By Brian Madigan LL.B.
The Consent agreement reached 24 October 2010 between CREA and the Competition Bureau will have a profound impact upon the real estate industry and the marketing of properties for sale.
At first, there will be resistance by the mainstream realtors, leaving the market open to the discounters. But, life has changed since the internet. Just ask anyone who used to work in the travel industry or for Blockbuster Video. Following closely will be the mainstream realtors, who will offer “unbundled services” just to compete. They will offer the product and consumers will take them up on it. That’s the problem; it’s not all or nothing. It’s just one small step, and that’s all the consumer wants.
What about other professions? Lawyers, surveyors, home inspectors, home stagers, photographers, videographers, printers, newspapers, online website advertisers, mortgage brokers, appraisers, insurance brokers, title insurers; what will happen to them?
So, let’s consider the implications first from the “sell” side of the equation, and then the “buy” side.
The Sell Side (Vendor and related parties)
In this situation, we speculate that the seller has opted for a “mere posting” and will handle all the details and inquiries personally.
Lawyers
The seller now may have the lawyer look at the listing, draft an agreement of purchase and sale and handle the negotiations. This is going to be an extra expense.
Home Stagers
Many realtors had included full home staging in its full services package. This won’t happen on a regular basis anymore. Home staging will still be offered, but it will be something that can be negotiated out of the contract.This means that many home stagers will have to drop their prices.
If the client is truly “paying” for the service and it’s not free, then sellers will want to see the statistical evidence offering proof of its value.
The home staging market will become somewhat more competitive and less lucrative as a result. Lowered discounted prices will be available.
Photographers
Professional photographers are required for every listed property. But the FSBO seller will likely either know somebody or have access to somebody in the business, or just take his own pictures. Professional photographers will have to compete with “professional” amateurs in a more competitive environment.
Videographers
Virtual tours are now here to stay. At first, they looked clumsy, but the better videographers came into the marketplace and the virtual tour has been elevated to the next level.
The real question is who is going to pay for it? With a menu driven fee schedule, this is an “extra”. Some consumers will pass this option by at the outset, and simply say, “we’ll look at this again in xx days if it doesn’t sell”.
Printers
Every listing needs a flyer, brochure or some kind of handout. The question is how many? At a certain cost per page, the FSBO seller, will not purchase too many, and is not able to buy in discount quantities. The FSBO seller doesn’t usually need the “just listed” cards to circulate through the neighbourhood. Those were marketing documents for the listing agent. Various flyers to be delivered, all with the listing agent’s picture will not be required.
The FSBO seller will likely go to a discount printer and order copies in groups of twenty-five. If a listing agent orders too many, the leftovers are used for marketing.
Here, printers will see a loss of revenue.
Newspapers
Newspaper print advertising is in trouble for a variety of reasons, but mostly the internet. As advertising in the real estate sections drop, the papers increase their advertising prices. That might not make much sense, but you’ll have to speak to the newspapers about their advertising strategies.
The result is that the higher prices will not encourage the FSBO seller to advertise. Any special deals to “one-off” FSBO’s will infuriate the regular advertising realtors.
So, the result here, seems clear: newspaper advertising revenue will drop.
Online Website Advertisers
These are sites like Craigslist and KIJIJI. Since they are technically free, they will prosper. Two things are clear about the internet. No one wants to wait. And, no one wants to pay.
There are also specialized sites that just deal with real estate in certain localities or certain types of properties.
The FSBO seller will make full use of these opportunities and forsake the more traditional methods.
The Buy Side (Purchaser and related parties)
In this situation, we speculate that the seller has opted for a “mere posting” and will handle all the details and inquiries personally. However, the buyer still has a need for support services from professionals, and may even have his own realtor.
Lawyers
If the FSBO seller is using a lawyer to handle the negotiations, then the buyer will seek legal advice at this point too. The risk is that the buyer may feel that he might be outsmarted, so he will pay for services even though he might have his own realtor, just in an attept to “level the playing field”.
Surveyors
When title insurance became popular, the need for a new survey was often ignored. That’s too bad and not the way it should be. But, the good news for surveyors is that the Consent Agreement will likely have no effect upon them.
The need for a survey is largely driven by the purchaser’s solicitor, so nothing will change here.
Home Inspectors
The Consent Agreement should come as a boon to the home inspection industry. While it is now becoming increasingly commonplace for a home inspection to be required as a condition in the due diligence phase, it will now be a necessity.
Who will trust the FSBO seller? The seller who can’t get a realtor to represent him! Get a home inspection at once and see what he’s hiding. There must be something!
Mortgage Brokers
The buyer needs to pay for the property, and probably doesn’t have all the money. So, a mortgage broker will still be in demand. It’s difficult to determine that there would be much impact on this industry.
Appraisers
Appraisers are just as important as before, even more so, because sometimes that last 5% of the purchase price needs to be rolled into the deal, and become part of the value of the property so it can be financed. Rarely, will the appraised value exceed the purchase price paid.
Although appraisals may become more difficult, demand will remain the same.
Insurance Brokers
Fire and liability insurance will be required in all transactions. So, the Consent Agreement doesn’t really have an impact here.
Title Insurance
The demand is largely driven by lawyers and mortgagees. This will not really change going forward.
Summary
The Consent Agreement will have an impact upon the demand for services of other professionals who support the real estate industry. Lawyers will be the chief beneficiaries, followed by home inspectors. Home stagers, printers, photographers, videopgraphers and anyone else involved in the advertising and marketing aspect of the sale (for a fee) will suffer.
These comments are based simply upon what might happen, only time will tell if they really materialize. In about one year’s time, the statistics should be clear.
Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com
