Does Property TV Lead to Greater Market Volatility?
The romanticization of the real estate profession could lead to amplified market volatility.
There are anecdotes circulating about how the popularization of real estate in TV shows like Property Brothers, Love it or List It, House Hunters, and Selling Sunset has led to a dramatic increase in the number of licensed real estate agents.
This higher concentration of agents chasing the same number of transactions, or fewer given current market conditions, leads to bigger price swings and boom-bust cycles.
This article will unwrap the story and see if it is an urban myth or the industry’s best-kept secret.
Here’s a high-level overview of the theory:
Property TV is ever more popular and has raised awareness of Realtors as a profession.
Many Canadians, lured by the idea that real estate agents make a lot of money for minimal effort, have been licensed as real estate agents, leading to more agents chasing a limited pool of potential commissions and greater competition.
Due to how agent commissions are calculated, some agents exhibit behavioural biases that result in higher prices in hot markets and lower prices in slow markets.
The Rise of Property Television
The popularity of real estate and property shows on Canadian TV, and HGTV has exploded in recent years. Canadians are increasingly interested in home improvement, renovation, and real estate investing. Shows like "Property Brothers" have become cultural phenomena, captivating audiences with engaging storytelling and expert advice. The Scott brothers, Drew and Jonathan, have built a massive following in Canada and the United States with their hit show "Property Brothers" and its spin-offs "Property Brothers: Buying & Selling" and "Property Brothers: Forever Home". HGTV Canada has also expanded its real estate programming with shows like "Income Property" and "Love It or List It," catering to the diverse interests of Canadian viewers. The growing popularity of real estate shows reflects a shift in Canadian culture, with more people viewing homeownership and renovation as a source of entertainment and inspiration.
To understand when this phenomenon began, we’ve looked at the search term 'Property Brothers’ in Google Trends.
Canadians Switch to Real Estate Careers
The soaring popularity of real estate shows on Canadian television has undoubtedly influenced a generation of young Canadians to pursue careers in the industry. The glamorous portrayal of real estate agents and the excitement of property transactions and renovation projects have made the profession seem both lucrative and fulfilling. As a result, many aspiring professionals have abandoned traditional career paths in favour of real estate brokerage. The allure of flexible hours, the potential for high earnings, and the opportunity to work with a diverse range of clients has drawn countless individuals into the field. The impact of real estate shows has been particularly evident in the increased number of people entering real estate agencies across Canada.
However, Canada’s population has grown so much – shouldn’t that mean we need more real estate agents to maintain the same service levels?
On a per capita basis, the number of people employed in real estate has stayed roughly the same, and the share of Canadians entering the real estate industry hasn’t changed much. If anything, property television has helped the industry maintain its allure.
Where Does the ‘More Realtors’ Myth Come From?
More likely, the myth of people clamouring into real estate careers is the result of media exposure and the fact that competition has heated for listings and buyers.
Big markets like Toronto and Vancouver have slowed dramatically since 2021. The same number of professionals are chasing fewer transactions, and agents only get paid when a purchase is successful.
Let’s call the situation an ‘oversupply of agents’ for the current level of market activity.
Perhaps the market has returned to more long-term sustainable activity levels, but real estate agents have become accustomed to higher earnings.
The Root Cause of Agent Distrust
If the market has shrunk compared to the ten-year average (i.e., there have been fewer completed transactions), then total market commissions are shrinking.
In basic math, a real estate agent's compensation is calculated as follows:
# of transactions x property price x commission rate = commission dollars
As a result, they have some tactics at their disposal to increase their income in a slow market:
Win a bigger share of transactions (i.e., signed listings from sellers or signed buyers) than other agents. Head-to-head marketing competition against other agents to capture a large share of a shrinking pool of clients.
Push existing seller clients to accept a lower price to reach a successful offer faster and free up time to win more transactions. If you can halve the time it takes to complete a transaction, you can potentially double your transactions and commissions.
Convince your seller to hold out for a higher price, even if the total time to sell takes longer. In practice, in a larger market, there are many comparable property listings nearby, so you can’t expect to sell for much more than other homes like yours.
