Investors – Patience is a Virtue

August 5th, 2010 · 11 Comments · Buying or Selling Your Property, Rental Property

In today’s news… the bleeding starts. The Globe reports that Canadian Housing Cools. Vancouver sales are down 45% percent. There’s even a heart wrenching story about a speculator who failed to pass her hot potato along fast enough. “It’s not fair” she claims “I got ripped off instead of the guy I wanted to sell it to at a profit”

Let me explain something about housing corrections… everyone gets burned.

The problem is how far we’ve gotten from what the intrinsic value of a house actually is. Your primary residence is supposed to keep you and your family warm and dry. When you start seeing your primary residence as a status symbol or an investment it’s problematic. Because who doesn’t want more status or a bigger investment? The extra 50% of house that comprises the status/investment portion results in more expenses for taxes, utilities and purchase price. Buyers pay a ridiculous premium for a “cool” location.

An investment is something that pays you to own it. Your primary residence does not ever do such a thing. If you calculate all your payments, you’re lucky to break even when you sell.

As far as I’m concerned the less you spend on a primary residence the better off you are as long as it’s adequate for your needs. It’s no secret people are horrible at math. Look at the number of people buying rent to own furniture at low low weekly prices, less than the cost of a coffee per day for the next 5 years. Ridiculous, I’d park my butt on something put out at the curb long before I’d pay $2000 for a $600 couch.

July TREB Report

Finally the July report from the Toronto Real Estate Board is out. They are putting a positive spin on a 34% drop in sales for July The Globe is saying That Buyers Are Leaving The Toronto Market. TREB keeps trying to make us feel good by stating that house prices are up 6% over last year but prices dropped from June by 3.3%. I’m thinking there’s more dropping to come as I stated before by 10% through now until December. So there’s 6.7 percent to go down. I may be wrong because I’m underestimating that decline. It will of course also depend on what the Bank of Canada does with their interest rates come September.

That’s the problem with predicting the future, you never know what will happen. You spend a bunch of time worrying and nothing happens or you’re cruising merrily along and boom the well head springs a leak and 11 people die and there’s a continuous feed of crude oil video making you look like a bunch of idiots.

CREA Crushing Competition This Time While They’re Being Sued For… Crushing Competition

In other real estate news, I did a post about CREA vs The Competition Commissioner a while ago at Million Dollar Journey. It seems like these guys really aren’t getting any smarter. There’s a story in today’s news about Rules shut door on 1 cent listings

Basically Dawson Pereira opened a brokerage that offered one cent listings. It’s a bit of a scam because after 10 days they charge you $600. Best Value Real Estate does MLS listings for $109. In any case the way CREA has it now, the phone number of the seller is on the private section of the MLS so you have to talk to a real estate agent to get the number of the seller. Why would they waste their real estate agents time this way unless they have the agenda of interfering with the sale in some way.

I read later, after I wrote the article, that Realtysellers (who originally filed the complaint with the Competition Bureau) had their access to the MLS terminated because they were posting all the active listings online. Currently real estate agents only post their own listing on their own website.

My wish was for the Competition Commissioner to crack the MLS wide open and allow sites like Zillow in the US to exist here in Canada. This business of real estate agents having the stranglehold on information is just wrong. Their new site is worse than ever with expired listings staying and new listings taking forever to get up. The lack of information is just appalling.

I’m not sure what’s going on with CREA, either they’re incredibly stupid or incredibly arrogant. Even a two bit criminal knows to keep their head down when the cops are about. You’d think they would have taken it easy on Dawson Pereira and others like him until their current lawsuit is over. Then when the matter was finished they could crush him like a bug and no one would care. Instead of chilling out they’re all over the front page of the Toronto Star for anti-competitive acts, AGAIN.

