Realtors offer cash rebates to woo do-it-yourself homebuyers

The role of realtors is changing, as Canadians are no longer relying on them to find the right homes.

High-tech real estate websites are now empowering consumers to shop for their dream homes on their own.

As the internet transforms their industry, where does the real estate agent fit in?

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A new breed of realtors say they’re often not needed until the home stretch. So they’re offering clients a cut to their commission that can amount to a rebate of thousands of dollars.

It's a perk that's sometimes frowned upon in an industry that clings to tradition. Some agents say a rebate offer raises a red flag — a sign of a substandard realtor who can’t drum up enough business.

Home buyers on the hunt

Eric Rouah likes to peruse the real estate site TheRedPin.com, where, for no cost, he can wander a virtual Toronto, searching for properties for sale. The investor owns multiple condos and is hunting for more.

He likes the fact the site lists pre-construction condo projects in intricate detail, something not offered on the standard Canadian Real Estate Association site realtor.ca.

"What kind of amenities do they have, any schools in the area, when's it going to be done, who's the builder? There's a lot of information," he says.

But Rouah has still hired a RedPin agent because he needs someone to seal the deal: "That's really what I think I'm sort of paying them for, facilitating that whole transaction aspect."

Cash back

When Rouah does buy a property, his agent will give him a rebate: 15 per cent of the agent’s 2.5 per cent commission that’s paid by the seller. Rouah says it’s a fair deal considering the process is a "combined effort."

TheRedPin.com offers the 15 per cent rebate to all home buyers, acknowledging that many will do a share of the work themselves.

"Traditionally agents were the gatekeepers," says the company’s co-founder Rokham Fard. He says when it came to finding out details about properties and neighbourhoods, "they had the key to the lock box."

But now, he points out, most Canadians start their own research online.

"They can filter through all the facts until they’re ready to take the next steps, which is usually going to see the home." He adds, "They're obviously taking some of the burden off us."

Even more cash back

Real estate agent Dan Chan is offering an even bigger cut. The Toronto agent has just launched a new real estate business, CommissionMadeFair.com. He is offering homebuyers up to 80 per cent of his 2.5 per cent commission. 

Chan bases his rebate on how many homes his client visits. If he only has to show one property, his client will get 80 per cent of his commission. For every home showing after that, he reduces the cut to his commission. After 20 properties, adds the realtor, "I feel like I deserve the full commission."

Chan recently gave a client a $10,000 rebate because the first home they visited together turned out to be the one.

"I will work with a buyer at any stage of the process, but if you're further along, then it just makes my job easier," says Chan.

The rebate controversy

While home buyers may be keen on cash back, rebates have been met resistance from the traditional real estate industry. In the United States, 10 states currently ban the practice.

The list was once longer, but the U.S. Justice Department has won a handful of battles to repeal the ban in other states. The department argues on its website that “rebate bans artificially inflate the cost of real estate services” and “prohibit brokers from competing on price.”

In Canada, most agents are free to give cash back. But some would never consider it. Toronto realtor Andrew la Fleur says an agent offering rebates is a warning sign you’re not dealing with the cream of the crop.

"You’re dealing with somebody who can’t compete at the same level as a top producer," he says. "So what do they do? They say, 'Well, come to me and I’ll give it to you for a lower price.'" He adds, "You’re not going to get the best result at the end of the day in most cases."

Get used to it?

But Chan says he's not competing with traditional agents. Instead, he’s offering an alternative service to a particular client: "Clients who are empowered to have made their own decisions about where they want to live."

And he says as technology advances and more real estate information becomes available online, it will be even more important for agents to offer cash incentives like rebates.

Fard with TheRedPin.com, agrees. "I don’t think realtors will go away. That’s sometimes a fear to some people. But I feel [their] role has to change."

He believes agents should focus on skills that will still be needed in the internet age: negotiating price and sealing the deal. "Will technology shine when it comes to negotiation? No it doesn’t . [It’s] something technology hasn’t been able to replace."

At least not yet.