Bits & Bytes: Lawyers challenged by the changing face of real estate

There have been grumblings about real estate commissions for years. With housing prices continuing to grow along with the real estate agent’s average commission of five per cent of the sale price, the real estate industry has seen significant changes.

Selling your house privately isn’t new, but with new online services, it’s now much easier to do it.

Many do-it-yourself real estate sites now provide a range of services, including a for-sale sign, photos posted online, market research, advertising exposure, and legal assistance in the form of a worksheet purchase and sale agreement.

Here are a few examples of web sites and a bit about them:

— ComFree, currently the most popular service in Canada.  

— GardenBook, a web site currently focused on the Ottawa area. It offers a basic free listing for sellers who want to increase their reach to homebuyers.

— Grape Vine, a market leader among sale-by-owner web sites in the Ottawa region. In minutes, you can get your property listed on their site.

— PropertyGuys, another sale-by-owner marketing service. It has more than 110 offices across Canada.

The hurdles and disadvantages of selling a house online have slowly declined through a series of challenges by the Competition Bureau against the real estate industry.

The latest challenge against the Toronto Real Estate Board is a lawsuit that argues that the board prevents brokers from sharing information with their customers online. Previously, the dispute was over the restricted access to the Toronto Multiple Listing Service, a database of house listings and the source of 90 per cent of home sales.

The result of that dispute is that home sellers can now pay a flat fee to have their home listed on the MLS. The decision hasn’t resulted in a floodgate of private-seller listings on the MLS because very few brokers are allowing their agents to only list a house.

Nevertheless, these decisions are making it easier and more appealing for people to sell their homes on their own, and there are countless web sites that have stepped in to assist. Jennifer Ahde, an Ottawa real estate lawyer, confirms that private sales are a growing trend she has seen in her practice; however, the majority of house sales still involve agents.

It’s notable that these web sites are creating some competition in the real estate market and that, as a result, some agents are offering their services for lower commission rates or for a fixed fee.

One web site advertises realtor-assisted private sale for one per cent of full service. Another example of a flat-fee service by real estate agents is equityone.ca. The Equity One web site advertises a flat-fee MLS service and broker-assisted sale.

For the flat-fee service, you could expect to spend $295 and for the broker-assisted sale, it will charge just 0.5 per cent on closing.

These new offerings by real estate agents are bound to be popular. They present a competitive alternative to the for-sale-by-owner web sites but with the advantages of having a real estate agent. Real estate agents can provide a valuable service as they understand the housing market and they can guide you through the process.

They can assist in arranging mortgages and home inspections. In addition, they have standard purchase and sale agreements and understand some of the pitfalls to avoid.

I’m curious to find out what the premium will be for this service. Consider that, as part of their job, real estate agents face potential liability. They can be liable for misstatements in listings and for mistakes in purchase and sale agreements. Who’s liable for mistakes under the for-sale-by-owner model?

As real estate agents find their feet in this new reality, so will lawyers. Consider LawPRO’s article from 2010 on real estate claim trends. It found that over the last 10 years, real estate-related claims averaged 29 per cent of LawPRO’s claims count and 30 per cent of all claims costs.

The top three most common errors were lawyer/client communication failures, inadequate discovery of facts or investigation, and failure to know or properly apply the law.

The problem is that with people selling their house without an agent, there’s a real possibility that the amount of insurance claims could increase.

A key reason is that clients are asking lawyers to do the impossible: prepare a purchase and sale agreement without seeing the house and at the lowest price possible. For example, one web site advertises purchase and sale agreements for $60.

Also, private sellers often seek out a lawyer with very little in the terms of a negotiation. They may have just settled on a price on the back of a napkin but still haven’t canvassed many issues that go into the sale of a house.

For example, Ahde notes purchasers or sellers may not understand the difference between chattels and fixtures.
Will these people then come to lawyers and expect them to fill in the blanks? What will be the lawyer’s duty or liability in this case?

Furthermore, how can lawyers adequately advise their clients and judge the terms of the purchase and sale agreement without seeing the property?

There are options, however, such as Lawyers Web Property Shop Ltd. This site allows individuals to sell their own real estate but with the assistance of a lawyer who provides legal work and advice.

Property Shop provides the assurance of someone qualified in the law and experienced in negotiations, assistance with the sale of the home, and help in drafting a solid purchase and sale agreement.

Property Shop offers an interesting and innovative model. It also addresses the desire among some lawyers practising on their own to branch into other areas outside of the law.

While running in the last Law Society of Upper Canada bencher election, I had some interesting conversations with lawyers. Some practitioners outside of Toronto talked about challenges in maintaining a practice because people couldn’t afford their services.

As a result, they were already branching outside of the law. By allowing lawyers to bridge the gap and act in different creative capacities, there may be ways to address the gap in access to legal service in these regions.

The landscape for real estate lawyers is changing. A series of actions by the Competition Bureau, increasing housing prices, and innovations in marketing and advertising are changing the business of how we buy and sell our homes.

It’s unclear whether the trend will continue. Some believe that if the real estate market cools, there will be more incentives to use a real estate agent because of all of the work that will be necessary in order to sell a house. However, until that happens, more people will likely try to sell their own house.

This is one of those times where the practice of law will change along with technological advancements and innovative business models.

Monica Goyal is founder of My Legal Briefcase. She’s available on Twitter at twitter.com/monica_mlb.

Free newsletter

Our newsletter is FREE and keeps you up to date on all the developments in the Ontario legal community. Please enter your email address below to subscribe.

Recent articles & video

Upcoming FACL conference focused on AI’s impact on profession, advancing careers of Asian lawyers

Legal Innovation Zone launches program to help legal tech entrepreneurs turn ideas into businesses

Law Foundation of Ontario forms strategic partnership with Indigenous Peoples Resilience Fund

Ontario Superior Court upholds the College of Physiotherapists’s authority over billing inaccuracies

Housing supply needs more public-private collaboration, less red tape, say lawyers

Judicial vacancies holding up construction litigation: litigators

Most Read Articles

Ontario Court of Appeal upholds dismissal of statute-barred personal injury claim

Judicial vacancies holding up construction litigation: litigators

Ontario Court of Appeal resolves access rights between parents and maternal grandparents

With new federal funding Pro Bono Ontario expanding program for Ukrainian nationals across Canada