Is the real estate industry about to fundamentally shift?
May 27, 2024
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The podcast discusses the changing landscape of real estate due to the internet, focusing on the impact of agent commissions. It explores lawsuits in the US and Canada that could lead to more transparency. The conversation sheds light on negotiation tactics for commissions and the potential for shifts in the industry towards more transparency and technological advancements.
Real estate commissions are negotiable but lack transparency, leading to buyers' limited control in rewarding agents.
Legal actions aim to enhance transparency in commission structures, empowering buyers to negotiate fees based on services received.
Deep dives
Transparency in Real Estate Commissions
The real estate industry relies heavily on commissions, usually around 5%, negotiated between the seller and the real estate agent, encompassing fees for both buyer and seller agents. However, most first-time home buyers lack awareness that these commissions are negotiable. While experienced buyers can leverage negotiations for additional services based on the commission percentage, newcomers often end up agreeing to the suggested 5% without questioning or understanding the flexibility in these fees.
Impact of Commission Transparency on Buyer's Decision-Making
The opacity surrounding real estate commissions leads to a lack of agency for buyers in rewarding their agents for the services received. With the current system embedding the commission into the sale price, buyers have limited control over determining fair compensation for their agents. The potential for buyers to negotiate commission rates based on the level of service provided would enhance transparency and empower buyers to tailor the compensation to the agent's effort and effectiveness.
Future of Real Estate Industry and Commission Negotiation
Legal actions in the United States and similar movements in Canada aim to introduce more transparency in real estate commission structures, enabling buyers to negotiate these fees with their agents. This shift towards openness aligns with the evolving technology landscape that grants buyers a wealth of property information compared to prior decades. While agents provide valuable services, adapting to transparent commission negotiations can foster trust, empower buyers, and enhance the industry's integrity.
The internet changed nearly everything about real estate. Now buyers can see all the listings, everywhere; they can learn the price histories and estimated values of houses they look at, and can see the minute details of those houses before ever visiting them or retaining an agent. But one thing never did change: they still can't easily see an agent's commission.
But a settled lawsuit in the United States and two more in the courts in Canada are preparing to change that and then we'll learn just how much of the market this simple but incredibly opaque part of the industry influences the whole thing.
GUEST: Murtaza Haider, professor of real estate management at Toronto Metropolitan University
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