The rise of discount real estate brokers
By Peter Diekmeyer • Bankrate.com

When Nancy Tessier wanted to sell her Montreal area bungalow, she did what most people do: She called a real estate agent. But like a growing number of Canadians, Tessier wasn't happy with what she heard. "He wanted to charge me a 7-per cent commission," she says. "And he wouldn't even list my house at the price I wanted to sell it at. He said that I was asking too much."

Instead of putting up with what she felt was unsatisfactory service, Tessier called Proprio Direct, a discount real estate broker. The company's agent agreed to list the property for the price she wanted. Even better, he agreed to charge a commission of only 4 per cent -- close to half of what the traditional broker would have charged.

The savings from dealing with Proprio Direct proved to be exceptional: more than $5,000. "The service was great and the agent was very nice," says Tessier, whose home sold within four weeks. "They helped me every step of the way."

The rise of Proprio Direct
Tessier isn't the only one fed up with paying high real estate commissions. According to Robert Petit, Proprio Direct's vice-president of development, the company should handle close to 2,000 transactions during 2005, an increase of 25 per cent from 2004. According to Petit, the key to the company's success is the fact that it conducts all of its business through head office, eschewing costly branches.

The company provides two basic services: for a 2-per cent commission, it lists the property on the Canadian Real Estate Association's Multiple Listing Service, or MLS, and helps customers with the paperwork required to close the sale. For 4 per cent, the company assigns an agent to help the customer find a buyer.

Clients like the arrangement because it saves them money. The company's agents are happy because what they lose in commissions on individual transactions, they make up for in volume. "We close more deals per agent than any other major Quebec company," says Petit. "We also list more properties per agent, and we back them up with more advertising than any of our competitors."

Increased pressures on traditional agents
But while Proprio Direct is only active in greater Montreal (though it is conducting test marketing in the Gatineau-Ottawa-Hull area), discount brokers with similar business models are increasingly becoming part of the North American landscape.

There are several reasons for this. For one, the red hot real estate market of the past five years has meant that houses sold relatively quickly. As a result, consumers have had a harder time justifying the money they pay agents. (Even though the net result to the client is the same, psychologically, it's much less painful writing a real estate agent a $10,000 cheque if he worked for two months to sell the property than if he worked for two days.)

The fact that the MLS is now available online also means that many customers can do a large part of their house shopping at home via the Internet. This calls into question the value that real estate agents supply.

As a result of the increased demand, a slew of discount brokers and real estate websites have popped up, promising consumers a much better deal. Though their penetration has been limited in many markets, their influence has been significant, because they have forced traditional agents to be more flexible about the prices they charge. In fact, the standard 6- or 7-per cent commission is rapidly becoming a thing of the past.

"It's real estate, so everything is negotiable," says Mark Argentino, an associate broker with RE/MAX, who sells mostly in the Greater Toronto Area, particularly in Mississauga. According to Argentino, typical commissions have fallen significantly in recent years to as low as 4 ½ per cent on certain transactions. One Toronto discount broker, Home@Ease, lists properties for commissions as low as 1 per cent, though there are several add-on options that raise that rate significantly.

The future is wide-open
The degree to which discount real estate brokers will penetrate the Canadian market, or to which their presence will continue to influence the traditional brokerage industry's pricing structure, remains open to question.

The fact that real estate websites have made it easier for prospective buyers to view homes online may make it seem like agents work less to close a typical transaction than they did 20 years ago. But there's little concrete evidence to support that assertion. It is altogether possible that as a result of the increased information, customers have become more demanding and are visiting as many properties as ever.

What we do know is that customers are asking for better prices from their agents. And right now, it looks like there are increasing numbers of options available to those who want them.

But traditional broker Argentino warns that discounting may come at a price. "The long-term pain of receiving poor service and selling your home for a lower price than it should have originally sold for will last longer than the short-term pain of a small savings in the commission," he says. "Consumers should think long and hard before they decide what to do."

Peter Diekmeyer is the Montreal Gazette's management columnist.