As the real estate industry gets more competitive and the market more restrictive, some brokerages are offering clients reduced, flat-fee commissions or cash-back up front as financial assistance.

While not a new business model, amid the National Association of Realtors settlement in the United States concerning several commission lawsuits, and Canada’s Competition Bureau investigation into the Canadian Real Estate Association (CREA)’s commission rules, it’s one that’s changing the industry. 

Consumers are paying attention and demanding more, especially with affordability and higher interest rates impacting 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. They want an alternative and innovation in the industry,” insists Ishtiaq Ahmed, broker of record for Zown. He feels that although the traditional commission model worked in the past, buyers and sellers today expect more flexibility and want to retain as much of their equity as possible.

Ahmed notes buyers are savvier than they used to be. This means less work for the agents involved, so their role has evolved with the shift. This is how Zown passes on savings to its clients.

The company charges a 2.5 per cent commission to the seller and retains a portion of it, with the rest going into the buyer’s pocket. Depending on the deal, for a $1 million property, this might be 1.0 to 2.0 per cent.

Ahmed says Zown sees the opportunity to redefine the value agents bring. “Our goal is to make homeownership more accessible, especially for first-time buyers, given current market conditions. It’s very hard to get into the market and every dollar counts,” he explains.

 

Traditional vs discount brokerages: ‘It’s a whole different world’

 

However, many agents oppose this newer business model. “Some (consumers) might think Realtors are all the same. The reality is we’re not—just like in any profession, there are different levels and you get what you pay for,” asserts Sean Miller, agent with Property.ca.

Miller argues the best agents aren’t cutting their commissions because they offer a lot of value, experience and resources with marketing, strategy and negotiation. “There’s no way we can compete (with each other) because we bring a whole different level of service—from marketing like video advertising to photography and staging.”

He says these services cost a lot of money that simply isn’t available when commissions are cut, and that full-service brokerages come with a more personalized approach and a team of people. “It’s a whole different world.”

But Miller states that it’s all about fit, and some people don’t see the value in what agents bring to the table. “There’s nothing wrong with that … Some people see short-term value more than long-term potential (and) not everybody has the budget or expectations a top-performing agent warrants.”

 

Clients doing more work means money saved and quicker closings

 

Miller believes that brokerages offering reduced fees are more volume-based and complete deals faster than traditional brokerages. Indeed, Ahmed says his team does more deals than it would under the traditional model.

Since January 2023, Zown has sold more than 200 homes. However, Ahmed also notes that Zown offers full service from skilled, experienced agents, which is possible because the agents do less work.

He credits online tools like Realtor.ca and buyers finding properties themselves for reducing the need for numerous property showings. Zown agents adjust their approach to reflect this, saving time and money for everyone: it used to take about eight weeks to close a deal, but that deal can now close in two weeks, sometimes with just one or two property showings, he explains.

However, the agents still perform typical tasks like reviewing the property’s history, guiding buyers through the home inspection and presenting comparables.

 

Resistance to change or concern over negotiation performance?

 

While Ahmed recognizes the industry is resistant to change, his team feels consumers’ pushback. He says many in the industry feel Zown and others like it aren’t helping but “are trying to destroy a model they’re in full control of. They don’t want to change the status quo.”

Miller instead thinks of it in terms of the negotiation process. “If they can’t negotiate their own commissions, how well are they negotiating their clients’ biggest asset? If they’re giving away their money, they’ll do the same with the property.”

He questions if buyers are getting the best deal or if the agent will want to move on quickly because they’re in a volume-based business. “What people don’t realize is how much they’re potentially leaving on the table.”

Miller offers this advice to his clients or those who ask him to lower his fees: “We’re talking about the most significant sale or purchase of your life, and it makes sense to use somebody with a great track record who can negotiate properly and will make you potentially tens or hundreds of thousands of dollars more.”

But he doesn’t blame people for asking. “As a seller, I’d ask that question too. It’s how we respond that makes them feel comfortable about why we don’t (discount).”

 

The industry’s take

 

CREA says that while it doesn’t provide guidance with commissions, Realtors are offering their services in new and interesting ways and consumers can shop for representation that works best for them.

The Toronto Regional Real Estate Board (TRREB) takes a similar stance, having no involvement or engagement in discussions around Realtors’ fees for service.

“There are diverse business models and service levels available to consumers from Realtors and conversations around service levels and fees are a discussion to be had between the consumer and their Realtor,” says TRREB Immediate Past President Jennifer Pearce. “Consumers have choice in how they engage in real estate transactions, and TRREB supports an environment of free and open competition.”