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Third of investors unprepared for buying process

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Canadian Realestate Magazine | 06 Nov 2014, 09:50 AM Agree 0
It is a cardinal sin for investors not to be prepared or knowledgeable about the home buying process, but new figures point out that a third (32 per cent) of first-time investors admit to just that.
  • | 06 Nov 2014, 02:02 PM Agree 1
    Two reasons.
    Number one: The other two thirds are real estate agents are very reluctant to share this information with UN-Real Estate Investors because knowledge is power and knowledgeable investors will soon be asking why they are paying double BUY and SELL SIDE full bore commissions when most of them they are doing their own BUY SIDE research.

    Number two: The institutional and constant drop-out rate of new Realtors is 70% the first year and 90% the second yea,r and 90% of these agents are part-time and Real Estate sales are not their main source of income.

    Conclusion: Investors have an 80% chance of dealing with a part-time licensee who is about to drop out of the business and has NONE...ZERO... practical knowledge of the complete BUY/SELL cycle.

    How to fix this: Complain vehemently to the provincial Real Estate councils that new licensed agents, like in any other profession, must have a Learners or Intern designation for the first year in practice so investors know who they are dealing with.

    Why that will never happen: The real estate industry is now in the business of producing fee-paying real estate agents and they induce these new agents to sign up for expensive two-year contracts with franchised offices by offering them the chance to win the real estate "DOUBLE ENDER" commission lotto, rather than actually teaching them Real Estate.

    Too bad. Real Estate used to be a respected profession. Now it's just a Ponzi Scheme of revolving door agents, with each new agent paying thousands in fees to get through the door before dropping out and being replaced.

    • Cullen D Simpson | 18 Nov 2014, 04:03 PM Agree 0
      Sorry to burst your bubble but I've been a real estate investor for 30 years and the most difficult part of that was trying to find a knowledgable, skilled, hardworking, trustworthy and respectful representative to best serve my needs ( the customer ). I decided to get my licence so now I only have myself to blame if I don't do the job I hired myself to do. My team of me, myself and I look out for each other to make sure we keep the customer happy. When I need a professional I know who to call. I could use LOL at this point but that would be not taking myself seriously.
    • Quality not Quantity needed | 19 Nov 2014, 06:23 PM Agree 0
      Re: Two reasons: percentages of part-time vs full time agents - it should be clarified that a number of full time agents are people who can afford not to have another job. That is, they are financially self-sufficient and it is not necessarily due to a successful real estate income. Many still live at home, women who are supported by husbands. Husbands supported by wives. Whatever the scenario. Although they may be "available" all day, they are not necessarily working at real estate all day or "full time". This is an important distinction.

      As most agents do not show up to an office to report to work (as most workers do), their time is flexible. Whatever their personal arrangements are, they are in a position not to "drop out" of real estate. Therefore, agents who are full time and in the industry for years - should not automatically be equated with possessing competent levels of knowledge. It is highly individual and varies.

      There are others who are sharp, bright but can't afford to stay in real estate until their commission cycles come to fruition. On average this can take about 2 years. They resort to other jobs to supplement their income. Their competency level is higher than many full timers but they can't invest the required time due to cost. Both situations are negative and not good for agents or consumers.

      Consumers should also be selective of which agent they chose to deal with. It doesn't take long to determine who is providing relevant answers to questions/guidance vs those who belong to the "I-don't-have-a-clue" school of thought or may give a Sarah Palinesque answer. Those who choose the latter do so at their own risk. The former group of agents are rare but do exist. Being in real estate full time, long term is not always a good measure.

    • Mike | 12 Jun 2015, 09:56 AM Agree 0

      "Number two: The institutional and constant drop-out rate of new Realtors is 70% the first year and 90% the second yea,r and 90% of these agents are part-time and Real Estate sales are not their main source of income."

      I'm curious to know where you obtained those statistics from?
  • Witness to incompetence | 10 Nov 2014, 04:13 PM Agree 0
    I work in an administrative capacity in real estate for several years. I am continuously shocked by the lack of knowledge of newer agents (licensed up to 4 years). Agents ask me how to do a comparative market analysis (wow!), another asks what a ravine property is, some do not know how to check what the specific schools are for an area. Worse, some agents do not understand how to determine the expiration date of conditions, when a waiver must be submitted, before the agreement becomes null and void.

    The number of offers I have read without all the proper clauses to protect buyers is also troublesome (submitted by agents from across TREB districts). In the sale of condos, the listing agent is often reminded to order the Status Certificate, something which should be done immediately after the agreement is signed.

