A woman is standing in her spacious kitchen, piping pink frosting onto a birthday cake as the hubbub of a children’s party comes from the next room.
A moment later, she dramatically throws herself face down into the cake. The reason for her dismay? Her friend has just explained she could have sold her house without paying a sales commission using real estate brokerage firm Purplebricks.
It’s a TV ad in heavy rotation this year, part of a campaign by the British discount home seller to introduce itself in Canada. (You may also know the one with the frustrated man bashing in his bowl in pottery class.)
But the ads are also a salvo of another sort, notifying the traditional real estate industry that Purplebricks has ambitious plans to disrupt the way real estate is sold in Canada.
It is an industry many think is ripe for change.
As home prices in Canada have climbed over the past decade, so have the commission fees paid to real estate agents, even when the workload has not always grown in equal measure. In the Greater Toronto Area, for example, average home prices more than doubled between 2008 and 2018, and it’s common today for a Toronto home seller to pay a $50,000 sales commission on a $1-million home sale.
So it’s not surprising that British and U.S. real estate giants have moved into Canada over the past year, bringing new ways to advertise and sell residential real estate.
Purplebricks, Seattle-based Redfin and U.S. listings giant Zillow are all dominant players in their home markets, and they’re bringing cutting-edge technologies and deep pockets to finance their Canadian growth. (Zillow spent US$298-million just on research and development costs in its U.S. operation last year, a sum no Canadian firm can rival.) Their business models vary, but all are designed to give more power and more information to their users, and to drive down the cost of buying or selling a home.
Brad Simm used Purplebricks to sell his Binbrook home and buy a new home.The Globe and Mail
The idea is not entirely new, of course. Some smaller Canadian brokerage firms already offer lower commissions, and the PropertyGuys.com chain, based in Moncton, is growing quickly across North America with a business that helps people sell their homes without using an agent at all.
Phil Soper, chief executive officer of Royal LePage, a Canadian real estate brokerage firm with about 18,000 agents nationally, questions whether all the foreign interlopers will gain much of a foothold. “In a huge diverse market like Toronto, there are a large number of disruptors in place that have copied models from the U.S., and they’ve been here and operating, but they just don’t have the notoriety,” Mr. Soper said, "... and it’s not like this isn’t a vibrant real estate industry here in Canada.”
The difference this time is the scale of the new entrants, and their ambitions. Purplebricks, for instance, has been a phenomenon in Britain, becoming the country’s largest real estate brokerage firm within a few years of its founding in 2014, and it later launched operations in Australia and the United States, although it recently shut down the failing Australian business. Zillow is a technology superstar in the U.S., with more than 150 million viewers a month.
Lukas Lhotsky, chief operating officer of Purplebricks Canada, says major technology-driven disruptions have happened to other industries, and there’s no reason why the same thing shouldn’t happen in real estate. Uber and Amazon grew as quickly as they did because their services were relatively lower-risk purchases for consumers, he said. Real estate is a much bigger asset, which just means disruption will move more slowly.
But, he insists, "that disruption is accelerating. We see that in the growth of our business and our presence in the markets we’re in, like in Ottawa, Barrie, Hamilton, Kitchener – those markets where there has been a very significant number of people who have chosen us as an alternative,” he said. “It’s not a simple answer, but I do think real estate’s time has come.”
So far, though, the new entrants are struggling to woo clients, and their market share is tiny. The Canadian real estate industry is not going to roll over without a fight. Much of the battle will be fought at kitchen tables across Canada as agents pitch their new models, incumbents stress the importance of their experience and expertise and consumers wonder how best to handle the biggest transaction of their lives.
Mr. Soper says many Canadians view their real estate agents as professionals, similar to accountants or lawyers. All those professions have a spectrum of pricing options, he says, but people seek the best experts because they’re afraid of messing up an important transaction.
“There’s a massive difference between a good adviser and a bad one, and the difference can be really expensive,” he said.
Real estate commissions:
Incumbents vs. upstarts
How much would the seller of a $500,000
home pay in commissions? Here is how
Purplebricks and Redfin compare with a
traditional transaction.
