THE BUYER PARADIGM SHIFT

There is much to say about how the real estate industry has changed in the last generation. When I first joined in 1991, our offices were the master key holders of information. We had a huge filing cabinet with 4 x 6 index cards, categorized by street name. Each card was a listing card, with a black and white picture of the property and a few pertinent details like price, room sizes and lot measurements and listing agent coordinates.

We then evolved to MLS books, which would be updated each week and then summarized into one large book at the end of the month. We essentially went from filing cabinets to wall to wall bookshelves!

Then came computers, yes with the black screen and green writing. We were introduced to Edgar, the real estate program that would hold all our listings in again, what would be construed today as an archaic system at best…

Today, full Internet access…

So, what has this done to the relationship between buyers, sellers and realtors? What differences are there today that were nonexistent a generation ago? Before the advent of the Internet, the agent was the holder of information. A consumer who wanted to buy or sell real estate had no other choice but to consult a realtor as a means to gain information about the marketplace. This forced consumers to seek realtors and subsequently have a professional real estate agent represent their interests during negotiations. Although we did have, like today, sellers who were selling privately which represented a small portion of the market’s inventory, most buyers and sellers were using brokerage services as a means to transact.

The major generational change from the 1990’s to today is “access to information”. In fact, the industry’s biggest faux pas was to go into “showcase” mode for their listings via the Internet. All real estate companies now feature their listings on their websites, giving the consumer the ability to search and compare properties on their own, without the help of a realtor and thus creating a new paradigm for those seeking to purchase. Although the information made available is generous and detailed, much information is still missing and what I call subjective data. An example of subjective data could be “what kind of neighbours?”, “how private is the yard”, “noise levels”, “proximity to unfavourable locations such as a city dump that smells, or industrial waste sites”. These issues are usually well known by local realtors but too often unbeknown to the average consumer who only gets a part of a home's story on the web.

This access to information has empowered consumers to take control of the way they deal with realtors. They see a house they like on the Internet, spontaneously call the listing agent to visit the property and either take action on it or not. In fact 40% of buyers in Quebec have dealt directly with the listing agent to purchase their home according to a recent survey*. This means that they were not “represented”, but more like “facilitated” into the transaction by the seller’s broker. It's like going to court and asking the other party’s lawyer to represent you as well… Do you see the conflict? Yet 40% chose to go direct...

Another issue that has buyers going directly to the listing broker is “commissions”. These consumers fail to realize that our industry is driven by contractual Law known as the Real Estate Brokerage Act. How so?... Because most think that if they don’t have their own broker to represent them, the listing broker need not share his commission and thus may decide to waive that portion for the seller to pull the price downward. However, since the listing broker is under contract with his seller, any profit taken from a commission reduction remains with the seller, and above that, a purchaser who is not part of the discussion between the broker and his seller would never know if his price was actually reduced because of the commission discount for no proof is made available to the buyer under the guise of confidentiality. In fact, the commissions are never in play on a Promise to Purchase, but only on the Brokerage Contract to Sell, which is a confidential document exclusive to the seller.

For many years, the industry has sought to solve the issue of “double ending”, which is the listing broker representing both parties. Beyond just the ethics of it, any buyer who deals directly with the listing broker is simply not represented strategically as the seller would be. Don’t get me wrong, he or she will be “treated” equally, but his or her interests will not be fought for during negotiations due to the contractual obligations of the broker towards his seller.

Today, any buyer who wants to deal directly with the listing broker must sign a waiver of representation making him or her aware of the fact that the seller’s broker represents the seller’s interests. This new rule should align the paradigm back to ensuring that buyers are properly represented in their negotiations, legal interests and objectives.

So Caveat Emptor… and get yourself a Realtor who will protect your side of the deal!

Marc.

* Survey done for 2020 market sales, sample size over 10,000 transactions done by yours truly during a recent project. Percentage of double ended transactions varied from market to market with a low of 23% in Montreal to a high of 57% in Lanaudière.