    There is a lack of understanding of documents, procedure, proper wording, insufficient MLS listing info for clarity. Even getting the number of storeys a property has wrong (pretty basic). I've rolled my eyes so many times, they are permanently stuck in upwards mode. On what basis are such agents "advising" their clients on real estate matters?

    Fortunately there are a number of excellent, diligent agents but they are in the minority. Being licensed in real estate should not automatically be equated with being professional (a true misnomer when referring to sales reps, many with only a high school education).
    • Cullen D Simpson | 18 Nov 2014, 03:49 PM Agree 0
      So true.
  • Mortgage Guy Geoff | 11 Nov 2014, 05:48 PM Agree 1
    Of course the previous comments are indeed valid as we've all experienced Realtors who lack the desire and/or knowledge to perform their roles adequately for normal purchases let alone the unique characteristics of investment purchases. Having said that, the fault is not all theirs alone. The customers themselves are partially to blame for either getting into something without doing their own research and/or allowing the transaction to proceed without forcing the people acting on their behalf to sufficiently explain whats happening. If you don't slow it down enough to satisfy yourself that all is in order, as described in the article you run the risk of becoming a victim of incompetent or malicious operators. Some might suggest this is part of the investing ball game - get burned, learn, and move on better for it.

    Anyway, in an ideal world we would all be better operators no matter what part in the process we play. In reality though we can only control our own behavior and therefore we must take responsibility for protecting our own interests and not be too quick to blame everyone else if something goes wrong.
  • D M | 12 Nov 2014, 09:24 AM Agree 0
    No matter if real estate is in Canada or in the US, David Lichtenstein will still be king...
  • LuciePiazza | 13 Nov 2014, 12:58 PM Agree 0
    Many times investors (both new and somewhat experienced) will by an investment property without truly understanding what the numbers are of carrying the property.
    As an investor and commercial real estate agent (I started in residential), it shocks me how many residential agents are trying to work with investors and haven't a clue on how to evaluate an investment property for their clients.
    1. What is the expected ROI of their client?
    2. How long do they expect to own the property for? (This will be worked into the rate of return)
    3. How to calculate total ROI - Cash-on-cash, appreciation and mortgage pay down,call need to be calculated to understand whether a property meets a client's investment goals.

    All of this should be evaluated for the client before a listing is sent for review. If it isn't the agent is wasting the investors time, purely throwing *#^% up in the air, hoping the investor will buy.

    As an investor, expect more. Remember you are the client, and a good investment property takes time to find.

    Not sure where to start as an investor? Join a real estate investment group and find a commercial agent who is skilled in working with investors.
    There are great agents out there, with the skills needed and network required to find the right properties. Truth is, many of the good properties require an agent to uncover them vs. Just waiting for them to appear on MLS.
  • | 14 Nov 2014, 09:42 AM Agree 0
    Good Realtors are bred, not born. Anyone can get their license, so perhaps the first chink in the chain is the lack of education required to become one. Secondly, there needs to be a training and accountability phase. Doctors have residencies; mechanics, plumbers and electricians do apprenticeships. Once they have completed those phases, they start earning more $$. There should be a requirement for ALL new Realtors to have a mentoring/training period before they are unleashed on the general public. This needs to happen at both the Board and Brokerage level through education and practical training. By implementing a 6-12 month coaching/education program for new Realtors, it will not only set a higher standard for professionalism within the industry, it will weed out the herd those looking to make a quick buck. As a professional Realtor in a progressive brokerage, it's beyond frustrating to speak with new Realtors in offices with little to no support from their brokers. Our broker has adopted a training policy for all new Realtors (and seasoned ones wishing to update skills). It is a highly successful program - as a result - the "newbies" are confidently making strides in their profession under careful supervision.
  • Quality not Quantity needed | 17 Nov 2014, 03:51 PM Agree 0
    Some good points in the above comment re: "Good realtors are bred". Here is where there is a bit of an issue:

    Business model 1: Brokerages who charge high monthly desk fees (such as Re/Max) may invest in training as they earn large desk fee incomes. Business model 2: are ones that charge small monthly fees and take a percentage or flat fee of each sale the agent closes - the may or may not invest in sufficient training. Both models are playing a numbers game. In model 2 (the majority) brokerages are hesitant to invest in agents who pay little to be there, have little or no sales revenue earned for the office and may take their training and leave their brokerage. They are then faced with new agents and repeat the whole process.