Traditional
Redfin model
$500,000
$500,000
Seller’s
agent
Buyer’s
agent
Seller’s
agent
Buyer’s
agent
2.5% sales
commission
2.5% sales
commission
1% sales
commission
2.5% sales
commission
$12,500
$12,500
$5,000
$12,500
Total pre-tax
cost
Total pre-
tax cost
Savings over
traditional
25,000
$17,500
$7,500
Purplebricks model*
$500,000
Flat fee
to list
home
Arrange
viewings
option
Negotiate/
paperwork
option
Buyer’s
agent
2.5% sales
commission
$799
$399
$1,500
$12,500
Total pre-
tax cost
Savings over
traditional
$15,198
$9,802
*Using Ontario pricing levels
MATT LUNDY AND JOHN SOPINSKI/THE GLOBE
AND MAIL, SOURCE: purplebricks; redfin
Real estate commissions:
Incumbents vs. upstarts
How much would the seller of a $500,000 home
pay in commissions? Here is how Purplebricks and
Redfin compare with a traditional transaction.
Traditional
Redfin model
$500,000
$500,000
Seller’s
agent
Buyer’s
agent
Seller’s
agent
Buyer’s
agent
2.5% sales
commission
2.5% sales
commission
1% sales
commission
2.5% sales
commission
$12,500
$12,500
$5,000
$12,500
Total pre-tax
cost
Total pre-
tax cost
Savings over
traditional
25,000
$17,500
$7,500
Purplebricks model*
$500,000
Flat fee
to list
home
Arrange
viewings
option
Negotiate/
paperwork
option
Buyer’s
agent
2.5% sales
commission
$799
$399
$1,500
$12,500
Total pre-
tax cost
Savings over
traditional
$15,198
$9,802
*Using Ontario pricing levels
MATT LUNDY AND JOHN SOPINSKI/THE GLOBE AND MAIL
SOURCE: purplebricks; redfin
Real estate commissions: Incumbents vs. upstarts
How much would the seller of a $500,000 home pay in commissions?
Here is how Purplebricks and Redfin compare with a traditional transaction.
Traditional
Redfin model
Purplebricks model*
$500,000
$500,000
$500,000
Flat fee
to list
home
Arrange
viewings
option
Negotiate/
paperwork
option
Seller’s
agent
Buyer’s
agent
Seller’s
agent
Buyer’s
agent
Buyer’s
agent
2.5% sales
commission
2.5% sales
commission
1% sales
commission
2.5% sales
commission
2.5% sales
commission
$12,500
$12,500
$5,000
$12,500
$799
$399
$1,500
$12,500
Total pre-tax
cost
Total pre-
tax cost
Savings over
traditional
Total pre-
tax cost
Savings over
traditional
25,000
$17,500
$7,500
$15,198
$9,802
*Using Ontario pricing levels
MATT LUNDY AND JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: purplebricks; redfin
The data giant
When Zillow launched a Canadian website in October, there were predictions the company would be a major new factor in the market with its powerful online shopping tools and popular mobile app.
The company – whose name references “zillions” of data points combined with the pillow where you lay your head at night – is the dominant U.S. player for online real estate searches and listings.
It’s not a real estate brokerage, but an online data portal. Consumers use Zillow to research properties for sale, analyze past sales and estimate the value of their own homes – basically to navigate the market. It makes its money by selling ads on its site, earning revenue of US$1.3-billion last year. In the U.S., many ads are bought by real estate agents who use Zillow to generate new business leads, but that service has not come to Canada yet.
Online listings are already a big business in Canada, and many established Canadian companies – such as Realtor.ca, Zoocasa and most large real estate brokerage firms – already offer their own map-based home-searching tools.
And because it is not a brokerage firm, Zillow cannot display the automatic feed of MLS listings for national home sales. Only brokerage firms that belong to a regional real estate association can do that, because they control the data.
