
Since this is the only way they get paid, it's just common sense. Buyers can, of course, pay the agent themselves if they find a FSBO property, but I expect that this all evens out in terms of the eventual selling price. So, if you sell your own house, you won't have to pay the listing agents commission but may want to offer something to the buyer's agent.
Deb Abbey is a real estate agent at Royal LePage City Centre in Vancouver. She's the author of two books on sustainable investment. You can contact Abbey through her website: abbeypartners.ca or email questions to deb@ abbeypartners.ca.