BUYER STEERING

Many of you might have caught the Marketplace episode that aired this past Friday on CBC. It was a hidden camera “investigation” to catch Realtors steering their buyer clients away from listings being sold privately or offering reduced compensation. The footage is likely pretty jarring for many consumers, and here’s the thing – it actually happens.

CBC tracked 3 real estate agents in this expose, and found 2 clearly “steered” their clients away from the private seller. One of the agents in question spent her time promoting a different listing while taking the buyer through the private sale. The third agent did the right thing – the expected thing – and showed the property without discouraging the buyer’s interest.

On the surface, it’s clearly evident that some Realtors are only out for themselves, and are not being ethical or transparent to their customers.

I'm not going to justify or defend illegal and unethical behaviour, and I’m disappointed on a number of levels with this. Disappointed that there are Realtors licensed by the province that put their desire to close a deal and cash a cheque ahead of the needs of their clients. As Realtors, we have a fiduciary responsibility to our clients, and their interests always come first. I would argue that the majority of Realtors follow that primary directive to the letter.

The real estate market is extremely competitive for buyers – and for Realtors as well. Agents will fight tooth and nail to get listings, and also to represent serious buyers. Not all are successful or productive, and that opens the door to behaviour that puts survival ahead of ethics.

One of the dirty secrets about the real estate industry – and there are a few – is that the bulk of agents are not productive and barely make any money at all, especially after their brokerage fees and other expenses.

There are currently 78,000 Realtors licensed to trade in the province of Ontario. 56,000 of those are members of the Toronto Regional Real Estate board.

Closer to home, there are 730 Realtors that are members of the Guelph and District Association of Realtors. Over the past 12 months, there were just 440 agents registered with the Guelph board that conducted at least one transaction (21% of which did 1-3 transactions, while 14% did 10+). That means that a staggering 40% of Guelph agents did not do a single transaction from October 2020 to the end of September 2021.

Some of those 292 inactive Realtors will be working another job, and holding onto a real estate license just in case a friend of family may want to buy or sell something. Some of them will be productive members of a team and their production gets reported under the name of another agent. That said, the bulk of the non-productive agents are likely working in the field and, unfortunately, doing zero transactions. And this is not COVID related – these types of numbers are similar in the years leading up to 2020.

Here’s where the problems start.

The Marketplace report was filmed in the GTA. Remember 56,000 agents are competing for business, and half of all agents in TRREB are doing 1 deal or less. The motivation for that agent to find the highest paying transaction is going to be pretty high! Compounding that issue is a lack of training and supervision, and so the behaviour isn’t easily discovered or corrected.

A lot of brokerages – again, especially in the GTA – have hundreds and sometimes thousands of Realtors spread out over a small number of offices. There is one brokerage that has over 4,000 agents spread out over 10+ offices. That's over 400 agents per office, with just one managing Broker per office, the minimum required by the legislation. As an experienced Broker managing just over 40 agents, I believe it’s not possible to supervise and make sure the agents are compliant with the rules and regulations.

A large percentage of the brokerages in most markets are set up as a landlord model: collecting monthly fees from their agents, which means they are profitable regardless of agents’ actual production. Not really a consumer-focused nor agent-focused strategy, and not one that promotes best practices and behaviour. In fact, it frequently becomes a fast ride to the lowest common denominator.

Unproductive agents, lack of accountability; how do you as a consumer avoid being steered, and actually work with a professional Realtor? A great question, and one that I wish not only CBC Marketplace but also RECO (Real Estate Council of Ontario) and CREA (Canadian Real Estate Association) would have attempted to answer.

Agents will scramble and hustle to work with buyers. What they often don’t or won’t do is have the conversation with buyers about representation – explaining how buyer representation works and what it means. Buyer clients will often avoid committing to one particular agent, and often don’t interview or vet the agent showing them homes in the same way seller clients do.

So how can buyers avoid getting caught up in this unethical behaviour?

It starts with a proper home buyer consultation. Simply put, buyers should treat the process the same way that sellers typically do.

We coach our team members not to be ‘pop-tart agents’: Realtors who jump up and run to show a home without properly understanding the client’s needs or ability to actually buy that home. This means we try to meet with buyers prior to actually showing homes. We get a better understanding of their needs, what they can afford, and most importantly, we educate them. Like any industry, the minutiae of buyer representation is second nature to us but often a foreign concept for our clients. We explain to our potential clients what it means to be represented, our obligations to them, and – of course – how and when we get paid.

When representing a buyer or a seller, it’s our job to make sure they are getting the best value for their money. Our team members don’t dissuade our clients from viewing private sales – we understand the opportunity they could be for the buyer, and too what those deals mean for our own bottom line. If we’ve done our job correctly, you as a buyer will see the value in our compensation.

I’ve represented many buyers over my 35 year career, and I have shown and sold many For Sale By Owner private sales (FSBOs). Sometimes those are the right property for our clients, and we’ll negotiate a deal and accept the payment as offered. Often, our buyers will recognize quickly that many FSBOs are not valued equally to professionally listed properties. Sometimes, they don’t want to deal directly with the owner for a number of valid reasons (don’t forget that in the case of FSBO properties, the sellers themselves are often negotiating with an experienced buyer agent – you can imagine that the process of putting a deal together is not always a walk in the park).

Buyer steering happens when a client is not empowered by their Realtor, and the Realtor lacks transparency in their representation. A well educated consumer is the best protection against bad behaviour – and that goes for in any industry.

It’s unfortunate that the industry regulator, RECO, refused to appear on the programme and explain that a consumer should be educated to protect from this unscrupulous part of the industry. The irony of this is that RECO exists to protect the consumer, and was made to look like it favoured the status quo.

As a consumer, you have the right to ask questions and be educated about the process involved in buying or selling a home. If anyone suggests otherwise (i.e. your potential Realtor), you need to steer a clear path away. Moreso, a great Realtor will address representation and bring this information to you in a transparent manner.

Home Group Realty and all of our representatives are consumer-focused at our core. We work as a connected group to inform each other, in turn empowering our own clients to get the most out of their real estate transactions. Our team is education-driven and transparent, and always willing to answer your questions about representation, compensation and more.