Buyers Seek Value with Cashback Realtors in a Stagnant Toronto Housing Market
It’s a buyers’ market in Toronto, and that’s led more homebuyers to seek realtors willing to offer them a cut of their commission in exchange for their business.
Cashback realtors are agents who return a portion of their commission to the buyer after a home purchase. In Ontario, the standard agent commission is about 5 per cent, which is evenly split between the seller’s and buyer’s agents and built into the final purchase price of the home. Cashback realtors offer a portion of their 2.5 per cent back to the buyer.
Hussain Lakhani said he’s seen a drastic increase in buyers looking to hire cashback realtors over the last year. The veteran realtor has been in the industry for 14 years, offering cashback for the last seven, saying he “wanted to make buying a home a little more affordable.”
Of his 2.5 per cent commission, Lakhani keeps 0.75 per cent and gives the remaining 1.75 per cent back to the buyer. That means if a property sells for $1 million, Lakhani keeps $7,500 while returning the rest of his $25,000 commission to the buyer.
“I’m not against anyone who is keeping that (full commission),” he said. “Everybody has a different way of working, however, I believe that giving this back to my clients is the right thing to do.”
While the practice is not new, the practice is gaining momentum as Toronto home sales continue to lag.
The GTA’s real estate market has been on a downward spiral since 2022, with sales hitting a 25-year low last year. With more realtors than clients, vying for business has become increasingly difficult, so offering cashback can garner more business. The pandemic also eroded housing affordability, making barriers to entry even greater for buyers.
But in the last year, as prices have come down since the February 2022 peak, more first-time homebuyers are back in the market, with Toronto’s condo affordability improving over Montreal’s, and more single-family homes in the GTA cropping up at $1 million or less. Any option to save more on the transaction is an attractive offer.
Shahar Klugman, a 14-year real estate agent, has been with cashback real estate company Justo for four years. He said the brokerage was one of the first to “put it out there in capital letters that we are giving you cash back,” adding other realtors would offer it, but wouldn’t advertise it.
“Back in the day, realtors wouldn’t advertise it because it made them look cheap, ‘I’m probably not the best agent because I’m not asking for the best commission,’” he said.
But now that consumers have access to more real estate data, are more knowledgeable about the market and face mounting affordability challenges, getting money back in their pocket at the end of the day counts for a lot, he added.
Klugman has seen growth in the space, as buyer demand comes back, with a resurgence in entry-level buyers looking into condos and condo townhouses wanting cashback realtors.
In 2022, Rishard Rameez founded GTA-based Zown, a cashback real estate company, after selling his home and paying 5 per cent commission totalling $60,000. He vented on Reddit about the experience, and said the post got a lot of attention.
“That’s when I realized this is not just me complaining about a single experience. There’s a lot more Canadians that are equally or even more frustrated about what’s going on,” Rameez said.
The company now has around 40 real estate, engineering, marketing and sales employees, he added.
Zown gives back half the agent’s commission as upfront cash to the buyer before closing, so they can use it toward their closing cost or other costs associated with the purchase. For their seller clients, Zown doesn’t don’t offer cashback, but reduces commission fees by 1 per cent, Rameez said.
“Because of the demand, we also see a lot more realtors starting to offer this as a service,” he said. “We charge a 1 per cent flat fee. We’ve seen a ton of other competition come on board as well, which is good, we want that to happen.”
Competition for buyers heats up as market cools
When the market is down, or slow, it makes sense to compete for buyers, said Thomas Davidoff, associate professor at the University of British Columbia’s Sauder School of Business.
“There has always been competition for buyers, but you probably had a lot of realtors enter the market in a hot market and so the ratio of realtor to clients is probably particularly high now,” Davidoff said.
Generally, reducing real estate fees is a “good thing,” he added, but it can be difficult to skirt industry norms because people tend to make more money if there’s a standard commission.
The Real Estate Council of Ontario (RECO) said as the regulator it would be “inappropriate” to comment on the benefit or drawbacks for specific business models but said that under real estate legislation, real estate agents and brokerages are permitted to offer a commission rebate or cashback to a client, “provided that the terms are clear, and properly disclosed in writing, often within the representation agreement between the consumer and the brokerage,” Tess Lin, RECO’s director, communications and stakeholder relations, said in a statement.
“RECO recommends that consumers review any agreements carefully with a legal professional before signing,” she added.
This article was first reported by The Star
