Are auctions going to end agent commissions?

by Jamie Henry10 Oct 2014
It’s Saturday morning in the city and on this one day alone 253 home auctions will see 81 per cent of those properties sold. Paperwork will be signed, and agents will have earned their commissions in a few short weeks. At two per cent, those commissions will be well below the Canadian average even though the agent has worked with both buyer and seller. This isn’t Toronto or Vancouver or any city in this country yet. It’s Sydney, Australia. But could this trend, starting to take root in Canada, destroy our industry?
 
It will fall to agents to actively point out the drawbacks of real estate auctions as they grow in popularity – a way of protecting their clients but also their industry, according to at least one agent.
 
“Most statistics indicate that sales prices are lower by auction than for a property that’s more extensively marketed by Realtors,” Paul Martin, the broker of record and owner of Coldwell Banker Settlement Realty, tells REP.
 
Since the auction process takes place over just a few hours, the property can’t be exposed to the market enough to generate a solid amount of interest. Plus, the weather could determine the turnout on auction day, resulting in fewer bids and a lower selling price.
 
“Exposure is what a Realtor brings to the table,” Martin says, “ensuring that the seller gets top dollar and the Realtor has exhausted all the marketing options.”
 
However, Dan Peters, the owner of Dan Peters Auctions & Appraisals, says auctions tend spur an energetic bidding war, skyrocketing the selling price of the property in the process.
 
“We certainly put more hype on the deal,” Peters says. “There’s more intensity and more hype than with a regular for sale sign.”
 
As Martin points out, there are also a number of issues with selling real estate via auction, most of those stemming from the REBBA exemption that auctions have. When using an auction house, sellers are not required to disclose any issues with the property like a Realtor would. As a result, many homeowners who choose to sell by way of an auction face liability issues following the sale.
 
Even Peters admits that auctions are not overseen by any regulatory body, but says he discloses any issues of which he knows. Buyers are invited to investigate the property and bring in a home inspector (at their own cost), though the properties are still sold as is in a cash-only deal with no conditions.

In the end, Martin says people will get what they pay for.
 
“In a more balanced market like now, it’s harder for real estate professionals to sell homes, and days on market are up,” he says. “So people think [auctions] are a faster process to get [a property] sold, and for some people that’s the main objective rather than getting it done properly.”
 
 

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