Stakeholders in the real estate industry love talking about disruption and speculating about who or what the next big disruption is going to be.
Well, allow me to provide my best guess – and it may not be what you think.
Technology has played a significant role in allowing our industry to adapt to change. The perfect example is when a global pandemic was declared, and like many industries, the real estate sector adopted new methods of leveraging technology to do the job more efficiently and minimize in-person interaction.
How real estate transactions are conducted continues to evolve, but the business structure of the real estate industry is under pressure for not evolving enough.
The regulated structure in Canada as we know it is quite consistent across the country – with minor regulatory and terminology differences between jurisdictions. A licensed individual oversees the actions of all licensed agents and personnel in the brokerage (in areas where regulation allows for it, larger brokerages may have several people in this role).
For the purposes of this article, we will refer to this individual as the broker. However, depending on the jurisdiction, they may be called the managing broker, broker of record, manager, etc. This individual carries most of the regulatory compliance responsibility and liability related to the actions of those they oversee.
The broker is being tasked with ever more regulatory oversite. Over the years, compliance requirements from the Financial Transactions and Reports Analysis Centre (FINTRAC) and the increasing number of disclosures placed on the industry have been added.
On top of that, there is evolving provincial and federal privacy legislation and the ever-growing complexities related to neighbouring sectors such as tenancy, development and condominium legislation. The pressures on the broker have grown exponentially in a very short period.
Canada’s traditional brokerage business model sees a commission split between the real estate agent and the brokerage. The portion of the commission split paid to the brokerage is meant to cover the costs associated with physical office space, support staff, advertising, brand or franchise expenses and, perhaps most importantly, all of the oversite, guidance and liability outlined in the previous paragraph. The commission split is part of what is used to attract agents to a brokerage, so providing a more favourable split to the agent acts as an incentive for agents to join a brokerage.
And therein lies the rub.
Deemed to be a differentiator for the brokerages, arguably, a low commission split does not give anyone in the transaction a competitive advantage. It may be more enticing for agents to join a brokerage but only at the risk of the industry entering its own race to the bottom.
Equally, a commission split that favours the agent does not provide the agent with a competitive advantage when marketing themselves to the consumer. So, we end up with the broker’s role becoming increasingly important and strained while the brokerage’s revenue cut diminishes.
Add to this the demographics component, and we are entering the territory of disruption like the industry has not seen. In British Columbia, more than 40% of brokers are over 65. Granted, the real estate industry is well known for the retirement age being something far exceeding the average, but this ratio remains staggering. Couple that with a sweeping reluctance of the next generation of licensees unwilling to take on the role, and it quickly becomes evident that disaster is looming.
The amount of responsibility, accountability and liability that comes with the broker role is not enticing for the compensation that brokerages are able to pay based on the current business model.
Succession planning for the broker should be high on everyone’s priority list right now. Nobody is immune to the impacts of a brokerage that is ill-prepared for the sudden or future departure of the broker.
Without a broker, the agents of the office cannot be licensed. Without a broker, the regulator typically has some mandated intervention. Without a broker, the clients’ listing and purchase contracts are disrupted. Without a broker, there would inevitably be chaos.
There needs to be a plan. As a broker, what is your plan for the brokerage if you cannot fulfill your duties tomorrow? What are you doing to prepare for the day you want to travel and enjoy more time with your family?
As a realtor or agent, do you know what your broker’s succession plan is? As an industry, if the regulator were to implement requirements to protect the sustainability of contracts and consumer impact, would we be ready for this?
The succession of the broker role is the largest potential disruptor to the real estate industry in the coming years, especially if nothing changes from the current model.
As a former managing broker and realtor, Trevor Koot’s nearly two decades in organized real estate gives him hands-on expertise in understanding the profession’s needs. Before stepping in as CEO at the BC Real Estate Association, he served as CEO of Kamloops and District Real Estate Association for four years and Kootenay Association of Realtors for three before successfully merging the two into the Association of Interior Realtors. Trevor’s leadership in the real estate sector began long before his CEO career when he was Chair of the Saskatchewan Real Estate Commission for five years. He played a key role in redrafting provincial real estate regulations during his tenure. Trevor also served two years as Chair of the Governance Committee at the Association of Real Estate License Law Officials.
He holds multiple degrees, from a Bachelor of Science in Kinesiology and a minor in Mathematics through the University of Saskatchewan to a Master of Business Administration degree through Royal Roads University. Trevor is adding to his extensive education through his current pursuit of completing a Master of Laws degree at York University. His daughter, Abby, attends the University of Victoria while he and his wife, Jill, live in Vancouver’s Chinatown.
Good forcast
Well said and very insightful!
Now there’s an interesting observation. I suspect it will not end up being a disaster as it is more likely to be a situation that unfolds slowly over time, but it sure does have the makings of a big challenge.
