It is hard to overstate the real estate industry's animosity towards veteran Stephen Moranis.
Agents openly malign him and his efforts to sell consumers on discounted commission service through his three-year-old company Realtysellers (Ontario) Ltd. They dismiss his business concept as a well-proven failure. Even with a recent settlement in his back pocket from a suit he launched against the industry, Mr. Moranis cannot grab his colleagues' respect.
Their criticism does not stop at his business, which could shave hundreds of millions of dollars off the more than $1-billion agents collect annually for helping people buy and sell their homes in Toronto. The attacks are emotional and personal.
In the office of a major Toronto brokerage, his photo hangs on the wall defaced. Some agents snipe that he's biting the hand that feeds him and almost 19,500 other Toronto real estate agents, that he's dependent on family money, and that he's debasing the hard work and professionalism of an entire industry.
"It would be human nature not to show his properties," says one agent who asked for anonymity. "If I'm hard working out there seven days a week, I want to see this guy go under," says another, echoing the belief that Realtysellers' listings will get boycotted when the market softens.
Mr. Moranis, a former president of the Toronto Real Estate Board (TREB) and a former director of the Canadian Real Estate Association (CREA), depicts real estate brokerage as a monopolistic, conspiring industry comprising increasingly large companies with no connection to the customer.
He sounds like a maverick on a mission to reform, until he shifts gears and talks about co-existence. "The industry has been good to me," he says. "I respect the status quo. We're just trying to offer the consumer an alternate program."
He describes himself as "an extreme type-A personality, with compassion," and seems oblivious to the heat he's generating among his colleagues. "I think people respect me as a successful entrepreneur," he says, comparing himself with Charles Schwab, the man behind the discount investment brokerage drive in the United States.
Realtysellers charges clients a listing fee of 1.25 per cent, compared with the industry's typical amount of 2.5 per cent, and splits its commission on the buyer's side with its client. The company also offers a private seller the opportunity to list a property on the Multiple Listing Service for $695.
Previous efforts to build a business on lower commission rates have failed, and CREA and local real estate boards have maintained a firm hold on the market with their proprietary MLS system.
But Realtysellers claims to have scored a major victory last month with an out-of-court settlement of a $25-million lawsuit against CREA and TREB. The suit claimed that the two organizations engaged in unlawful and anti-competitive conduct, including fixing a minimum commission rate as a condition of access to MLS and requiring vendors using the MLS to pay a purchaser's agent through another broker.
Terms of the agreement were not disclosed, but Realtysellers said TREB had made certain changes to the way it operates its multiple-listing service that will remove day to day uncertainty for the company and ensure that the MLS cannot abruptly terminate Realtysellers' membership.
"There is a greater level of respect for us now that we have stood up for our rights," Mr. Moranis says. "We have shown that we are here to stay."
Neither CREA or TREB would comment on the settlement, beyond saying they respect the confidentiality of the agreement.
Realtysellers boasts another advantage over earlier discount efforts. Mr. Moranis claims to have "extremely deep-pocketed investors who are committed to the business," and, more particularly, millions of dollars in capital after two initial rounds of financing from outside investors.
His co-founder is his cousin Lawrence Dale, a Toronto lawyer who masterminded the buyout of SkyDome in 1999. When Mr. Dale's partners ousted him from the president's office a short time later, he launched a $50-million lawsuit, which he eventually settled for nearly $3-million.
Realtysellers won't disclose its transaction volume, but Mr. Moranis says the company has 34 employees, more than half of whom have real estate licences. He says the company has saved clients more than $3.5-million in commissions. Assuming an average saving of 25 per cent off a 5 per cent commission, the numbers would translate into about 900 transactions during the past three years (based on the average Toronto home price in 2003 of almost $300,000).
That represents a tiny slice of the overall market. TREB reported overall sales of nearly 79,000 last year in the Greater Toronto Area. But Mr. Moranis says business is growing quickly and the company plans to extend its reach beyond the GTA and Hamilton/Burlington, rolling out service soon to London, Windsor, Barrie and Ottawa. All clients would be serviced through Realtysellers' Toronto office, he adds.
Some market watchers outside of the money loop acknowledge that discount commission shops have not done well, but say conditions are changing.
"The old way of doing things doesn't have to continue," William Strange, a professor of real estate and urban economics at the University of Toronto's Rotman School of Management, says of the sales commission structure. "In fact, I'm surprised it has for so long."
The key to change is cracking the information barrier. With the Internet, buyers and sellers have become much more educated about the market, but they still don't have quite enough data to compete with agents yet. Five to 10 years from now that will change, and someone well-positioned in the discount business -- either Realtysellers or one of its potential successors -- will be very successful, Prof. Strange predicts.
Clearly, Mr. Moranis believes that time is now, and his business model goes far beyond just trimming commissions. Realtysellers de-emphasizes the importance of personal relationships and good old human emotion in the buying and selling process.
Prospective buyers are shown homes by a team of salaried agents after signing an exclusive 90-day buyer's agency agreement with the company. Each day of house hunting may involve a different agent.
Where established brokerages and agents market their experience and client relationships, Mr. Moranis questions the value of both. Once a home lands on the MLS, it becomes a commodity, just like shares for sale on the stock market, he says.
"Local knowledge is absolutely neutralized once the property goes on the market," he says. "A guy just starting out in the business who receives training is going to be just as competitive as a 20-year veteran."
Mr. Moranis himself is a 25-year veteran. He entered the business in 1977 with an MBA from the U of T. He says he was heading toward a life in academia when he quit his doctoral studies in organizational behaviour to help his mother, Sadie Moranis, start her own brokerage. Ms. Moranis was a trailblazer herself, serving in 1981 as the first female president of TREB, and growing her own five-person operation into a 200-agent shop, before joining forces with Prudential Real Estate in 1994.
Her daughter, Terry Moranis, is now president of Prudential Sadie Moranis Realty. The family won't discuss Stephen Moranis publicly or his role in attempting to shake up the industry. Frank Kirschner, managing director of Prudential Sadie Moranis, says the Moranises don't want other brokers' "ill-feeling" toward Realtysellers to get back to their company.
Industry giant Royal LePage Real Estate Services Ltd. dismisses the idea of Realtysellers as a serious competitor. "Discount brokerage firms have come and gone for years," says Phil Soper, president of Royal LePage. "None of them ever amounted to much."
Realtysellers critics say that the firm could never provide the same level of service and attention as its competitors based on the rates it charges and its team sales approach.
The company is receiving far more attention than is representative of its market share. But the spotlight won't change the reality that Canadians don't want to buy houses over the Internet or from discount brokers. "It's just too important a purchase," Mr. Soper says.
At the field level, however, some agents express concern that if they have to compete with Realtysellers' commission rates to get a listing, there may not be much profit left on the table once their advertising and operating costs are calculated.
The industry does not track how much money agents make on average each year. But some agents say that even with the Toronto market coming off its best year ever in terms of sales volume and price, they often have to negotiate on commission to win a listing or complete a sale.
"There's a lot of commission cutting going on that you don't see," says an agent specializing in the Beaches. For instance, agents often agree to take a 4 per cent commission or less if they complete both sides of the deal. In other cases, if a buyer and seller are very close to agreeing on a price but can't quite bridge the gap, the two agents may propose that everyone split the difference and then trim their commissions accordingly. Mr. Moranis says this is exactly the kind of business arrangement to which he is trying to provide an alternative.
"Why has the industry never advertised commissions?" he asks rhetorically. "Because the industry would sooner have the discussion in your living room where it's all hush-hush, and that makes no sense from a retail point of view. It has to be transparent."