The numbers are in, and I found them quite surprising. Every year for the past few years, I’ve compiled a set of local market statistics for Metro Vancouver. I’ve found an interesting and somewhat challenging trend. In fact, I even wrote a white paper on the subject if you want to dive a little deeper.
Here’s the trend:
Between 2013 and 2023, the costs of doing business have been relatively stable. Yes, some costs are up for sure, but the basic home marketing (photos, floor plan, video, MLS listing, etc.) has remained consistent, somewhere around $500. Yes, you can blow the budget if you have an incredible service offering with staging, cleaning, decluttering, and more. The core services, however, are pretty much the same.
Realtor income is directly tied to house prices
During that same period, I watched average commissions rise massively. Analyzing Metro Vancouver real estate data, I calculated the average commission rose from $8,055 to $15,206 between 2013 and 2023. That is an 89 per cent increase over 10 years. The reason is really simple.
Realtor income is directly tied to the housing price index. As the value of homes rises over time, realtors charge a percentage of that value. As a result, they’re earning higher and higher fees per sale.
On the surface, this looks like an amazing part of our business. Our costs are relatively stable. Our per-sale commissions are up. So maybe, just maybe, it’s time we ask a few difficult questions: Are we justified in charging the fees we charge today? Do we provide value that is commensurate with the services we offer? Does our business model still work today? Why or why not?
It’s no secret there is always downward pressure on commissions. Whether you’re charging 7.0 per cent on the first $100,000 and 2.5 per cent on the balance or a flat fee of 5.0 per cent, all realtors face price objections from clients regularly. Are consumers right to press for discounts?
Don’t get me wrong; I’m all for high-value businesses charging high-value services. But, when costs have been stable, realtors clearly succeeded at a lower price point, yet per-sale revenues have risen; where was the win for the consumers? Or do you think they have been forgotten in the rush of the marketplace?
“Don’t get it twisted either; I’m not suggesting we’re overpaid. In a dynamic marketplace, there is room for luxury, discount service providers, and everything in between.”
Let’s add a few startling facts to the mix. In the same research, I found that even though per-transaction commissions are up, the average income of a realtor in Metro Vancouver is just under $66,000 per year. The average number of sales per individual in 2022 was 4.3.
Rising interest rates through the latter half of 2022 and into 2023 have definitely slowed things down. When you look at the top 10 per cent, average earnings are approximately $383,000. If you decide to look into the bottom 90 per cent, you’re a few hundred dollars over $30,000.
I think it’s time we turned our critical lens on ourselves; we need to have a very serious, very open conversation about the value we provide and the rates we charge for a customer to realize that value. It’s time we took a look at the business model we embrace that creates massive success for some and some significant struggles for many.
Don’t get it twisted either; I’m not suggesting we’re overpaid. In a dynamic marketplace, there is room for both luxury and discount service providers and everything in between.
If we’re going to be true professionals and care for our customers, what matters most is that we answer the question, “Does the price tag match the value?”
For more, read Cameron’s whitepaper, ‘The Disconnect Between Realtor Earnings and Consumer Costs.’
Cameron has worked within the real estate industry for over a decade. With early success in sales and winning a handful of local and corporate awards, he transitioned to the management side of the office. It was in this phase of his career that he found his strength. He has consistently worked on business development for brokerages since, consistently recruiting 50+ realtors per year, coaching and developing new realtors and designing custom brands and business strategies for senior realtors. Today, Cameron continues in this work, helping offices and realtors consistently grow their bottom line through implementing results-orientated processes.
Wow. That floored me! As a consumer, this feels very reminiscent of the grocery industry issues: large conglomerates making the majority of the profit, and profits expanding disporportionally to costs. Is this the next big consumer scandal?
A better question though, is how can we fix this, as this is the way the entire industry operates? And who will have those answers?
Wow it amazes me when people are only one sided thinkers, most of the sellers bought their homes when they were $250,000 and now are selling them for $900,000 to 1 million, and they think that the Realtor is gouging them with a realistic commission.
Very interesting and informative article. Some very valid points are raised and I think its time to come up with a solution which will solve this problem for consumers who currently have no choice but to pay the absurdly high commission fees.
Don’t get me wrong, it is justified in some cases where realtor needs to put in a lot of legwork to get the deal done but this is not the case for all the deals so there has to be a balance.
