The Truth about For Sale by Owner Companies

The Truth About For Sale By Owner Companies


The Truth About For Sale By Owner Companies

During the past 2 years, The Canadian Real Estate Association has been under pressure to open the public MLS to for-sale-by-owner companies. The Competition Bureau feels that the MLS system is anti-competitive, and wants the consumer to have more cost effective choices, saving the consumer commission fees, but are they? Since early 2011 for-sale-by-owner companies have gained access to post mere listings on the MLS. What I will discuss in this blog post is what these companies don't tell you, and how many properties they have actually sold. I think most of you will be surprised by the statistics I will share with you.
Two big forces that are competing for the consumers business is, Com Free (Commonsense Network Brokerage) and Realtysellers. There is a bunch of other for-sale-by-owner companies, but they have limited data, or they are not making enough of impression, so their stats are meaningless.

Before I discuss these two brokerages I will explain to you their business model. These companies now advertise that they can list your home on the MLS for a flat fee. Both of these companies run like a real estate brokerage, where they employ registered Real Estate Agents. These services require you to pay a flat fee upfront, which can range from $500-$2000. Also, there are add ons. If you require any additional assistance, they will require payment for those services. Remember you as the homeowner are solely responsible for showings, offers, marketing, selling, etc. When you are using a flat free brokerage like these two for-sale-by-owner companies, you always have to pay for the service upfront regardless of whether the property sells. The difference using a Real Estate Agent is that they only get paid when the property sells, so it is in their interest to work with you until the property sells.

All stats are taken from the Toronto Real Estate Board from January 1st, 2012 to December 31, 2012. The Toronto Real Estate Board covers areas as far east as Oshawa, as far west as Burlington, and as far north as Newmarket. 
Realtysellers listed 708 properties this year, and of those listed, only 309 were sold (43%). Out of the 309 properties sold with Realtysellers, 195 (63%) were sold to a buyer who was working with a Realtor. Usually a 2.5% commission was offered when a Realtor is involved in the transaction.

The breakdown of commission is usually 5%, 2.5% goes to the listing Agent and 2.5% goes to the Buyers Agent. Out of the 90000 properties sold this year in the GTA only 0.3% were sold using Realtysellers.
Now lets take a look at Comfree which has the largest market share in the Greater Toronto Area in terms of for-sale-by-owner companies. Comfree listed 1287 properties this year. Of those properties listed, only 672 were sold (52%). Of the 672 that were sold, 368 were sold using a Realtor (55%). That translates to only 304 of the 1287 listed properties were sold without the services of a Realtor (23%). 

When the consumer sees a Comfree or Realtysellers sold sign they assume that these properties were sold without paying any commission. The truth is that close to 60% were sold using the services of a Realtor. Does the consumer know this? Wouldn't the consumer find this to be valuable? Of course, but most information out there is somewhat skewed and misleading. Again, it is the public that has to do their due diligence, but is this information readily available? No!

There were close 1000 properties that never sold by these companies that required a flat fee. Let us assume the consumer paid $1000 for these services. That means that these companies earned $1,000,000 in revenue for not doing a thing. In my opinion the for-sale-by-owner industry entered the market during a time when the market was red hot. If the market stagnates or slows down like we are starting to see in some regions, do you think they will have the same market share? Defintely not!
Only just over 1% of all properties sold in 2012 were sold by the two for-sale-by-owner companies that were discussed. With close to 35000 Agents working in the Toronto Real Estate Board there are plenty of services out there for just about anyone. The consumer needs to choose wisely and be aware of the services, choices, and the transperancy of these services.
What are your thoughts?
by Andrew Paolone
Todd Fryer

Todd Fryer

Real Estate Broker
CENTURY 21 Insight Realty Group Inc., Brokerage*
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