The Penny Pincher’s Manifesto (a.k.a.: why low commission realty (usually) does not help buyers and sellers)

I would love to help buyers and sellers of real estate – at least the really good people – serve themselves.

Here’s the key tip for home buyers: understand what you are actually getting for your money at every step of the real estate buying process.

Today I want to focus on realtors, and the recent changes in the industry. Many people – I have noticed over the last twenty years as a home inspector – begrudge realtors the right to make a fair commission for the time they put in. At Safe Homes Canada, as a civil engineering-based home inspection company, we tend – I think – to work for a lot of very detail-oriented buyers. They care that we are building sciences professionals. They care about thoroughness. Most of our buyers love their sales reps. We love their sales reps too, as I have tried to build our referral network around integrity, and integrity-driven realtors. If a realtor does not show integrity in the process, I simply have no interest in working with them again. A great realtor wants a home inspector to do the most thorough job possible, while focusing on solutions, being sensible about the process, and not ‘reacting’.

The big city (Toronto) is a realty mess. Looking at it from the north, the collective buying consciousness appears somewhat……un-frugal. Or the frugality is applied to the wrong parts of the process. Many realtors in Barrie and Wasaga Beach and Alliston and Collingwood and other environs north seem – to me – more committed to their buyers, more committed to helping money stay within the wallets of their buyers.

Dear buyers: if your realtor exhibits behavior that suggests they are not completely committed to seeking what is best for you – the buyer – cut them loose. Fire them. An integrity-committed realty buying team can be a very powerful force for a prudent buyer. It’s the only way I would ever buy a property. Surrounding yourself with a solid, integrity-driven team takes the stress out of the buying process. Your realtor – not the listing rep – is the only person in the world who you can trust to help you get the best price possible. A solid, integrity-driven realtor will likely recommend a home inspector (for example) who is a building sciences professional, someone who truly understands structures at a high level, someone who will take the time to assess every piece of the building. That takes a few hours. A good realtor knows it takes more than 90 minutes to assess a home. A ninety minute home inspection should be considered a ‘rubber stamp’ inspection; not what you want as a buyer or seller.

When a buyer calls a home inspector, ask how long they will be on site. An excellent home inspector still requires a few hours – a half day essentially – to inspect your average house. So when a buyer thinks they are saving money hiring a home inspector for $200 or $300, they are not saving money. That attempt to get a great price on their home inspection will cost them money in the long run, pretty much every time. All the things that are missed in a too-brief home inspection will suck the money out of a buyer’s wallet over the years.

My old friend Ross Sheardown (an Alliston area realtor) told me, “The bitterness of low quality will last well beyond the temporary sweetness of low price.”

People think they are saving money buying a house without having their own full-time realtor. We have seen a plethora of low commission realty companies, and no-commission realty companies emerge in recent years. ComFree, PropertyGuys.com, MinCom, FlatFee. I’m sure many, many buyers and sellers have had great success paying less commission, but is the process flawed? Are people saving as much money as they think they are????

I inspected a log home on an amazing 5 acre property overlooking Georgian Bay recently. Full shop. Double garage. Hot tub. The view was truly spectacular. I assessed the structures over half a day. The sellers had listed with a company that provided low commission realty service that may or may not have included an assessment of how much they should sell their property for.

The buildings were fine, well-constructed. The home sold for low 300’s. I almost fell over when the buyer told me. It felt like a half million dollar property for sure. I honestly would have listed my house immediately to buy the property at that price. The buyer said to me, “Andy, I really think there must be something horribly wrong with the building. I can’t believe I’m getting it for this price. There must be some major mould or structural problem. Please check everything carefully.”

There was nothing wrong with the buildings, at least nothing major. (There are always deficiencies.) Perhaps there is something wrong with the ‘mind-set’ of people, believing in a process that is flawed. After 20 years in the real estate world, I completely believe that buyers and sellers need an integrity-driven realtor on their side. It doesn’t matter who you are working with….Re/Max, Royal Lepage, PropertyGuys, ComFree, MinCom…

Buyers need that person on their side….that person who actually cares about them and their family. That person who wants clients for life, not for one transaction. A person who is connected to the community.

