Tag: transactions

• Multiple representation

  

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  If you’ve ever bought a property, you might be familiar with something called “multiple representation.” It’s when one real estate agent represents both the seller and the buyer for a particular transaction. It may also be called “dual agency.”

  The reason this can happen is because, here in North America at least, real estate sales are typically done with two agents: a seller’s agent and a buyer’s agent. The real estate commissions are (directly) paid by the seller to the listing brokerage, but it’s usually split between both brokerages and agents involved in the transaction.

  However, if you’re an agent-less buyer and you happen to come across a property that you like on your own (perhaps by browsing around online), the selling agent will likely ask you to also sign a representation agreement with them. And that means entering the world of “multiple representation.”

  Here’s some of the wording that the Ontario Real Estate Association uses:

  MULTIPLE REPRESENTATION: The Listing Brokerage has entered into a Buyer Representation Agreement with the Buyer and represents
  the interests of the Seller and the Buyer, with their consent, for this transaction. The Listing Brokerage must be impartial and equally protect
  the interests of the Seller and the Buyer in this transaction. The Listing Brokerage has a duty of full disclosure to both the Seller and the Buyer,
  including a requirement to disclose all factual information about the property known to the Listing Brokerage.

  But I don’t understand how this can work.

  You now have a sole agent that is supposed to act as a neutral facilitator between (1) a party that is paying them all of their salary for the transaction (and which increases as the selling price goes up) and (2) a party that just came off the street (and where there’s no preexisting relationship).

  That’s why multiple representation scenarios always make me uncomfortable. Real estate already has too many information asymmetries for my liking and this feels like a conflict of interest in almost all of the cases. I guess that’s why they are not allowed in many states in the US.

  2015.10.08

• How wise are crowds?

  Earlier this week I wrote a post about a new build home under construction at 37 Canerouth Drive in the west end of Toronto. As part of that post, I asked people what they thought the home would be valued at when it was completed. There were just under 10 responses (many thanks!) and I thought it was really fascinating to see the ranges.

  A lot of you responded in the comment section of the post, but a bunch of the other estimates came in via Facebook, Twitter, and email. It isn’t a huge data set, but I’ve nonetheless consolidated the ones I could remember I received:

  $2,375,000
  $2,750,000
  $1,800,000
  $3,000,000
  $8,500,000
  $2,600,000
  $3,500,000
  $1,750,000

  If you average these estimates, you come to a value of $3.3M. However, the clear outlier is the $8.5M. So let’s take that one out and see how the number changes. If you do that, you then get an average estimate of $2.5M. A pretty big swing.

  Now, I don’t know offhand how accurate that number really is, but I’m fascinated by this idea of “the crowd” determining value. Particularly for markets such as housing where supply can be completely heterogeneous and there isn’t a lot of transaction volume to refer back to (compared to other types of markets).

  Because my strong belief is that under the right circumstances and with enough data points, this number could end up being hugely accurate. And, it could also be more forward looking since it’s capturing current market sentiment as opposed to being based on historical transaction prices.

  If you have any thoughts on this, I’d love to hear from you 🙂

  2014.10.24

• The high cost of transacting

  This past Sunday I was over at my father’s place for dinner and we were talking about the high transaction costs associated with buying and selling homes. That is, we weren’t talking about the high price of homes in Toronto, we were only talking about transaction costs and barriers to market liquidity.

  For example, let’s say for the sake of simplicity that you own a home that’s worth $1 million and you’d like to sell it and buy a different home that also happens to be worth $1 million. In this case, you’d be making an entirely lateral move. You’re not down sizing or up sizing, you just want a different home–perhaps because you’d prefer a different neighborhood.

  In order to do this, you’re going to be faced with a number of costs. But the 2 most significant are real estate commissions and Land Transfer Taxes (both provincial and municipal). You only pay Land Transfer Taxes in Toronto when you buy (take title) of a new property, but they’re unavoidable, unless you’re a first time buyer, in which case you’d qualify for a bit of a rebate.

  Real estate commissions are technically optional, but 70-90% of the market in North America still uses a a real estate agent to sell their home (based on the estimates I’ve found). Typically a seller pays around 5% of the sale price. So in this example, you the homeowner would be paying around $50,000 in real estate commissions.

  Land Transfer Taxes would be roughly $32,000, and so you’re looking at a total somewhere around $82,000 in order to make this lateral move. This, of course, does not include legal fees or any other moving costs you might incur. It’s a hell of a lot of money and it’s a significant barrier to transacting.

  But my hunch is that we’ll eventually see real estate commissions come down. No real estate agent wants to hear this, but I think it’s almost inevitable. The internet, as a disruptive force, is bound to make it happen.

  2014.03.25