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Real Estate

Commission-free real estate company set to expand in Canada

With a global real estate giant hoping to disrupt the Canadian market, consumers may not be so quick to sign up for the company's commission-free sales approach, Toronto real estate lawyer Matthias Duensing writes in The Lawyer’s Daily.

Duensing, principal of Duensing Law, says “home sellers may not be convinced that paying a flat fixed fee to an unmotivated selling agent is the best way to sell their home in the current market.”

The British company recently purchased a similar commission-free, online realtor in Quebec for nearly $50 million, he says.

“Originating in the U.K. in 2012, [the company] has rapidly expanded into Australia, the United States and now has plans to expand out of Quebec and into Western Canada,” Duensing writes. “However, simultaneous to its rapid growth, [it] has been beset by investigations across all of its territories, into issues such as misleading advertising, corporate bullying and misleading online reviews.”

Duesing says the company’s premise “seems innovative and straightforward.”

As he explains in the article, a traditional real estate deal involves a selling agent and a buying agent and each usually gets a commission of 2.5 per cent — paid only if the deal closes.

“The selling agent is motivated to get the maximum amount possible for the seller in order to increase their own commission,” says Duensing.

The company's "online platform cuts out the selling agent commission and instead charges a flat fee (which can vary by country, region, and add-on services such as accompanied viewings). [It] engages real-life certified MLS real estate agents to guide home sellers through the listing, viewing and sale process, all of which is included in the flat fee.”

The difference is that the company charges a flat fee regardless of whether the property sells. The fee can be paid upfront, at closing, on termination of the deal, or at the end of the six-month listing, Duensing says.

“Though some standard services are included in the flat-fee package (such as advertising — at the sole direction of [the company] — and a lawn sign), added services of a motivated agent (such as floor plans, video tours, drone photography, virtual tours, guided showings, open houses) are not included,” he writes.

“The motivation of [the company's] selling agents to sell properties for the maximum price possible was recently called into question in Australia, where it is alleged that [it] ran a competition among its selling agents to see whether [they] could encourage homeowners to lower their listing prices by anywhere between five per cent to 20 per cent. For each homeowner that lowered its sale price, the ... agent was entered into a draw for a cash prize,” says Duensing.

He says the company also charges a buyer’s fee commission, which is intended to motivate prospective owners’ agents to view the property.

“If any buyer introduced to the seller during the listing period purchases the property up to four months following ... delisting the property, the buyer’s side fee remains payable.”

As Duensing points out in the article, all of these add-on fees could become very expensive for a seller.

“The lack of clarity around [the company] model and its advertising was called into question in both the U.K. and Australia over its advertising claims of low fees and fees saved, leading to rulings and fines ... for misleading advertising,” he writes.

“With the numerous measures introduced by the federal and provincial governments across Canada to cool down the Canadian real estate market, and the general slowdown we have evinced over the past year, it is arguably not a strong time for [the company] to be entering the Canadian market,” says Duensing.

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