    Many agents take all the necessary courses, do 2-year articling phase, pay for coaching classes etc and are just not sharp in handling the business aspect of real estate (even after several years). Others come into the industry with skills set from a previous sales background or business, they understand documents, calculations, legalities, communicate clearly etc. They treat the business like a business and they tend to succeed overall.

    I've met a "full time" agent who after being licensed for over two years, still couldn't differentiate between an email address and a website address - I kid you not. "Full time" in her case (and others) meant - unemployable in job market therefore defaulted to real estate, had the luxury of spouse/family cover her expenses, drives nice car. No solid skills or education to bring to the table. Real estate is filled with this type of agent, they are the ones sitting in training classes with vacant expressions, doing the open house circuit to gain "product information" - but they need to actually "implement" what they are taught in an effective manner to benefit consumers.

  • Cullen D Simpson | 18 Nov 2014, 04:13 PM Agree 0
    Quality not Quantity need. Love your analysis and it is bang on. The boards need to improve and get involved with the brokerages to set and maintain standards in their jurisdiction.
    • Quality not Quantity needed | 19 Nov 2014, 04:50 PM Agree 0
      Cullen: The problem is that most brokerages are allowing almost anyone with a real estate license to join their offices. Main culprit: monthly fees. e.g. Brokerages may charges $125 per month per agent. Multiple that by 300 agents - total: $37,500 per month in office revenue. Plus commission fees. The agent in turn gets office admin support etc. Re/Max averages about $800 per month in desk fee (double this amount if agent wants an office) with smaller commission percentage take. One exception are the higher end brokerages who screen their agents carefully before accepting them to join. They do say no to agents who are not a "proper fit".

      It's become a numbers game for brokerages. The quality of the agent is not necessarily in question as the agent is paying to be part of the office. Short of any legal issues, the brokerage tends to remain hands-off. Most of the training involves how to get leads, calls per day, improve website, social media, learning slick scripts, overcoming objections etc - whatever it takes to get the sales and bring in the commissions.

      It's NOT about education to assist consumers or help buyers with investment decision making. The majority of agents I've met can't even set up a simple spreadsheet analysis for their clients or do proper neighbourhood comparisons based on various factors.

      The continuing education offered by OREA/TREB/RECO cannot be taken seriously as attendance/participation is the main requirement to get course credits. No tests, no studying, no confirmation that anything was digested (besides free lunch). I've sat in so-called "training sessions" where half the class did not bring paper or pen or tablet with them (again I kid you not). Admittedly, the articling courses are demanding.

      The problem stems with OREA's licensing criterion: Evidence of high school diploma or equivalent to enter - that's it. $500-$600 for initial courses each. Many fail the courses and it becomes a fat cash cow. Others sign up and it continues as tens of thousands are licensed in the Greater Toronto Area alone. Actual knowledge level to provide the public with educated responses - low.

      No one is going to kill a $cash cow$ - which has become quite a holy cow at this stage. Standards suffer as a result . . . and so do consumers. But this issue must be addressed!
  • Freedom Malhotra, Condo Planet | 24 Nov 2014, 11:16 AM Agree 0
    It is always sad to hear about the incompetence of fellow Realtors. As a Realtor myself, I know there are thousands of agents in the GTA who have a licence but are only working on a part-time basis to make a fast buck. Irrespective of your profession, no one can become a competent professional working on a part-time basis. How would you feel if you found out your doctor or accountant was a part-timer?

    The real estate industry is not going to change. Brokerages are going to keep enticing people to join the industry under the premise that they will make the big bucks even though we know that most people leave the industry within a year or two of trying. There is huge turnover, but that is the way it is. The life insurance industry has the same business model. I cannot imagine this changing.

    Real estate investing is a business and it is the responsibility of investors to understand their business. Investors also need to properly interview their Realtor. They have to ask the right questions to satisfy themselves that they are indeed working with someone who is both knowledgeable and professional. I would ask whether your Realtor is an investor himself.

    Investors should avoid making emotional decisions. They need to be pragmatic by evaluating the numbers. Will the property break even, cash flow or go in the red? Your Realtor should be able to help you determine how quickly the property will be rented, and how quickly it will sell given today's market conditions. I strongly recommend Don Campbell's book entitled "Real Estate Investing in Canada" and my own FREE ebook entitled 15 TIPS FOR THE BEGINNER REAL ESTATE INVESTOR.
    • Quality not Quantity needed | 28 Nov 2014, 01:06 PM Agree 0
      Freedom M: Your points are right on. A fair amount of time is required by agents to do the proper support work re: pricing, potential rent, comparable analysis for each client.