To access listings in Canada, Zillow has signed up more than 100 real estate brokerage firms as partners, ranging from small single-location offices to national listings for Century 21. The partnerships allow Zillow to get each firm’s approval to display their MLS listings on the Zillow site. Coverage is spotty so far, however. Even in cities such as Toronto and Calgary where Zillow has hundreds of listings, the company does not have the full array of listings from all firms.
Errol Samuelson, Zillow’s chief industry development officer, said the company is building the business the same way it did in the U.S., by knocking on real estate firms’ doors across the country, signing up new partners who will allow their listings to be displayed on the site for no charge.
“We’ve done it in a market that is ten times as big, so we’re pretty comfortable we can reach that same goal here in Canada," he said.
Without the full MLS feed, Zillow lacks complete access to sale prices for homes that have previously sold. The Supreme Court of Canada ruled last year that brokerage firms can display sold prices for subscribers on their websites, and the data have quickly become popular information for online shoppers.
Lauren Haw, CEO of Canadian-based real estate listings provider Zoocasa, said she believes Zillow is handicapped without the sold prices, and without the ability to display the full MLS listings. (Zoocasa can list all available data – including sold prices – because it is also a licensed brokerage firm with its own agents.)
“Without the full picture of that information, you’re just missing too much data to be useful,” Ms. Haw said.
The U.S. market for online home listings was highly fragmented when Zillow first launched in that country in 2006, allowing it to quickly draw users who were attracted by its broad, national reach. But Ms. Haw said Zillow is launching in a different environment in Canada, where consumers already use many other sites.
However, Mr. Samuelson said Zillow already has 500,000 unique viewers a month looking at the Canadian site, and the U.S. experience suggests there is the potential for far more market penetration.
“Even in the short run, half a million people a month is pretty good,” he said. "We’re actually quite happy about that.”
The discount broker
Brad Simms tested every service Purplebricks offers when he sold his house in the tiny community of Binbrook on the outskirts of Hamilton and bought his new home around the corner.
He said he was attracted by the company’s TV ads, but he also knew someone who worked for them and told him more about the model.
His house sold within a week and a half at only a few thousand dollars less than the listing price. Mr. Simms was especially pleased that he did little of the work himself, relying heavily on the company’s technology to schedule viewings and complete paperwork. He even signed all the sales and purchase documents from his couch, using an electronic signature feature on his phone.
Brad Simms used the home buying service, Purplebricks to sell his Binbrook home and buy a new home. The service unlike most realtors does not take a commission for home sales, which according to Simms, saved him thousands of dollars in fees.The Globe and Mail
“Their pricing was pretty bang on, and the houses on either side of mine were [listed for] significantly more and they are still sitting there,” he said.
Purplebricks’s main selling point is its pricing. Home sellers do not pay a commission to their sales agents, but instead pay a basic flat fee and choose additional add-on services.
In Ontario, for example, a seller pays $799 to list a home with Purplebricks, which includes advice from an agent on pricing, posting the MLS listing and providing a lawn sign. For a further $399, Purplebricks will manage inquiries and notify the owners by text about requests for showings and, for about $1,500 more, the company will also provide someone to handle negotiations with buyers.
In addition to the flat-fee amounts, a Purplebricks seller also normally pays the traditional commission to the buyer’s agent, which adds a cost that is not prominently explained on the company’s website and in its advertising. (In Canada, sellers traditionally pay the buyer’s commission as well.)
In Canada, standard home sales commissions often total 5 per cent, split 2.5 per cent each between the seller’s and buyer’s agents. If a Purplebricks seller still pays a 2.5-per-cent commission to the buyers’ agent, it can add significantly to the total cost.
Mr. Lhotsky, the company’s Canadian COO, said even with the buyer’s commission included, the total cost to a seller is still a significant discount to normal rates.
“The reality is that in the GTA, even row houses are still going for very significant amounts of money,” Mr. Lhotsky said. “Typically, our service costs less than the [HST] tax they’re going to pay on a real estate commission.”