It will be interesting to see where this leads us.
This issue has been created by the larger Brokerages by offering ridiculous commission splits to steal away producing agents from smaller Brokerages. Hence the smaller and medium sized Brokerages have been offering extremely high splits to retain their agents and entice others to join them.
My personal experiences when owning a RE/MAX Franchise that we have seen a double standard – the very Brokerages that raised a hue and cry were the very one stealing agents away from other RE/MAX Franchises. Yet RE/MAX did nothing to rein in these Brokers as they were always the Brokerages with the long history and larger agents base with RE/MAX. I am sure that has not changed even today.
I agree with the article. Owning a Brokerage today does not make any sense. The burden of compliances with all the requirements and the compensation is not a great model.
Surely the newer idea of virtual brokerages has floated around for a while and to some degree it offers a cost cutting model. However that does not lessen the legislative load of the Brokerage.
Business models need to be adapted. I opted for a virtual brokerage (not a discounted one should I mention) over 2 years ago and sincerely I get more support and access to my broker of record and entire support team than in a the brick and mortar brokerage I used to be part of. We have a team of brokers; they are sharp, up to date and younger than the average brokers in the traditional model. This is not a one “man/woman” show, this is a team and we matter to them.
I don’t know, it seems obvious to me. If you want to attract and stop the race to the bottom and have agents involved in your exit strategy….”Equity”.
Unfortunately, most agents would love the equity but not the responsibility.
Outstanding article Trevor, thanks for the awareness on a subject that is often avoided. So glad to see that you have stayed in organized real estate, it suits you well. You get the big picture!!
Thank you Trevor!
One of my mentors often says “In the absence of value price becomes the issue”. Too many agents in our industry do not value brokers and focus on price.
I would argue that mindset comes through in the rest of your business and your clients smell it.
Cheap attracts cheap.
I got my broker’s license to one day be hired as a BOR but seems like brokerages just can’t seem to figure it out. Unless it becomes like a ‘pyramid’ where Brokers are personally invested in the outcome of the agents by getting a commission split directly to the BOR.
What if every agent would also be required to attain a brokers license and be self regulated a departure from from the typical broker model.
The office is managed as usual on cost basis to each broker/agent but the office manager is relieved of the over all liability and normal contentious issues … kind of an umbrella idea … each active agent/ broker becomes solely accountable with regards to their actions and the office is fully relieved of any such liability
And now we have the model of lower cost brokerages (theoretically) that have one broker for several hundred salespersons spread across the province, no office, no guidance, no training sold on the basis of higher splits to the salespeople and a pyramid style of organization that promises ownership of the company in the form of stocks.
Tell me how this protects the consumer.
Very interesting read. I have had the similar thoughts, but this article certainly organized said thoughts. Good read and food for thought.
Retired Res+Com indepedent broker after 20 years with major RLP franchisee. Opposed FINTRAC spying enlistment of salesreps. Fought compulsory 10 hour online course verification of several rules updates. Fought Franchisor Awards system where team leaders favoured for top awards. Conducted training for free of 100’s of new and experienced realtors. Contributed articles for industry publications. Fought Competition Bureau for interferring in Canada’s largest and most competitive industry. Fought Orea via 50 emails to retire and accept my not creating new financial statement after three years of zero earnings. Not allowed to buy or sell a home for people after 25 years of experience, as independant business person. The industry has been oligopolized by Franchisor’s and excessive government interference. Independent contractors status (great option for mature workers) is under attack by CRA. No wonder we have greed-flation from regulators who raise realtor costs and artificially increase complexity of our small private family enterprises. Our industry is no longer honest & truthful agents serving the public. It is a fearful, cover your ass industry, dominated by deceptive self-promoters, who spend 80% on self advertising and 20% on selling client properties. So sad, I loved my clients and peers, but learned to disrespect the industry management.
oversight, not oversite
All good comments. I would also mention that the amount of red tape, disclosures and proscriptive rules and regulations that the Federal, Provincial Governments and Real Estate Boards (yes we our doing this to ourselves) have implemented in the last 10 years is overbearing and getting to the point of ridiculous. Many of these rules and regulations started in an effort to boost professionalism and protection of the public. Which are definitely good things to do. However; the lack of critical thinking has left the industry with a series of Band-Aids placed over each other again and again. It’s time that the industry stands up and requires at least a 2 year business diploma to become a Realtor. Real Estate Agents would be potentially licensed as Sales People, Property and Mortgage Brokers and Associate Brokers when they were finished their education. They would have a much greater understanding of finance, real estate law and business in general. Not only would this separate the wheat from chaff it would increase professionalism exponentially. This formal education and content already exists at BCIT and UBC. It just needs to be duplicated at other Universities and Colleges in BC.
Is anyone familiar with “Undrip” and any implications it could have on private ownership in British Columbia?