With the real estate industry becoming more competitive and the market more restrictive, some brokerages are now offering clients reduced, flat-fee commissions or cash-back up front as financial assistance.
While this business model is not new, it is gaining traction amidst the National Association of Realtors settlement in the United States concerning commission lawsuits, and Canada’s Competition Bureau investigation into the Canadian Real Estate Association (CREA)’s commission rules, leading to changes in the industry.
Consumers are now paying more attention and demanding more, especially with affordability and higher interest rates affecting their buying power.
‘Opportunity to redefine value agents bring’ and help consumers retain equity
“The market and financial situations are changing. People are going through hardship and seeking alternative and innovative solutions in the industry,” says Ishtiaq Ahmed, broker of record for Zown. He believes that the traditional commission model worked well in the past, but buyers and sellers now expect more flexibility and want to retain as much equity as possible.
Ahmed observes that buyers are now more informed, leading to less work for agents, and as a result, Zown passes on savings to its clients.
Zown charges a 2.5% commission to sellers, retaining a portion of it and giving the rest to the buyer. Depending on the deal, for a $1 million property, this could be 1.0 to 2.0%.
Ahmed sees an opportunity to redefine the value agents bring by making homeownership more accessible, especially for first-time buyers, given the current market conditions.
Traditional vs discount brokerages: ‘It’s a whole different world’
However, many agents are against this newer business model. Sean Miller, an agent with Property.ca, argues that the best agents do not cut their commissions because they offer a lot of value, experience, and resources in marketing, strategy, and negotiation.
Miller states that full-service brokerages provide a more personalized approach and a team of people, offering services like video advertising, photography, and staging that cost money and are not available when commissions are reduced.
He acknowledges that different people have different needs and budgets, and it’s all about finding the right fit.
Clients doing more work means money saved and quicker closings
Miller believes that brokerages offering reduced fees complete deals faster than traditional brokerages, with Zown selling over 200 homes since January 2023. This is possible because agents do less work due to online tools and buyers finding properties themselves.
Zown agents adjust their approach accordingly, saving time and money for everyone involved.
While the agents still perform typical tasks, such as reviewing property history and guiding buyers through inspections, the time to close a deal has significantly decreased.
Resistance to change or concern over negotiation performance?
Ahmed acknowledges the industry’s resistance to change, while Miller questions the negotiation skills of agents who cut their commissions. He advises clients to consider the potential consequences of choosing a lower-cost option.
Ultimately, it’s about finding the right balance between cost and value when selecting a real estate agent.
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