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Whitehorse, YK / Canada – November 27, 2016: Welcome to Whitehorse Sign
A couple of weeks ago, I had the opportunity to spend a few days in Whitehorse visiting with friends, fishing, exploring and generally just re-acquainting myself with the city and surrounding area. I had a wonderful time, and while there I had a chance to do some digging into a question that has been puzzling me for a decade – why don’t REALTORS® in Whitehorse offer representation to home buyers?
In Whitehorse, a Realtor will work “with” a home buyer, but they will not work “for” them. They are not allowed to advocate in buyers’ best interests. And I’m not just talking about the listing agents, I mean all the other Realtors who work with buyers every day, showing them properties listed by others and helping buyers submit offers. Some readers are scratching their heads right now and thinking – “but I just recently worked with a buyer’s agent who was looking out for my best interests.” Unfortunately that’s not the case. You may have worked with a Realtor, and you may have thought they were representing you, but in fact, they were contractually bound to look out for the best interests of the home seller.
When one Whitehorse Realtor obtains a contract to list a home for sale, that contract binds every other member of the Yukon Real Estate Association to a relationship with the home seller, called “seller sub-agency.” It’s kind of like buying a car from a dealership. The dealership owner is like the listing agent, and the salespeople who assist buyers are the seller sub-agents. They may work with buyers, but they work for the dealership owner and, above him or her, for the car manufacturer. That’s pretty much how buying real estate works in Whitehorse, except it’s far more confusing because the Realtors work for different brokerages, so it’s not obvious to buyers that they are unrepresented.
In a country where real estate markets are so hot that our federal political parties recently chose to target Realtor practices in their election platforms, it’s amazing that there are still places where buyers don’t have access to professional representation when making the biggest financial commitments of their lives.
Imagine the following scenario: an appealing turn-key home is listed for sale at a reasonable price, it attracts ten offers from ten buyers working with ten different Realtors – and every one of the Realtors is obligated to look out for the seller’s best interests. It is their duty to try and get the buyers to pay as much as possible for the home. And they are professional salespeople, so they are very good at it. And some of the buyers probably don’t understand that their Realtors are not looking out for their best interests, because as far as they know, buying a home in Whitehorse is no different than buying a home in any other Canadian city. That’s a scenario that I’m fairly certain plays out in Whitehorse regularly, and it undoubtedly results in many buyers offering more for the home that they would have had they had their own representation. And the same is true of a listing that attracts only a single offer.
I think the reason seller sub-agency hasn’t attracted attention from regulators and politicians is that it’s so rare. It ceased to exist in most of the country in the 1990s. There are a few places left where real estate boards have prevented their members from switching to buyer agency. I know this very well, because until a decade ago, Yellowknife was one of those places.
While I was in Whitehorse I sat down with a Realtor to discuss the city’s lack of buyer agency and his explanation reminded me a lot of the responses I received from Yellowknife Realtors when I got into the business a decade ago – “It’s just not something we’ve ever done here.” In Yellowknife this explanation usually had a second part – “and, by the way, they don’t do buyer agency in Whitehorse either.” But if a Whitehorse Realtor were to dig beneath the surface, I’m sure they would find more substantial reasons, just as I did.
When I first tried to offer buyer agency in Yellowknife, I ran into a hard, cold reality – I was free to go ahead an offer the service, I just couldn’t get paid for it. The standard listing contracts used by members of the Yellowknife Real Estate Board excluded buyer’s agents from sharing in commissions. Realtors were welcome to a piece of the commissions as long as they they worked as seller sub-agents, but not as buyer’s agents. And, because the listing service contract was a standard form, the terms could not simply be changed by a single Realtor or brokerage to allow for buyer agent compensation.
I brought the issue to my real estate board, and, to put it lightly, they had no interest in making it easier for me to work as a buyer agent. Fortunately for me it turned out that our forms were not actually standard (they were not enshrined in our bylaws and regulations), so it was a pretty simple matter to just change them and begin practicing buyer agency. Ten years later, two of the three brokerages in Yellowknife now offer buyer agency as their default relationship with buyers.
I imagine that the Whitehorse forms are actual standard forms, and therefore they would be harder to change, so introducing buyer agency might take a bit more work. In the best case scenario, a Realtor would just have to lobby members of the Yukon Real Estate Association and have the forms, bylaws and regulations amended. In this day and age I can’t imagine a majority of association members standing in the way of such an important service offering. But that said, it helps to have a plan B. In this case, plan B would be to invite the Competition Bureau to explain to the other association members why trade associations are not supposed to use rules to, among other things, establish prices, mandate levels or types of services, restrict advertising, or exclude viable competitors from the market.
There is no doubt that introducing buyer agency changes things in a market, both for consumers and for Realtors. Listing agents, knowing that listing prices would now be more closely scrutinized by professionals who aren’t all on the seller’s side, would be a bit less ambitious with their pricing. And negotiations would become, well, actual negotiations. In a flat market this might result in a slight dip in average home prices. In a hot market, it would more likely just act as a restraint on runaway prices. But after a brief correction, prices would resume their trajectory.
For some Realtors, the change would be more long lasting. When buyer agency is kept out of a market, Realtors are more easily able to “double-end” on transactions. This means they are able to keep 100% of the commissions (both “ends”) rather than splitting them with another Realtor. The reason for this is pretty simple – if no Realtor in town is allowed to offer buyer agency, then a buyer may as well just forego the “assistance” of a seller sub-agent, complete the deal through the listing agent and allow the listing agent to keep all the commissions. Seller sub-agents won’t fight for a better deal for buyers, so why would a buyer bother using one? But buyer agency turns this logic on its ear. If every Realtor in town besides the listing agent (who is in a conflict of interests) can represent a buyer, then why on earth would anyone ever buy a home through the listing agent?
So, Realtors who do a lot of double-ending would end up having to complete more transactions to maintain the same levels of commission revenue. And, in my experience, this is the number one reason why veteran Realtors who cut their teeth in the hay day of seller sub-agency resist the introduction of buyer agency. It makes their jobs harder.
There is one other problem that the introduction of buyer agency would solve. My colleague in Whitehorse agreed that buyer agency would be beneficial, and he explained that it would also legitimize the practices of some local Realtors. I didn’t dig into this too much, but I think what he meant was that, although all Realtors in town are supposed to be advocating solely in the best interests of the seller, some of them ignore this duty on occasion and offer their buyer customers advice that is not in the seller’s best interests. I understand why some of them would be compelled to do this. When we take our licensing courses, we all learn about buyer agency and we understand the benefits. We also understand the mistakes that can sometimes be made by over-eager buyers. And since it’s very unlikely that the seller will ever find out, it might be very tempting to assist the buyer a little bit, preventing them from making a huge mistake. I can certainly sympathize, but it’s a breach of contract.
Far better to have an open conversation with the real estate board about the glaring gap in services, and formally open the door to buyer agency. In the long run, even home sellers would benefit.
Post-script: I should point out that buyer agency is not really possible in very small markets where there may only be one or two professional Realtors. And there are some other situations where buying through the listing agent can make sense. But in the vast majority of situations, when the option of buyer agency is available, buyers are far better off availing themselves of it.
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