More TREB Propaganda

Then I unfortunately read this bit of drivel from Toronto Real Estate Board about how Realtor’s Access To Databases can Help Us. Buyer’s agency Agreements are supposed to be good for us. They aren’t. In a perfect world where agents were responsive and good at working for their customers, sure. In the real world world, forget it. If CREA and TREB hadn’t created the database situation that exists now, it wouldn’t be such a big deal. Everyone should have access to public information. If there’s anything I find hateful, it’s someone who restricts your information then claims they are indispensable because they are the only ones with the information.

For more on the case itself here’s the link to the Competition Bureau.

I think I sound cranky this afternoon. It’s the thought of the cabal of real estate agents skimming 5% off 85% of all house sales in the country. They also have a legal stranglehold on commercial rentals. Do you know how much money that is? A LOT!!!

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11 Comments so far ↓

  • Jordan

    I agree with you completely. Ultimately you have to remember that CREA, TREB, etc. exist to serve RE agents first and foremost. They will do what they can to ensure that their career remains lucrative — restrict access to databases, spin the numbers six ways from Sunday, you name it.

    It is also fun to listen to the arguments from hard-core RE bulls. Today there were a number of people comparing their recent Toronto RE gains to the performance of the stock market. That’s great, but tell that to people who bought houses in Toronto in 1989 and then sold in the late 90s at a big loss. If they had invested in a Dow Jones index-type fund they would have tripled their money.

    People also generally don’t borrow four times their income to invest in stocks!

  • jesse

    The competition bureau is likely going to continue its fight with the CREA and MLS, especially when people start wanting to sell themselves to reduce their losses LOL

    I think a home is an investment like a good pair of shoes is an investment. The environment it produces for me makes me more productive, shows “friends” who will make me money I am successful, and provides a nurturing and educational environment for my children.

    But still a chocolate bar gives me $10 of value every time I eat it. Luckily I don’t have to pay $10 to buy one!!!

  • CanuckLandlord

    I should start off by saying that I used to be a licensed Realtor. While I do believe in fair competition, I think many people fail to realize that the MLS database is created by CREA, and it is maintained by the dues paid by licensed Realtors.

    Someone saying that people and companies that are not licensed and are not members of CREA should have access to the MLS database is like saying that I should have access to the benefits of the Ontario Teachers Pension Plan though I’ve never paid dues or made a contribution, let alone went to teachers college to learn how to be a teacher.

    Perhaps a fair way to deal with this is to allow ‘listing only’ companies to have access to the MLS database as long as they pay the same dues as licensed Realtors. Keep in mind that Realtors are licensed and have a fiduciary duty to their clients. They are required to earn continuing education credits, just like accountants and lawyers.

    Realtors do add value to a real estate transaction, and they do deserve to be paid for their time. You can’t just look at the commission they earned on any one transaction, because there are even more transactions that they’re involved in that they don’t get paid for.

    If my car needs to be cleaned, I can wash it myself, I can have one of the local kids do it, or I can bring it to a professional car detailer. Which one do you think will cost the most, and which one do you think will do the best job in the least amount of time?

    Realtors have a special skillset that goes beyond how to make a website and put a sign on a lawn. They are familiar with the legalities of a real estate transaction. You can sell property without a Realtor, but you’re still going o t have to pay a lawyer, otherwise, unless you’ve done it before, it would be like removing your own appendix for the first time.

    • Rachelle

      During your 3 correspondence courses and one week of class to become a licensed realtor did they remove the part of your brain that says taking 5% of 85% of all real estate transactions is way too much? What about the consumer?

      Realtors always have the same protectionist responses to criticism. You fail to look at other industries to see what is in the cards. Remember Bell Canada?

      If you provide such awesome and necessary service then people will pay you anyways even when the MLS is fully searchable for anyone looking to buy or sell. Except they won’t.

      As for the cost of maintaining a database View-it charges $60 to go take pictures, write a description and put the ad online. I’m pretty sure you realtors are being ripped with all the fees, memberships and all.

      Realtors are nothing like accountants or any other profession. Claiming you are highly educated just isn’t true. I’m going to one of your RECO approved continuing education courses credit on September 15th. Its one day attendance at a conference for crying out loud.

