Real Estate Fees and Commissions (Lawyers and Agents)
The Competition Bureau has been dealing with real estate fees and commissions for over 40 years.
A percentage charge (fee or commission) based upon price is what everyone would prefer. As the price escalates so does the compensation. Annual increases by reason of inflation are included automatically.
The legal profession used to charge 1.25% on a purchase and .75% on a sale. That was the scale published by the County of York Law Association. In the mid 1970’s, the Competition Bureau took the position that the tariff was anti-competitive. The legal profession reacted by stating that it was just a "suggestion". This did not go over well. So, now, decades later you are able to locate a lawyer who will do the deal for $399 (and some, up to $899 or $999).
Real Estate Commissions
In the mid 1970’s, the average vendor was charged 5% for exclusive and 6% for MLS. The vast majority selected MLS because of the better exposure and marketing. Today, the market is unregulated, but the 5% MLS rate seems to have relatively good support.
Comparing the Compensation Systems
1976. A $100,000 Mississauga property (in 1976) would have reached $1,000,000 by 2016, forty years later. In central Toronto, a $100,000 property (valued in 1976) would be worth about $3,000,000. In 1976, the combined average real estate commission would be 6%, or $6,000. The lawyer acting for the Buyer would be paid $1,250. The agent made 4.8 times the amount that the lawyer would make on the same deal.
2016. In Mississauga, if the same house is bought today for $1,000,000, the combined average commission would be $50,000, and in Toronto $150,000. On these two purchases, Buyers today would face legal fees of $399 to $1,000, regardless of location.
There are now significant changes to both service models. Most law firms, including those on Bay Street would handle residential real estate transactions in 1976. Today, Bay Street firms have largely abandoned the field, leaving it open to the suburban practitioner with lots of administrative staff to handle the files quickly, and in volume. Now, the transaction is quite impersonal and many clients never even meet their own lawyer. After all, this isn’t much money for a lawyer with likely 9 years of post-secondary education.
As for real estate professionals, the practice has headed in the other direction. Lots of new entrants are getting into the business. Several weeks of online courses and a novice can be finished and qualified. And, the compensation is relatively attractive!
Real Estate Practice for Lawyers
This is the field of conveyancing. There have been numerous changes and improvements. Software programs, electronic calculators, email and the internet have all contributed to an increase in efficiency.
There has also been a transition to the Land Titles system over the same 40 year period. This eliminates the need for lawyers to search the title, find defects, propose a resolution to the defects, make application to Court to confirm the title. These were Vendors and Purchasers motions. While they were not numerous and commonplace, there were a sufficient number that justified the internal, intense review of titles. Today, it’s simply rare.
Real Estate Practice for Agents
For the $1 million to $3 million residential transaction, there are a few things that are now often included like: a full set of pictures, a virtual tour and home staging.
Quick Comparison of 40 Years
If lawyers charged rates at the corresponding amount that agents charge, there would have been significant increases in fees over 40 years.
If the Tariff stayed the same, 1.25% would be $12,500.00 on the Mississauga property and $37,500.00 for the Toronto property.
If the agent’s commissions were taken into consideration, and were still 4.8 times the lawyer’s fees, then the lawyer would make $10,416.67 for the Mississauga property and $31,250.00 for the Toronto property.
Certainly, if lawyers today charged those rates, they would clearly deliver VIP Platinum Service (whatever that means).
That’s the reality of the Competition Bureau and 40 years of “progress”.
Brian Madigan LL.B., Broker