Negotiate lower commissions to win more listings. Mathematically, it might work, but a realtor doesn't have much room to negotiate their commission below the industry standard. This is because the commission is split between the buyer and seller agents, and buyer agents have been known to steer their clients away from low-commission listings. Even the risk of getting less buyer interest is often enough to ensure a seller doesn’t try to negotiate the commission.
Since buyers and sellers know that agent compensation isn’t completely aligned with their interests, it creates a cloud of distrust.
Investment managers in Canada used to charge buy/sell transaction commissions or receive up-front and trailer fees from mutual fund companies. As an industry, they faced scrutiny because the compensation structure was not aligned with the clieclient'serests. Ultimately, they switched to management fees. A ½ to 2 percent annual fee based on the investment portfolio's value. This fee is negotiated at the beginning of your client-adviser relationship to pay for managing the investment portfolio.
What the Research Says
We’ve done some digging, and certain aspects of market behaviour and real estate dynamics might provide insights that touch upon this topic:
Multiple Bidders and Auctions Lead to Higher Agreed Prices
In hot markets, multiple bidders are more likely. Whether it is an orchestrated auction or simply multiple bidders, studies have shown that when several buyers compete for a single property, they typically offer and pay more.
One-to-one Negotiation Leads to Lower Agreed Prices
When there is only one bidder, or the seller negotiates with only one offer, there tends to be more downward pressure on the price, as the two parties typically try to close the gap between the initial offer and the list price.
An oversupply of agents might potentially incentivise manipulative practices, such as pushing buyers or sellers toward particular price points to expedite transactions and earn commissions faster. This might be more of a concern with inexperienced agents or those more focused on transactional volume rather than long-term relationships.
Dual Agency Leads to a Faster Deal
Studies have examined how real estate agent behaviour impacts pricing. However, these tend to focus on individual agent practices, like dual agency (representing both buyer and seller) or agents deliberately setting list prices to influence quicker sales.
Studies find that houses sold via dual agency sell at about the same agreed purchase price as similar houses sold in cross-agency transactions, but they sell about seven percent faster.
The studies found dual agency sales typically had higher listing prices than non-dual agency sales. Nevertheless, these homes typically sold at a discount to the list price and for a similar final negotiated price as non-dual agency sales.
Unethical Agents Do the Darndest Things
There is no conclusive research that directly ties property market conditions to unethical price manipulation, nor can we find research on whether unethical practices are more or less common in property markets.
We have periodic headlines when an unethical agent gets caught.
Two Quebec real estate brokers suspended for using fake bids to drive up prices.
Three B.C. real estate agents to pay combined penalties of $73K.
Unfortunately, every industry fights unethical business practices, and this is no different. Perhaps the industry is more prone to unethical behaviour because it is driven by commissions. We don’t have any conclusive evidence to support that theory.
Another Possibility is Seller Bias
A study in Denmark showed that sellers in down markets consistently display loss aversion and anchor to their original purchase price. In cases where market prices have dropped below the owneowner'sginal purchase price, homeowners still try to list their home at or above their purchase price.
Even though their home is not worth what they originally paid for it in the current market, they try to avoid selling it for less than they bought it. As a result, it sits on the market unsold until they reduce it to a price that buyers are willing to pay.
It is possible that owners suspect agent bias when the real estate agent tells them the home should be listed for less than what they ‘fee’’ it’is worth.
It is also possible that agents have become accustomed to years when homes sold in under a month, and they are too quick to suggest price reductions in a slow market.
The Truth
There are many factors in the market, and isolating any one variable is difficult. There is no definitive answer however, here are some truths:
Over time, we have had roughly the same ratio of real estate agents for the Canadian population.
Property market transaction activity fluctuates. In some years, agents receive a windfall; in others, they can feel financial pressure. Currently, the market is slow.
Agent commission structures are not aligned to seller/buyer interests, they have incentives to transact quickly and at the highest possible price.
Given these truths, a seller should consider paying for an independent appraisal to help set their list price and always get a second opinion. Just keep in mind that the agent providing the second opinion might quote a value intended to win them the listing and not necessarily the sale price you were hoping for – you guessed right, it’sit's incentive to win more transactions.