For Purplebricks, the move to Canada is part of a global expansion that saw it open in Australia in 2016 and the United States in 2017. It came here last July with the $51-million purchase of Quebec-based real estate sales firm DuProprio, which operated under the name Comfree in other provinces.
DuProprio has an estimated 20-per-cent market share in Quebec, and Purplebricks has retained the name there. In the rest of Canada, however, the company rebranded the Comfree business as Purplebricks.
Despite the savings promise, the Purplebricks model has not been a slam dunk in other countries, and many are watching to see whether it will work better in Canada.
In Australia, analysts estimated the company spent 20-million Australian dollars (approximately $18.6-million) annually on advertising, but said consumers weren’t happy with the service they received, especially since other domestic firms were already offering a similar flat-fee commission structure with better execution.
Purplebricks also launched a review of its U.S. operation last month and curbed investment in that country.
Mr. Lhotsky said the Canadian company has different pricing models, including lower fees in Canada, and has the advantage of years of experience as Comfree before the Purplebricks purchase.
The Canadian company says it has focused first on smaller markets, and is only moving slowly into the more saturated and competitive Toronto region.
Purplebricks had 196 active sales listings in the GTA through the MLS system as of May 30, according to an analysis of brokerage firms’ market share by Toronto real estate agent Scott Ingram. In a region where 20,221 homes were listed for sale on that date, that’s less than 1-per-cent market share.
Over the past six months, Purplebricks sold 215 homes in the GTA, representing 0.6 per cent of the total 37,659 sales in the region, Mr. Ingram’s analysis shows.
Mr. Lhotsky said the company has more listings in centres such as Hamilton, Ottawa and Edmonton. He predicts Purplebricks will “easily” have 10,000 sales listings outside of Quebec this year, which is "not a negligible amount.” The Canadian Real Estate Association (CREA) has forecast about 450,000 home sales in Canada in 2019.
Mr. Ingram, a Century 21 real estate agent who tracks home-sales data, believes many sellers in his Toronto neighbourhood are still leery about the idea of cutting any corners with something as important as their home sale.
If an experienced agent charges more commission, but can help sellers sell quickly or generate a bidding war with strategic pricing and staging, he says he believes many people will decide it is not necessarily the more expensive option.
“I think it’s a bit of a get-what-you-pay-for thing,” he said.
The mid-range player
Tim and Jackie Samson knew several months ago that they wanted to list their house for sale in Toronto’s east end this spring, and started researching different real estate agents.
When they heard about new market entrant Redfin, they were attracted by the opportunity to get an experienced agent, but pay a discount fee. The couple are using Redfin agent Sean Starr, who moved to the company this year with 13 years of prior work.
Their house was listed at $700,000 a week ago and attracted an initial offer within days, although they were still negotiating this week. They are now shopping for a new house with the same agent.
Tim Samson, seen here outside his home in Toronto, used Redfin agent Sean Starr to sell his house.Christopher Katsarov/The Globe and Mail
“Some of those other ones I know have a flat fee, but you don’t get the full service," Mr. Samson said. "This was the middle ground.”
Toronto is Redfin’s first foray outside the U.S., with a small office opening in February. In April, the company opened its second Canadian office in Vancouver.
It was founded in 2006 in Seattle with a map-based home-searching tool, making it instantly popular for buyers scouting homes in a specific neighbourhood. It continues to promote its technology-focused service offerings.
The company offers to sell a home for a 1-per-cent sales commission, although the buyer’s agent is still typically paid the industry standard 2.5-per-cent commission. That means the commission often totals 3.5 per cent. (On a $700,000 home, that 1.5-per-cent saving on the traditional 5-per-cent commission can save a seller $10,500.)
Blair Anderson, a veteran real estate agent who heads Redfin’s Toronto office, says the company’s compensation model for agents is built on guaranteeing that clients are happy.
Agents working as Redfin employees do not receive a traditional sales commission – which is paid to the company – but instead typically earn a salary plus bonuses based on customer satisfaction surveys.
The structure is designed to ensure “the agents are very much attentive to making sure their client is well looked after,” Mr. Anderson said.