Cameron’s points are really important questions to ask in the advent of fintech “disruptors” and generative “AI”. At some point the market will realize, particularly in places like the Greater Vancouver or Greater Toronto areas, that the value for money simply isn’t there. Why pay for a Realtor when stock is low and prices are high? Both buyer and seller benefit from cutting out as much of the middle as they can under these simplistic terms. Cameron makes the argument that Realtors need to show value for money NOT that realtor commissions are not worth paying and should be done away with. This is an excellent point, as a consumer I’m willing to part with some of my hypothetical profits if I know that my Realtor is providing something above and beyond the basics and adding value, it’s about selling yourself and what your bringing to the table and not about the marketing package that, let’s be real, a generative AI can probably whip up some copy for. Realtors can and do add value, but they need to show their work!
Excellent, well written and articulated article.
Talk about taking about “The elephant in the room” certainly from the consumer of real estate services perspective.
As the old, but true saying goes “In the absence of value price becomes an issue”
I think it is important to ask the question: Do realtors provide the value they ask for? If not, how can the industry, or individual realtors change their approach to adding value to clients. What makes the middle man worth it? An interesting article to spark that discussion!
The article is oversimplified. The last several years have been characterized by low inventory. As REALTORs we are in a volume driven basis. Grocery stores on tue other hand make large money when prices go up – because people have to eat. When prices go up, commissions go up. But number of transactions go down. And this is sort of missed in the article. If sales are down 80 percent from previous year, then average agent’s earnings are also down 80 percent. Even if average prices have gone up.
Thank you for an interesting article with some things to think about. It’s a lot of work collecting data so I don’t know if you have this information, but I would like to know a few more things before making a final conclusion.
For example, what has been overall inflation in the metro Vancouver area so we can adjust commissions for inflation? The 89% rise is really only about 7%/yr which Vancouver may have I would hazard a guess that Vancouver is likely highly skewed when compared to the rest of Canada (Toronto excepted).
I would also like to see a distribution curve of income. I suspect the top 10 may have teams and assistants to pay, and the bottom 90% is likely a wider distribution than the average implies.
And finally, what are the hours worked/wk overlaid against commissions earned? The industry has changed so much in 20 years, these bits of data may change the picture entirely.
So I don’t know if you have all this data, but it would be great to have them to arrive at a complete picture.
Either way, thanks for providing enough info to give us some food for thought.
I suggest we ask the landlords first. How do they justify charging higher and higher rent? Or ask OPEC. How do they justify charging higher and higher oil price?
A very wise and successful Realtor said one day many years ago when queried why Realtors are not considered professionals responded… Professionals are paid regardless of outcome,.. if the patient dies… the doctor is paid!… if the felon goes to prison… the lawyer is paid!… etc., etc.
So oversimplified it is dangerous. Writer did not take into account an agents expenses, from the current costs for good shoes, shirts and suits, fuel, decent car, brokerage rent , house rent or mortgage payments , food, assistant services drone services etc, etc. the list is huge. The article is inflammatory in its lack of comprehension. Not trying to start a fight but maybe this is why he is out of the sales force. Cheers
Hey Francis,
I read this one of two ways… maybe that’s on me. Realtors aren’t professionals, so they don’t charge like professionals. Or, Realtors are professionals, and ought to charge like professionals do. Either way, I like your wit.
Cheers
Cam.
Dear Cameron,
I read your article discussing the concentration of business within the real estate sector, and I must respectfully offer an alternative perspective. While it is true that 10% of realtors account for a significant portion of the industry’s transactions, the underlying reasons for this disparity deserve further examination. Drawing from my extensive experience of over 25 years in real estate, I’ve observed a more nuanced explanation for the limited business activity among licensed agents.
In the absence of publicly available data, it is reasonable to question assume that the number of real estate agents is increasing alongside population growth. From my observations and experience in the industry, it seems that there may not be a substantial rise in the overall agent count. It also appears that a significant proportion of those earning around $30,000 annually face challenges and tend to exit the industry quickly. This may suggest that holding a license does not automatically qualify someone to effectively serve consumers, as many may lack the foundation of a true real estate business. It is important to acknowledge this concern, as it highlights the potential gap between licensing and expertise in navigating complex transactions.
On the other hand, agents who achieve annual incomes exceeding $300,000 undeniably possess a robust and well-established real estate business. They demonstrate a proactive approach by setting goals, crafting comprehensive business plans, building recognizable brands, and mastering both industry knowledge and contractual intricacies to best serve their clients. These successful agents understand the importance of offering a service-based approach tailored to their clients’ needs, utilizing effective marketing, prospecting techniques, and leveraging technology to showcase their business and properties. Their dedication is evident as they commit to working tirelessly, often seven days a week, until exhaustion sets in. They have firsthand experience of the challenges and rewards that come with hard work.