Is your contact at MinCom or PropertyGuys or ComFree going to provide a process that comprehensively protects a buyer or seller? Beware allowing your price to be too low as a seller. The seller says and thinks, “Hey, I just saved $15,000 in commission. Take that you realtors!” But that seller just sold a half million dollar property for $320,000. Ooops. They just lost more than a hundred thousand dollars, when you look at the whole picture.

Another seller in a 2011 private deal smiled at his kitchen table through the home inspection process. He said he was saving a boat load of money not paying realty fees. I found out he sold his house for a few pennies more than he paid for it a decade earlier. (Wow, the buyers were very happy too.)

Are the folks at ComFree or PropertyGuys or MinCom or other cut-rate realty companies going to tell you there is a new high speed train going in half a kilometer from your new home? Are they going to tell you someone died in the house? Are they going to tell you there is a hazardous waste facility around the corner? Are they going to tell you the nearby gravel pit is doubling in size over the next decade, which will affect your real estate value and your quality of life. I’m not saying they won’t, but you better ask those questions, and a bunch more. An integrity-driven realtor – maybe the one you hired after you fired the first one – will help you understand all of that.

I called ComFree this morning and asked how they evaluate properties. I was sent through a series of conversations. The first person I spoke with said they have 3 real estate brokers who take care of the entire province. I was told I had to have a meeting with the Barrie area representative; I could not ask detailed questions over the phone. I was told I could not ask questions about how they evaluate property over the phone. I was persistent, and they relented. I spoke with a licensed sales rep. He told me that ComFree is registered only with the Toronto Real Estate Board. Our conversation was lengthy. He answered all questions politely, and admitted that not having access to the Barrie board “could be” a negative, but many sales reps from Barrie use the Toronto board. I feel that ‘disconnect’ from the community (local) real estate board could negatively affect the process. Is it really possible to evaluate homes and properties by computer, without an uncompromised connection to the community? It took me two days to find out the licensed realtor who would be evaluating my Barrie area home is registered on the Toronto Real Estate Board (TREB) only.

I believe this penny-wise and pound-foolish approach to buying real estate is a disaster for people. When you look at the big picture, paying a fair price for excellent service is the way to go.

On the PropertyGuys.com website, it shows 7 Steps to Selling Your Home in a green box, and 7 Steps to Buying a Home in an orange box. Regarding evaluating your own property when selling, PropertyGuys.com says to check listings in your neighbourhood and have your house evaluated by an appraiser, which will be “much less than real estate commission”. Hmmm….I see a red flag there somewhere!

On PropertyGuys.com, regarding evaluating a house you are buying, Step 4 says, “Make an offer.” There is nothing in Step 4 about how to determine how much to offer! I guess you’re on your own on that one.

I know realtors who have spent fifty hours showing people houses, then something happened where the clients did not buy a house. The realtors do not get paid for all that time they spent. So the money a realtor is paid when a transaction is completed successfully has to reflect something relating to the times where no income is produced for time invested. IT HAS TO WORK THAT WAY! Every other business works that way. There has to be a fair value put on the time invested, time ‘worked’, money spent by integrity-driven realtors.

I’m not sure the extent to which companies like PropertyGuys, MinCom, ComFree, etc. get involved in guiding buyers and sellers toward integrity-driven, qualified service providers like home inspectors and lawyers and mortgage people. How do you know your home inspector is integrity driven? I have worked with thousands of realtors for two decades. Realtors who care about people know how home inspection works, and they know what does not work. How do you know if your real estate lawyer is a good person? Your mortgage broker? You need a ‘general’ for this process, someone at the cog of the wheel.

The real estate industry in Ontario has changed dramatically over the last decade. My suggestion to buyers and sellers is, stop pinching pennies. Don’t just think about commission. It’s only one piece, but it is connected to many other pieces.

It will be the buyers and sellers of Ontario who shape the real estate industry in the decades to come. Smart, practical, clear-thinking, prudent buyers and sellers will continue to demand excellence and integrity from all their service providers. They will succeed and prosper in a province seemingly obsessed with gimmicks and gadgets and that ‘great new thing’. Pick the good people. Pick the people who are genuinely connected to your community.

Frugality is not about eliminating a necessary process; it’s about choosing the right parts for the machine.

My dad used to say, “You can’t get something for nothing.” It still rings true.