Friday, October 1, 2010

Do Realtors have a monopoly?

This morning, I read the so maniest headline that Canada's housing market, in particular BCs and Alberta's, is overvalued. Whatever! I don't believe so seeing that some segments of the Calgary market have fallen over 30% since the peak (and Edmonton is not much better). BTW how much did property values drop in the US (on average)?

Anyway, I feel bad for those guys (and gals) that bought at the market peak with 20% down. But that is not the topic of this post. The same article states that in 2009 19,139 houses changed hands in Calgary, I hope for the local realtors that this does means resales and does not include new housing sales. The number of realtors in town are just over... 5500. That is only the active realtors, not the thousands who have given up.

So, eh... 19,139 divided by 5500 and an average commission after brokerage fees and royalties and marketing costs of... $3000. So that is an incredible net revenue total of 3 houses at $3000 or $9,000 PER YEAR. Some other statistics showed me that last year there were over 600 Realtors who sold nothing and that 80% of the properties were sold not by 20% but approximately 40% of the realtors. So the top 40% Realtors sold 15,310 properties i.e. 2200 realtors selling 7 houses per year or an annual net income of... $21,000. Oh yeah, isn't it lovely to be a Realtor! BTW I am about to join the top 40% having now been licensed for 8 months. I am so glad I taught a few well paid geology courses this year while living in semi-retirement (soon to change).

OK so the top realtors and their teams (maybe 10% of the pack) are likely to make a lot more - over a 100K I would guess based on the number of leased BMWs. Yet, realtors are a happy, self deluding crowd and only those that have been around for many years without offending too many clients do OK.

So when investors complain a bout the 'MLS monopoly' and those darn Realtors cornering the market that is kind of talking about two entirely different things. The MLS 'monopoly' is like Stats Can having census data collected on Canadians that you can buy. However, MLS is owned by the Canadian Real Estate Association not the government. The MLS is funded by the Realtors for many years and contains only data of sales sold by Realtors via the MLS. A Realtor pays for MLS through monthly fees (I think $50 per month), a Realtor also pays for the Realtor key to get access to properties for showings. MLS is also paid through membership fees with the local Real Estate Board.

The data collected through MLS is of a certain quality because Realtors are trained to obtain/verify data on properties and know what can be said and what cannot be said. The Realtor is insured for errors of omission (mandatory in Alberta) and as such the MLS data is fairly reliable (but not without error so always check yourself). MLS is one of the most effective marketing tools for selling a house, although no-one prevents a seller or buyer to look on other databases such as the classifieds in the news papers or Kijiji on-line. For Sale By Owners (FSBOs) do not have to adhere to the MLS standards and are not trained in the liabilities and requirements of selling a property to a third party. That is why FSBOs listing their properties on MLS may contaminate the reliability of that very extensive and expensive data base.

If I understand it correctly, the recent squabble with the Competition Bureau has resulted in Realtors being able to list your property without being required to provide the full fiduciary duties he or she is required to adhere to by law. So that allows the Realtor to list your property on MLS without any further required involvement. Not sure how that works legally though! Personally, I won't risk working that way.

Some of you would like to browse through the database on your own. You can do that as well for free. There are some restrictions on the data but really it is minor. In some ways I like the public MLS system better, especially the map you can use to zoom into an area to look for listings. The MLX cannot do that, but it can search based on features, like 25 bedrooms, floor area exceeding 721.5 sqr ft, full basement etc. If you want that bit of extra data from the MLX database just ask your Realtor and he will run the program for you and e-mail you the result. Guess what, you don't even have to pay for the database!

So being a Realtor is not a fat-pot. It is extremely competitive and all Realtors use the same MLS database plus personal expertise to help clients to sell or find a property. If you were ever wondering how much money you save in commissions when you get your own license, just do the math and you will find that you may have to buy 5 properties or more per year before that is worth your while!

I thought, now that this issue of the competition bureau has cooled off a bit, this might be an opportune time to present it in a more obvious setting.

BTW, I enjoyed being a Realtor although it is a wait-and-run game. I also was, as a rooky, successful at it. But there are a lot easier ways to make money than being a Realtor and I am seriously contemplating to use the easier route.

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