Furthermore, it’s essential to acknowledge that agents generating substantial revenues typically require the support of a competent staff. Running a high-volume business incurs substantial costs, which cannot be ignored. When consumers decide to sell their homes, they naturally assume that a licensed agent is qualified for the task. However, it is widely recognized within our industry that a license alone does not guarantee expertise. Consumers deserve to have confidence in the competence and professionalism of their chosen agent.
In conclusion, those agents who have successfully built thriving real estate businesses, much like any other entrepreneurial endeavor, have earned their rewards through dedication and exceptional service. It is incumbent upon us, as professionals, to continuously assess the value we provide to our customers and ensure that our rates align with the value we deliver.
I appreciate your thought-provoking questions, as they encourage us to engage in critical self-reflection and foster open conversations.
Dear Sandra,
Thank you for the formal address. No one uses “Dear [name]” very often anymore, especially in comment sections on the internet. That’s why I wanted to make this my first reply.
First, I want to agree with you. The majority of Realtors who are consistently in the top 10% have established businesses… like you! They’ve been at it for years, and without a doubt, those people have worked hard and deserve the success they have achieved.
Pertaining to your point about the Realtor population growth paralleling population growth, I can’t say that I’ve tracked it for years. What I can say is that a quick google search told me that Vancouver has a population 2.71 million people. As of Jan 2023, there were approximately 20,000 Realtors in Vancouver and the surrounding area. That runs about 135.5 prospects per Realtor. I suspect that even if we limit the Realtor count to say 10,000 (to account for Realtors who really don’t serve Vancouver proper), we’re still only shooting at a database per Realtor of 271. In short, we’re over saturated in Vancouver. I suspect the same is true in other major cities.
Also, you’re right, within the industry a license does not guarantee expertise. However, very few Realtors offer up a resume that highlights their experience, unless it is a benefit to their sales process. From a consumer’s perspective, how do they distinguish fact from fiction, or even conversations that steer away from points that might count against a given Realtor?
Really though, I appreciate your closing point. “It is incumbent upon us… to continuously assess the value we provide to our customers…” I am 100% in agreement with this. There are luxury service providers who offer luxury service. There are discount providers who offer discount service. Where we end up in integrity gaps is when we present ourselves as luxury service providers and then offer discount services. Biggest challenge we all face!
Warm Regards,
Cam.
In your article you mention “but the basic home marketing (photos, floor plan, video, MLS listing, etc.) has remained consistent, somewhere around $500.” as if these are the only expenses for a realtor. You did not mention our monthly fees to a franchise, and local board, our yearly fees to our provincial regulator, provincial associations and Canadian association. And then there is gas, vehicle maintenance, ect… and we still have families to feed. If your a realtor and busting your ass, your guaranteed income at the end of month is $0.00 unless you sell something, and your fees can eat that up pretty fast.
I’m in a small market where our real estate prices (average under $300,000) may have increased 3% over the time you speak of, and we battle with other realtors cutting their commission to get a listing, but ultimately ours as well if we sale that listing.
I’m sure we would all love the income and glamour from the “million dollar listings” and although we do have some interesting stories to tell and drama to deal with, you won’t be seeing “Selling Wainwright” on Netflix’s anytime soon.
One thing to take into account is the increase in cost of living between 2013 and 2023. Other factors not mentioned are the cost of doing business such as organized real estate fees, insurance, vehicle expenses, marketing expenses and the list goes on.
For an above average Realtor doing six deals a year, the cost per deal is nearing the $3000. dollar, not $500. per deal in expenses. Take into account that sellers often times negotiate the commissions down and commissions on the buying side are being eroded and it looks like there is great value $ for service to the consumer.
Ken,
I’m going to disagree with you here. True, the cost I reference here is a basic photo/video package you can find at any number of listing marketing services offered in Metro Vancouver. However, I think it’s really important to differentiate cost of goods vs overhead expenses. Most of the expenses that have risen that you reference are overhead (ie, they’d have to be paid whether or not you sell a home). Cost of goods has to do specifically with the cost required to deliver your services (ie, if I didn’t have a listing, I wouldn’t order a photo/video package). Yes, I can run my cost of goods as high as I want. Overhead on the other hand, is really up to you to manage month in and month out based on your sales volume, and as such, really ought not to be charged on every single listing/buyer to your consumer.
Also, if it’s income stability we’re after, maybe it’s time to look at compensation models for the industry other than commission. Lots of other industries offer different ways of paying professionals. Why can’t we?
Cheers
Cam.
Not sure if you have had a serious look at your expenses lately…. I teach finance in my brokerage. Check all our association fees that add up to almost 20,000 a year before I even sell anything … advertising and marketing fees have gone up , assistance wages, business insurance etc … time to really look at a full time agents expenses
Those annual incomes mentioned, is that after expenses have been deducted?