      Also I really am not aware of any real estate transactions that don’t get overseen by a lawyer including ones with realtors.

      Now lets talk about the UK where realtors get about 1% and still manage to survive.

      You guys have the same argument time after time and… I sincerely hope the Competition Commissioner breaks up your union and your database into separate companies.

  • Sudip Adhikari

    “MLS listings for $109” That’s one of my fav info. Thanks for posting..

  • Devore

    Realtors have a special skillset that goes beyond how to make a website and put a sign on a lawn.

    Many (most?) don’t. MLS sells the house. MLS is the marketplace. Realtors are the middlemen. There are good ones to be sure, but many more are in the business because they heard there is good money to be made after taking a short evening course.

    I remember, way back in the stone ages apparently, when realtors used to take far less than 5%, and many worked for a flat fee. Somehow, they still managed to put food on the table. I guess I am just not in tune with the way “things are done now”.

    They are familiar with the legalities of a real estate transaction.

    It’s not rocket science. Anyone can do it. Realtors do not have special powers that us mere mortals do not. For anything more complicated than a straight sale, lawyers will be involved anyways. Gosh, how did people manage to transfer property all this time without realtors?

    You can sell property without a Realtor, but you’re still going o t have to pay a lawyer, otherwise, unless you’ve done it before, it would be like removing your own appendix for the first time.

    You still have to pay a lawyer even if you DO use a realtor. Tell me, what value is added here? I’m basically paying for a listing, and for someone to babysit my house for a couple of hours once a month.

    And there you go comparing realtors to real professionals, who have gone through 6+ years of schooling, pass rigorous testing, and must advance the field they are in through education and professional activities.

    These days, everyone wants to be a professional.

    The real estate business will change. The way it is done now is nothing short of highway robbery. The listings service will become open, supported by subscriptions from people able to pay a reasonable fee and willing to abide by some basic rules.

    The realtor profession has bottled up the market on information, and is basically holding buyers and sellers hostage, arbitrating the marketplace. There are some that will not do a showing to a person without their own agent! They should just unionize and hire the teamsters to muscle everyone around to their way of thinking.

    There will be much kicking and screaming, but it will happen.

  • CanuckLandlord

    Rachelle, you seem to have a lot of hostility toward Realtors… glad I’m not one anymore…

    My previous comment was more about using Realtors for selling, and I would agree that there are better ways to advertise your units that are available for rent, but it feels like you’ve decided to use my post to unleash some pent-up hostility on all sorts of Realtor related issues.

    Are we discussing competition with regards to access to the MLS system, or are we discussing the Realtors’ fees structures? Also, are we talking about listing properties for rent, for sale, or both? I always enjoy a good debate, but let’s not get insulting.

    “During your 3 correspondence courses and one week of class to become a licensed realtor did they remove the part of your brain that says taking 5% of 85% of all real estate transactions is way too much? What about the consumer?”

    All commission fees are negotiable. An intelligent person can find a Realtor to work for the amount they are willing to pay, or choose another method that fits their budget. This is the spirit of competition, and it’s exactly what we have now. CREA has the MLS, Property Guys have their website, etc. As long as consumers realize that cheaper methods may expose their listing to fewer potential buyers and it might take a little longer to sell, then all is well.

    Rachelle, I’m assuming you charge a fee for the services you provide, and anyone who agrees to pay your quoted fee would find your fee reasonable if you deliver what you say you will. How much negotiation is there between you and your clients? How much do other people who offer the same service charge?

    I’d agree that 5% of 85% of all real estate transactions is much, but you can’t convince me that the alternatives are better. If you take the buying market and divert their attention to 100 different websites, then you’ve added no value to the sellers. Those websites are not regulated by anyone, is that in the best interests of buyers? No.

    “As for the cost of maintaining a database View-it charges $60 to go take pictures, write a description and put the ad online. I’m pretty sure you realtors are being ripped with all the fees, memberships and all.”

