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- During the last two years, the average price for a detached house in Canada has risen 25 percent, even more in Toronto. As a result, many hopeful first-time home buyers have been priced out of the market. This go-go period is all so reminiscent of the run-up in the 1980s that was followed by a 50 percent drop in values during the recession of the 1990s. It took until the early 2000s for values to get back to where they had been.
I’m not predicting a repeat performance. This economy is stronger … at the moment. But I do think that the current situation calls for a seachange in the way houses are sold and by whom. But first, a little background on the business of real estate. With the sale of a house, it’s the vendor who pays those who helped do the deal. The price is steep; 5 percent of the sale price, or $50,000 on a $1 million property. Individual offices have different internal arrangements, but essentially the money is shared by four people: the listing agent and the listing agent’s broker as well as the selling agent and the selling agent’s broker.
Do one of those deals every month and you could be making $150,000 a year. And therein lies part of the problem. In a good market, every Tom, Dick and Harriet prepares to flee their former career by taking some courses in their spare time, doing some simulated deals and they’re ready to join the real estate business. There are more than 50,000 licensed registrants in Ontario alone.
To my mind, this process creates the potential for greedy acts by too many newcomers who may not see real estate as a long-term career that builds slowly, one client at a time. As a result, you get agents pricing a property below market value just to create the frenzy of a bidding war.
The solution is simple. First, make the licensing requirements to join the real estate business more onerous. Second, create an open bidding system so all participants clearly know what the other bids are. With both changes in place, more heightened ethics and better information will be in play. Only the greedy could disagree.