The Independent Real Estate Movement in Canada Is On
Ontario Real Estate is on the cusp of a major shift from the traditional franchise real estate model to hyper local independent brokerages. These independent companies are pushing the envelope for services offered to both their agents and their customers and changing the real estate landscape and customer experience.
Don’t believe me?
First, can we agree that generally what happens in the US market tends to come to Canada shortly thereafter? If you agree, continue reading… If you disagree and think Canada is special, we probably are not going to see eye to eye so save yourself some time and move on.
Let’s get started. If you take a look at the US market prior to 2008 traditional franchises comprised between 70-80% market share (depending on the market) with independents accounting for the rest. Post 2008 independents now make up over 51% of the market in the US beating out franchises. (according to National Association of Realtors NAR).
So, why the shift?
Well it’s quite simple, “if it ain’t broke don’t fix it”. Pre 2008 the real estate market was hot, sellers could sell their home fairly easily, and agents were making great money; there was no real reason to question the current model. Then 2008/2009 hit and the bottom fell out of the market. Sellers began to ask- “what are you actually going to do to sell my home?” Agents asked their brokers “What services am I actually paying for?” Enter Independent companies. While big franchises sat on the sidelines and waited for head office to sort through the chaos independent companies quickly adapted & adjusted to the changing environment providing answers and value to agents and their customers in uncertain times. These companies began to thrive.
The Canadian real estate market has been on one heck of a ride for 15+ years, however the market is shifting and we are already seeing signs of this in the Toronto and Vancouver markets. Consumers and agents will start asking those tough questions of their brokerage and the companies that can clearly communicate their value proposition will be the ones that win out.
This transition is spreading from the US market to Canada and generally first appears in the West and then works its way East. Want more proof? The largest real estate firms in British Columbia and Alberta are independent- our friends and LeadingRE affiliates Macdonald Realty based in Vancouver & CIR Realty based in Calgary.
We are even seeing this locally with the last 4 brokerages opening in Waterloo Region being independent firms.
The market is changing and millennials are in the driver’s seat. Millennials today don’t identify with traditional multinational franchise brands, they see these as their mom and dad’s real estate brokerage. Millennials prefer authentic experiences and customized services catered specifically to their lifestyle and needs. It’s no longer a one size fits all approach that the big box franchises have been peddling for years. As this demographic matures and develops more wealth they will shape the market for years to come. This is happening across other industries not just real estate. Look at the newest coffee shops, restaurants or the microbrewery scene in your community for evidence. Franchises and large corporate entities are struggling to connect with the local consumer in a meaningful way, and these independent companies are eagerly snapping up market share.
Over the years the traditional brokerage model has become broken. There has been downward pressure on commission splits which has reduced the amount of resources these companies can spend on marketing, training and tools for their agents. As a result many agents are not properly trained when they enter the industry, leading to complaints and litigation. This downward pressure on commission splits has made brokers margins razor thin and put them in a state of constant fear of a couple top agents walking out the door. (Basically their entire profit margin). So what do they do? They hire anyone with a license and heartbeat to insulate themselves from realtor attrition. They play the volume game instead of the value game.
There has also been a trend for brokerages to hire “part time” or “hobbyist” realtors who are not willing to devote the time and effort it takes to become a true professional in the industry. This again fosters poor behaviour, bad habits and errors which then takes the brokers time to deal with further depleting their already limited resources to provide proper tools and training to those full time realtors that are actually committed to their careers. It’s a vicious cycle but it’s no wonder the public is looking for a better way.
Years ago agents felt they needed the large franchise model to help them market properties through magazines, inter-company networks and having a strong brand behind them. But now with the online MLS, targeted internet marketing and social media platforms, many top agents have larger followings and more reach in local communities than the big box franchises making them wonder “what am I paying for?”
So what does the future of real estate look like?
We believe there will be a widening of the gap between low cost options and value driven indie (independent) brokerages leaving traditional franchises caught in the middle offering mediocre service at a premium price.
The companies that come out on the other side of this are the ones that can utilize tech to streamline the process and automate the mundane, train and educate their agents to be true local professionals and continue to engage the consumer in a meaningful way.
Indie brokerages are having success with this as they don’t have to pay expensive franchise fees to head office leaving more profit margin for the brokers and more resources to reinvest into their business to support their agents. Most indie brokerages are playing the value game over volume and this translates into a better consumer experience which in turn drives referral & repeat business. Brokers/owners are very hands on with indie brokerages not sun tanning in Florida or spending hours on the golf course. This creates a culture where owners are partners with their agents and they work diligently to ensure each agent is properly trained and acting in the most professional manner possible, after all they cannot absorb the media fallout of an unethical agent that some of the big franchises can.
These are exciting times for independents and we are excited to be at the cutting edge of this shift.