    Looks to be a good service if you live in a major centre like Toronto, but many people in this country don’t. That site only services two cities in NS and PEI isn’t even on their list… Do you have any recommendations for people in those areas?

    It also looks like it’s used for advertising apartments for rent, while I was commenting more on using Realtors to list property for sale.

    Another problem with shelling out cash for exposure on sites like those is that they don’t have anywhere near the traffic that the MLS site has. Just like in commercial real estate, traffic is huge. No traffic = no exposure.

    “Now lets talk about the UK where realtors get about 1% and still manage to survive.”

    As I said, commission fees are negotiable, and if the market decides to negotiate commission fees that low, then the good Realtors will survive, the rest will find jobs elsewhere.

    CREA owns the MLS system, and they should be able to determine how it is used. If I put a pool in my backyard, should my neighbour expect to be able to use my pool whenever he wants to?

    Rachelle, thanks for you posts.

  • CanuckLandlord

    “Devore CREA is the professional trade organization that represents 96000 Realtors. They are a union.”

    APENS (Association of Professional Engineers) represents 5,000 professional engineers in Nova Scotia, are they a union?

    A union represents its members, and its members are akin to co-workers… while an association represents and regulates a group of competing members and companies.

  • Stephanie

    First Rachelle, love your blog and insights.

    IMO Commercial transactions should not be allowed to be handled by people who practice residential real estate and property management. There is too much at risk, you could bankrupt businesses and ruin lives if you do not know what you are doing.

    IMO Realtors should be limited in their practice to either residential (then rural or urban, then condo or freehold) or commercial (then rural or urban, then either multi-res, retail, office or industrial). The licensing is too loose and the stakes are too high to have a jack of all trades realtors and property managers.

    I write this as someone who grew up in a real estate family, who has spent untold thousands of dollars and many, many hours at investment seminars, investment groups, etc, working in the industry for both commercial and residential leasing services and hold a valid real estate license (I know you have a huge hate on for Realtors so I’m not about to bother trying to sway your very strong opinions).

    I will say I agree with you, leases (unless commercial) are a lot of work without a lot of compensation and I would much rather refer this business to someone competent and have my clients (and me) happy.

    IMO, a professional does what they are good at and will refer to other professionals and not try to handle everything themselves. You wouldn’t go to a criminal lawyer for a family law case. You wouldn’t go to a cardiac specialist for tendon problems. Why would you go to a residential PM or Realtor for commercial needs? I use these examples since you mention doctors and lawyers in other posts.

    Anyway, I think professionalism is a manner of how one conducts their business, not a title one wears. You come across as very professional, yet you don’t have a university degree to back you up, I would still trust you with my property management needs because you appear to have integrity and loads of experience.

    There are many educated “professionals” lawyers, doctors who may or may not be good at what they do and may or may not deserve their compensation – regardless of their ability to pay for and complete a formal higher education. Painting everyone with one stroke is harmful.

    Commercial transactions should be left to people who only do commercial transactions.

    Thanks for your posts and allowing feedback.
    Keep up the good work!

    • Rachelle

      Thanks Stephanie,

      This may surprise you but I don’t really have a hate on for realtors, I was actually thinking about doing a post about it in the future. I am very frustrated with the current real estate system which I don’t believe is good for realtors and consumers alike.

      I agree with you as well about commercial leases being left to the experts. I think it should be left to the lawyers who have expertise in such matters. As someone who does leasing, however, I don’t understand why the grunt work of finding a tenant, showing the property, collecting the deposit etc. has to be done by a realtor rather than a property manager. No one generally knows more about the property they manage than the property manager. This could just be me.

      I do not have a university degree in property management only because when I decided to become a property manager there was no such degree offered. Obviously I have not stopped learning since then… I’m one of those strange people who enjoys reading and reads obsessively about a great variety of subjects. Certainly I can use the cut and paste functions as well as anyone.