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26 Jul

New real estate companies challenge old guard

General

Posted by: Mike Hattim

Al Kula wants to sell his home. Not now, mind you, but in another two years.

He’s hoping to sell privately and would rather not pay real estate commission fees. So he listed his north Toronto home with forfuturesale.com, a website launched in May that allows vendors to place their properties up for future sale.

“I plan to retire in another couple of years and I thought it was a great idea,” said Kula, 66, a pharmacist. “I like to plan ahead.”

In the wake of a move by the Competition Bureau to open up the real estate market to more competition, a wave of new, innovative companies have launched. The entrants can be as esoteric as forfuturesale.com, as cutting edge as a company that matches consumers to agents for lower fees, to more traditional flat fee services where consumers can list on the MLS for a cheaper price.

Most are small start ups going head-to-head with organized real estate in the battle for consumers.

“I think people have been sitting on the sidelines waiting for the market to open up and they have seen the writing on the wall,” said John Andrew, director of the executive seminars on corporate and investment real estate at Queen’s University. “This kind of competition is ultimately good for the industry and good for consumers. This is exactly what the Competition Bureau wanted.”

The Competition Bureau has launched actions against the Canadian Real Estate Association and more recently against the Toronto Real Estate Board in an effort to open up the industry to more competition.

While real estate commissions are negotiable, traditional realtors have charged about 5 per cent to sell a home. That could work out to $20,000 in fees on a $400,000 property.

While many of the start ups are launched by entrepreneurs with no previous experience in the business, some are led by established realtors who say fees are too high.

Realtor Mia Prime said she launched her flat fee service last week because “commission fees are out of whack.”

After 30 years in the business selling homes, Prime said technology has allowed agents to be much more efficient and the workload is less.

“I can do deals today sitting at home in my underwear. I couldn’t do that 30 years ago. I didn’t have a cellular phone, I didn’t have email. We worked for our money and that was when the average price of a house was a lot cheaper.”

Since then home prices have exploded, commission rates have stayed about the same, and technology has allowed agents to be more efficient, says the realtor.

“I don’t believe in gouging people,” said Prime. “Selling your home can be hard work, but it’s not magic.”

Prime’s Great Canadian Realty lists properties on the Multiple Listing Service for $995 including giving vendors a market analysis of their home. If the vendor requires more help, such as an agent to show the home, they can add that on for an additional fee.

“I think there is a prevailing notion that sometimes agents get paid too much,” said Andrew Brest, who along with realtor partner Lee Redwoood formed Sundaybell.com, a site which matches realtors with consumers. “Consumers really want to be in the driver’s seat.”

Taking a cue from dating sites such as Match.com and Lavalife, the site allows buyers or sellers to connect anonymously with agents and negotiate commission rates and services before meeting face to face.

“Consumers are shy in asking agents for a break in commission, so this prevents that red-faced moment,” said Redwood.

While the site is free to consumers, agents pay a $499.95 annual membership and a $50 per contact charge.

Iwantthathome.ca, meanwhile, is more along the lines of forfuturesale.com, but coming from a buyer’s perspective.

“This is the digital equivalent of putting a note under someone’s door and saying ‘I love your home, do you want to sell it?’ ” said founder Natalie Armata.

The website, which went live last week, aims to connect buyers to neighbourhoods, streets, or even certain homes that they really want to own. It also integrates mapping software allowing users to pinpoint areas they want to search, including statistical information on the neighbourhood.

“Most people only have a few neighbourhoods or even streets that they really love,” said Armata. “Some people are very specific in their tastes and profile and sometimes there just isn’t the home they want currently for sale.”

If a buyer sees a home that they want, they place a post on the website, and for a small additional fee, a postcard is also sent to the home to notify the homeowner.

Queen’s University professor Andrew says the gush of entrepreneurship is reminiscent of the early technology boom in Silicon Valley.

“Some are IT start ups who are still trying to figure out how to make money. And the reality is a lot of these guys won’t make it,” said Andrew. “But that’s the nature of the beast, that’s what competition is about.”

Mike Roelofsen hopes he’ll still be around. He believes his site, forfuturesale.com, has global potential.

Like many ideas, this one came about by accident.

While he was in the driveway of his St. Thomas condo washing his car, a few years back, a couple drove by and asked if any of the units were for sale.

“I said no, because there was very little turnover at the place,” said Roelofsen. “But then I figured I should have taken his number down because I was thinking of selling down the road. I could have sold privately and avoided the real estate fees.”

Roelfson is allowing the first 1,000 vendors to list for free to get traffic on his site, and is then charging a fee of $79.

So far the new entrants have provided very little challenge to the established order of branded realtors who control the vast majority of the market. If history is a guide, many of the start ups will go under, while others will have to consolidate and bulk up to take on the big players.

“Like other very large transactions that are seldom done, consumers tend to look to professionals who do it every day,” said Phil Soper, president and CEO of Royal LePage, which represents more than 14,000 licensed realtors in Canada.

In the United States, where new start ups have been around longer, organized real estate still controls the lion’s share of the market over the newer entrants. In Canada, Soper says market share by organized realtors have remained stable.

“Part of the reason is that it is difficult to reach a critical mass to get major market share because Canada is a relatively small market with huge geography,” said Soper. “There has always been an intrepid group willing to do it themselves, but the question is how much market share will that ultimately result in?”

In a down or flat market, which most analysts are forecasting for the next couple years, consumers tend to stick with professionals, said Soper.

“If the market goes down it becomes more challenging for the do it yourselfers and they tend to need the help of a professional,” said Soper.

Roelfson, meanwhile, says he’s not looking to dominate the market. But a slice of market share could result in a profitable run.

He says about 85 people have listed on his site in the last couple months.

“Like anything else, this will take time to see if consumers will respond,” said Roelfson. “Not everything will work. But you only need one Facebook in the market to change the game.”