Are real estate agents really making a grand an hour? A Toronto real estate firm, which likes to advertise cut-rate commissions, would like you to believe that.
The problem may lie in how you calculate the working hours of your local realtor. In a red-hot market like Toronto, where a home might sell in 24 hours and a realtor puts in a few hours of work before pocketing a commission cheque that could be $25,000 on a $1-million home, the numbers might work.
Start adding up the hours driving around nervous first-time buyers to open houses and then preparing bids on multiple offers and always losing and that hourly rate starts coming down.
Head over to a moribund market like Alberta, where sales have abruptly stalled and days on the market are increasing, and that hourly wage may start dipping towards minimum wage if no commission cheques start coming in.
John Andrew, a professor at Queen’s University, who runs the executive seminars on corporate and investment real estate, said it’s an age-old debate that continues to flare as discounters with access to the Multiple Listing Service system take on established real estate.
“I was having this discussion with a friend who was saying how obscene the commission was because her house sold in four days,” said Mr. Andrew, adding there is a lot of work that contributed to the sale that isn’t considered. “We worked it out roughly and it was about $400 to $500 per hour.”
The argument from upstart real estate firm theredpin.com states that in 2014 8,477 Greater Toronto Area homes sold in three days or less which amounts to 15 hours of work or less. Based on an average sale price of $556,000 those sales mean $1,000 per hour, if you use a typical 2.5% commission for the selling agent.
Mr. Andrew says part of the argument about why fees should be lower is the barriers to entry for real estate professionals are low with most provinces allowing people to enter the industry after about six months or less of training.
“A real estate lawyer charges $350-$400 an hour but they have a law degree,” he said. “But the thing is for every sale that [takes a few days] there are ones that go on for months and months. I’m sure there are listings where the agents wish he never got the listing.”
Phil Soper, chief executive of Royal LePage Real Estate Services, likens it to a lawyer who might spend hours in court but days preparing for the moment in front of the judge.
“You know, if a realtor is doing their job a house sells quickly. What bothers homeowners the most is a house that languishes,” said Mr. Soper. “In a seller’s market, the properties sell for high prices and it doesn’t take long. But on the other side, if you are helping them to find a place, it can take months in a market like Toronto.”
But it does beg the question: If you are only selling a home in a hot market, is it your responsibility to subsidize the realtor for all the time spent trying to find homes for buyers?
“You do have to remember that real estate agents are independent contractors and have expenses, so the number you see is not what they are making,” said Mr. Soper. “They have to pay their brokerage company, the national company, the [local board], the Canadian Real Estate Association and advertising.”
He said as a rule of thumb realtors keep about 50% of 70% of the revenue they take in from commissions. He adds commission rates have started to come down across the country but concedes that given how much home prices have risen, realtors are making more money during this boom.
“We lost about a basis point [on commission] every year. If you go back 20 years, the average commission rate was a full percentage point higher,” he said.
Mr. Soper says there are millionaire earners in the industry but he calculates the average agent, among the approximate 100,000 in the country, make about $20 per hour.
Source: The Globe and Mail