The business is still moving slowly – quite slowly – in Toronto. Since opening its doors in February, the Toronto office has sold four homes in the GTA, according to Mr. Ingram’s analysis. Redfin had two homes listed for sale in the GTA through the MLS system as of May 30.
“We don’t expect to come out of the gate here and blow the doors off in the first couple of months – we just focus on making each customer happy,” Mr. Anderson said. “Do I believe we’re going to make a significant impact? I do. I wouldn’t be here otherwise.”
In the U.S., Redfin also runs a popular portal that allows potential buyers to access sales listings, and offers a service that generates an estimate of what a home is worth by crunching data for comparable properties in the area.
Redfin has already launched Canada-wide listings for home shoppers, and says it will bring its price-estimator service to Canada later this year.
Mr. Soper, of Royal LePage, says he believes Redfin has better long-term odds of success with its marketing focus on customer satisfaction. He’s not confident companies can gain broad traction with a sales pitch that focuses primarily on cheaper service.
“It’s a hard business to break into for new real estate companies, particularly if they really push this ‘I’m cheap’ idea,” he said.
“That’s part of the reason I like Redfin. They’ve moved off that in the U.S., they don’t even talk about it. They talk about service levels, customer satisfaction surveys, the way they train their people. Whereas Purplebricks is all about price. I don’t think that’s a winning strategy.”
The battle ahead
The biggest challenge for these new entrants will be to draw Canadians away from the established agents who dominate the industry. It will not be easy.
Some of the best-known agents are high-profile fixtures in their communities, sponsoring charity events and children’s sports teams, while advertising heavily. Many Canadians write their weekly grocery lists on monogrammed notepads dropped into their mailboxes by agents, hang realtors’ calendars in their kitchens in January and pass their billboards on local buildings every day.
And CREA is running its own TV ads this spring to remind viewers why they need a good agent and warning that buying a house on your own is a risky proposition.
In its newest ad, a woeful buyer looks out his window at a smelly sewage-treatment plant he didn’t realize was close to his new condominium, while another complains about three years of non-stop construction on a new building next door.
Law professor Kerri Froc and her husband, André Loiselle, opted to use a traditional real estate agent when they listed their home recently.
Ms. Froc said their house in the Old Ottawa South neighbourhood is challenging because it is semi-detached and has no parking. She believes local agent Jake Prescott has a good strategy to position the property for sale.
“I really believe in paying people what they’re worth," she said. "My philosophy is when you’re wanting a professional, you’re paying them for their expertise.”
Mr. Prescott’s firm, she added, is deeply embedded in the region. “They’re all over the neighbourhood – they know that neighbourhood of Old Ottawa South very well, and they’re always contributing to the community.”
Competitors can break into this familiar network, of course. The new firms are already hiring experienced local agents, particularly those attracted by a team-based approach that lets them schedule to have evenings or weekends off work. While a tier of top-earning agents is unlikely to move to a Redfin or a Purplebricks, other experienced agents will opt for the better life balance and the stability of a regular salary.
If the service is strong enough, more Canadians will inevitably make the shift for a lower price as word-of-mouth recommendations spread.
One potential speed bump is that these new entrants did not pick a boom time to enter some of Canada’s largest markets, notably Toronto and Vancouver, which have seen slow sales in the past year – although Toronto has seen growth in the past two months. The slowdown could make some nervous sellers unwilling to take any chances on a potentially more difficult transaction.
However, Brooks Findlay, an experienced Vancouver real estate agent who recently opened Redfin’s office there, believes some sellers could be more inclined to seek savings in a weaker market where they can’t count on a soaring sale price.
Mr. Findlay is also confident that Redfin has carefully thought out its plan for success in Canada. For 12 years, the company has analyzed data and tweaked its technology offerings to meet U.S. consumers’ needs, he said, and it is approaching the Canadian expansion with the same diligence.
“We know that you prepare to go into a market place,” Mr. Findlay said. “Redfin spent a lot of time preparing for Canada.”
Janet McFarland