      Recently, an agent (I strongly suspect part timer) called hours before an offer presentation deadline (stating he may submit an offer on behalf of his client). He asked basic questions. I asked him if he was aware that a pre-listing home inspection report was available by request on the 3-unit property. It was stated right on the MLS listing under Remarks for Brokerages. He said he did NOT know such a report was available - although the remarks are only 3 lines in length! It was a multiple offer situation and a certified deposit was also required with the offer. He had not advised his client of this arrangement. The blind leading the blind does not produce positive end results.

      No focus, no awareness, no method, completely unprepared, out of time and out of his depths to handle a $900,000 transaction.

      Such an agent should not be representing clients and clients should not be working with such an agent. But too many people do to their detriment as they are not taking the responsibility of properly selecting a competent agent to work with - and yes, that agent may not be their cousin/friend with a license.
  • Alan Hamid | 03 Dec 2014, 07:35 AM Agree 0
    I believe that there is a lack of structured approach in handling the whole complicated real estate transactions. Each brokerage needs to define there own structure or workflow of the process, using project management principle would definitely be helpful, and force it to be used by the agents, meaning you can not go into the next phase, again handle the transaction like a project management, unless you have the deliverable for the previous phase. And of course have a schedule for each deliverable and the person, assigned resource, responsible or be used to get it done.

    This was the client will not what will happen, when will it happen, and who is accountable for it. I think it will help to clear up some uncertainty and confusion that are associated with the complicated real estate transaction.

    • Quality not Quantity needed | 03 Dec 2014, 06:21 PM Agree 0
      Alan - an excellent idea encompassing a professional, educated approach. I have considered this before as well. But will brokerages and their management devote the time and oversight required for each agent? Agents work independently and are not accountable for their processes to anyone (within legalities), hence the substantial failure rate and incompetence displayed.

      As the industry is commission-centric, there is pressure to obtain listings or submit offers in the hope of securing a $sale. The process (if any) gets lost as agents are not financially compensated for time spent on any activity (however worthwhile) besides those that are bottom line driven.

      A project management approach makes very good sense, but the ongoing chase to sell clients unfortunately takes precedence over more measured accountability. This is the method used by large businesses who employee professional sales staff. The sales reps are vetted and must demonstrate they are capable of working within an established business framework before they are accepted. Their progress is measured via several metrics. In real estate, sales commission is what matters - with little regard to the handling of the entire process and how it impacts the consumer.

      As long as brokerages focus on sales training without the accompanying metrics, incompetence will continue. Planning, monitoring, control and execution at the level required may not be within the scope of many of the individuals who enter real estate - especially with sales training that includes the "importance" of hand written notes to prospects (inane) or attending broker-organized viewings of "The Secret" DVD re: positive thinking, laws of attraction (even more inane). Certainly nothing empirical based.

      The existing brokerage business model(s) and compensation are the problem (sorry folks - I don't mean to be a Debbie-Downer).

  • Larry - | 05 Dec 2014, 02:48 PM Agree 0
    We have allowed this profession to be degraded to the lowest fee for service. There is a fair price to pay for everything in this world but we continue to find ways to want to pay less and expect greater quality and service. We need to stop this madness. Do you go to your doctor/ dentist / lawyer and ask for their lowest price? I am reminded of a John Ruskin poem "There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only is this man's lawful prey"

    The current system does not serve most of the consumers, we need a make over! There will always be consumers and Realtor that will perform based on the lowest fee, that does not mean the rest of us (consumers & Realtors) have to accept their standards or lack off. Too many individuals think this profession this is an easy way to make money.
  • Cynthia Aasen | 08 Dec 2014, 08:35 PM Agree 0
    I'm a professional realtor and I have practiced for over 20 years in exclusively selling investment real estate. I not only represent investors I buy what I sell. Reading through most of the comments above it seems that from those that commented have had a poor experience. It's too bad but it brings up question that begs to be asked. What steps can the investor take to ensure the realtor they are working with has the knowledge, expertise and competency to help them buy/sell effectively?

