Not long ago, real estate broker Jeffrey Joseph was having lunch with a friend at an elegant downtown hotel. The server must have overhead parts of the conversation, Mr. Joseph says, because as he was wrapping up the bill, she sought his advice on becoming a real estate agent.
Soon after that encounter, Mr. Joseph handed his business card to a tow truck driver who was towing one of the family cars to a garage for repair. The driver was also planning a move into real estate.
“Real estate is on the lips of everyone more than any other subject at every social gathering,” Mr. Joseph says, so he’s never surprised when people raise the subject. And while he’s happy to provide some guidance after working in the industry since 1968, he is sometimes amazed at how many people are segueing into the business.
With the Toronto Real Estate Board predicting that the Greater Toronto Area will tally a record 100,000 transactions this year, and with the average deal approaching $600,000, the busiest agents are undoubtedly able to afford to keep the shine on their luxury SUVs.
That’s one reason the number of agents has also soared to a record in Toronto – with more than 42,000 licensed at last count, according to TREB.
In the 416, where the average detached house changes hands at above $1-million, a 5-per-cent commission sits at $50,000.
As house prices soar, so too does the number of buyers and sellers complaining about the cut that goes to agents. There are endless tales of houses that sell with hordes of competing offers in a week or less. Some agents have taken to Twitter to defend the commissions they make and to itemize the brokerage fees and other expenses that take a big chunk out of commissions.
John Pasalis, president of Realosophy Realty Inc., says there is sometimes a perception among consumers that agents are making easy money.
“I think that’s everyone’s fantasy – I’m going to go into real estate and double-end a sale of a million dollar house,” he says of deals where the agent represents the buyer and the seller. Typically, commissions are split between the two sides.
But those transactions are very rare, he says. Instead, agents with long-established businesses are vying for each listing. People see the business booming, he adds, but in fact it’s more difficult these days to make a living because the competition is so much more intense and consumers have so many options. They’re also very knowledgeable. “It’s brutally hard. You’re competing with four to five people. It’s a harder life than I think most people think.”
While most agents starting out rely on their family and friends for those first listings, that strategy doesn’t take them very far. “Most of my friends probably know two or three other agents.”
Mr. Pasalis points out that roughly 57 per cent of TREB realtors sell three or fewer houses a year. A sale price of $550,000 produces an average commission for the buying and selling agents of $13,750 each.
Agents recording six sales a year might make $82,500 before expenses, which can lower their gross income to between $60,000 and $75,000.
Mr. Pasalis says about one-third of registered agents don’t sell anything, while those who become wealthy are usually in the top 1 or 2 per cent.
Those with marquee names likely spend $10,000 a month on billboards, along with photographers, stagers, brochures and even vases of fresh-cut flowers. “Their overhead is big.”
Mr. Pasalis’s firm typically offers a commission of 4 per cent instead of 5 per cent, so clients don’t haggle, he says; agents who charge 5 per cent will sometimes shave a small amount off of their rates to win business, he adds. The agents charging full freight are often paying for staging as part of their fee, he points out, so their expenses are higher.
Mr. Pasalis will pay for a consultation with a stager but not all of the expenses of sprucing a place up.
He adds that agents who stay in the business for the long haul have to expand their networks through referrals and lengthy presentations to potential new clients. “People underestimate the sales side of it.”
Mr. Joseph says he was selling cars on the showroom floor for his father at the age of 17. He learned the importance of making connections with people and staying in touch. “Some people don’t like to make phone calls to people they don’t know. They have to get over that.”
But Mr. Joseph says putting clients into houses and condos is a very different process from selling cars and other merchandise. “Because every house is one of a kind, it has to sell itself. We sell the value.”
If the house doesn’t feel right to a buyer, he says, you have to find one that does. The expertise comes from understanding the client and what trade-offs they might be willing to accept for the price. “They have to want to buy it. We can’t sell it to them.”
Mr. Joseph, who specializes in neighbourhoods from Bloor Street to Highway 401, says trying to estimate how much any agent makes from the business is difficult because there are so many variables. Typically, the higher the price range they work in, the fewer transactions they will do.
Some agents post eye-popping sales tallies on their websites but often those agents have a team of up to 10 or 15 people pooling their listings. Those new to the business will join a team for the brand recognition of a star agent and the veteran’s sales numbers will be boosted.
David Fleming, an agent with Bosley Real Estate Ltd., says some people are attracted to the business because they have a genuine passion, but others have poured in as real estate has been glorified by television. Barriers to entry are low, he adds.
He says statistics from a data analysis company show that, of 42,825 agents, 41 per cent – or 17,536 – record zero or one transaction in a year.
“At the end of the day, just because you have a business card with your name on it, doesn’t mean you’re in the business. You actually have to sell something.”
Mr. Fleming says he routinely works 75 hours a week but he does encounter part-time agents who seem to think that they can work six or eight hours a week. In his Toronto Realty blog, he cites one example where he submitted a low-ball offer on behalf of a buyer as a way to launch negotiations. The seller’s agent never answered his phone before 5 p.m. so Mr. Fleming suspected he also had a day job. Still, he was shocked when the agent agreed to the deal without pushing to see if more money was on the table. “They’re very easy for me as an experienced agent to take advantage of.”
While some properties sell quickly with multiple offers, many do not. This week, he was on day seven of a negotiation in which he represents the seller. His strategy is to stay cool and wait out the buyer’s agent.
“I know that the only way to get the best price for my seller is with the long game. Every time they call me instead of my calling them, I know I’ve got a little more leverage. If it takes two weeks, I’m on board for that.”
Source: CAROLYN IRELAND The Globe and Mail Published Thursday, Nov. 05, 2015 8:00AM