  • Tracy Arnett | 18 Dec 2014, 07:45 AM Agree 0
    Being a small Broker I have found that it is the position of the Managing Broker to ensure the agents are fully trained and supervised when dealing with legal documents for the first year. Unfortunately, our industry attracts all walks of life and the larger brokerages with home alone programs have little or no control of their agents. We deal with agents incompetences on a regular basis however, 5% of the agents are doing 90% of the business and therefore, we are typically working with knowledgeable and experienced agents who are full time professional agents. We are a Board of over 3,000 agents and I am typically doing business with the same group of agents. My mother has been a realtor for 38 years and I have found growing up in the business and now spending the last 17 years as a realtor/ Broker we should be commended for our dedication and time spent dealing with other people's largest asset and changing life situations. I don't have a degree in psychology but I have been a listening board for many people along the way and have got them through the worst parts of their life with compassion and humour. I find Realtors get a bad rap as we are easy targets to the media but in reality in every profession there are great employees and not so great employees. Having spent my first 13 years of my career as a Public Servant I can honestly tell you there are not many great employees working in the government and that most of the work could be done by half the employees. I worked in a few locations where I was pulled in and asked to relax and not do so much work as it was making the other team members look bad!!!! Top doctors, lawyers, policeman, dentist, teachers and all other professions don't like incompetent co-workers but every profession has them. I am proud to be a Realtor/Broker and have one of the best Team run companies in Canada who are full time and all trained individuals. Maybe the old fashioned brokerages are the way of the future.
  • Really Now!! | 20 Jan 2015, 04:31 PM Agree 0
    Interesting how all the fingers are pointed away from the so-called investor. How about being judicious in selecting which realtor you decide to work with, and recognizing that an experienced professional and seasoned realtor does not come cheap? You get what you pay for, and in my experience most INVESTORS always look for the cheap (read: new, inexperienced, part-time realtor) just to save a few bucks on a cheap commission or money-back offer. Take responsibility and work with someone who is committed to their profession and takes pride in making sure their clients are well-informed and comfortable before signing on the dotted line!!!!
  • Robert Harrington | 21 Jan 2015, 09:11 PM Agree 0
    OK, after reading all these posts there seems to be a consensus that the industry is driven by the greed of the councils, real estate boards and offices to get bodies to buy licenses, useless real estate courses and pay fees, (HEY IT"S AMWAY:) as the real product of a real estate office is Realtors not real estate.

    I could go on asking embarrasing questions of the real estate industry like why some people are gifted Managing Broker, Strata or Condo Act and Rental Licenses without cracking open a book as cronyism is rife in this oligarchy of real estate, why do real estate councils shill for the Realtor Brand Agency and allow CREA to set policy to undermine the Mere Postings options in Canada ...and PLEASE no more references to realtors being professionals like Doctors and Lawyers.

    If 90% of Doctors and Lawyers were incompetent like Realtors...and this is NOT the Realtor's fault as thay have been sold a bill of tainted goods by Real Eatate Councils, we would quickly change the system.

    Unlike Doctors and lawyers, our so called "Professional" Realtors cannot handle money, cannot measure anything and cannot even give a recommendation on the condition of a property.

    So one way to fix the system is to ignore it and use new virtual real estate agent technology coming our way fast, and as for all those other jobs...(JOBS not professions, JOBS) ...sellers make their own "approximate" measurements, the home inspectors already report on the condition of the property and the legal reps handle the money.

    So Realtors will soon be thinking of earning commissions legally as NON realtors by simply representing clients as customers... ( A note reading "I am not your agent by deed or conduct." works just fine)... and being paid directly from the seller. Doing this allows them to finally relax, make some money and not pay anymore ridiculus fees for going to work.

    Oh The MLS (Monoply Listing Service)...Wake up and smell the coffee ....Your not a monopoly anymore CREA and Craigslist gets more hits.

    Google works just fine for most and reports show you have lost 50% of your market in Quebec and losing market share fast in other juristictions.
    Oh please close the door quietly as you exit the residential real estate market.

  • Daniel Arsenault | 26 Feb 2015, 01:53 PM Agree 0
    It is important to note that in the Quebec marketplace if the purchase transaction is not closed or notarized (Lawyer) the deposit is returned to the buyer.
  • Warren | 08 Sep 2016, 02:47 PM Agree 0
    I sold a house not using a realtor. Was nervous but the real estate lawyer made sure all was well. I have really never understood the point of realtors except to avoid the inconvenience of showing the home. After reading the article and the comments seems would be safer to invest a small percent of the commission to educating myself and doing it myself. Using a lawyer for offers and closing. If I have to spend the time researching the competence (or caring) of an agent might as well spend the time researching and educating myself.
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