The first thing you’ll notice is the clothes. He wears suits that are obviously tailor-made – nothing off the rack would fit his lanky, six-foot-two frame that well. Then there are the shoes, shiny and lavish. There’s also the Swiss watch, the Italian leather briefcase, the designer glasses. And there’s the car, a silver Porsche, and the frequent luxury trips abroad to Hawaii, Europe, Israel, New York and so on.
What you won’t know until you start talking to him is that it’s all something of an illusion.
The car was bought used in the U.S. with a strong Canadian dollar for about half what it would cost here. The suits were made by tailors in Vegas and cost a couple of hundred bucks each. The watch, the briefcase, the glasses – all wholesale bargains of some kind. The trips? He got himself a travel agent’s licence to save money on his vacations.
But far from being embarrassed about his luxury penny-pinching, he loves to talk about it. Never pay retail is his mantra – advice he gives freely to anyone who’ll listen. So you won’t be surprised that his business philosophy is faithful to that idea, only inverted: never charge retail. It’s an idea that he’s put to work with head-turning success in his quest to revolutionize the way we buy and sell our homes. At 31 years old, Roy Almog seems poised to become a major force in the real estate business.
Almog’s firm is called 2% Realty, and the name says it all: list a house through Almog and he’ll charge two points to sell it. On a typical home in Edmonton, it will cost $8,000 to use his service, which, unlike a lot of other discounters, is full-service and includes an entry on the multiple listing service (MLS). In Greater Vancouver, a market into which Almog recently expanded, he’ll charge a seller $16,000 on an average-priced home, which costs a staggering $800,000.
The traditional real estate commission in Alberta and B.C. is seven per cent on the first $100,000 and three per cent on the rest. In other words, selling the same homes would normally cost $16,000 in Edmonton and $28,000 in Vancouver. What’s more, buy a home through Almog and he’ll pay one percentage point of the value of the home – about $4,000 in Edmonton and $8,000 in Vancouver to the agents.
Not surprisingly, the idea has caught on with consumers. The firm started out as a one-man shop in Edmonton in 2007 and has since expanded to Calgary and Vancouver and now features a roster of around 15 agents. The next step for Almog is to franchise the concept across the country.
Almog got the idea to launch 2% when he was buying, fixing and flipping homes in his hometown of Edmonton (his family emigrated to Alberta from Israel when he was a boy). He couldn’t help thinking he was paying out a lot of his profits to realtors, and the more he thought about commission rates, the more convinced he became that there was an opportunity in it for him.
“Twenty years ago there was no Internet. There were no BlackBerries or iPhones. Agents had to use binders, pick a few listings, then drive them around. They earned their commissions,” he says. “Today, the typical client looks at MLS himself, drives by to look at the place, then calls the agent if he wants to go inside.” Technology, he says, has made the agent’s job a lot easier, but commission rates haven’t come down. Almog’s view is that selling real estate should be more of a volume business and that it can be, with no change in service. “That’s what we do – pass the savings on to consumers.”
The early results suggest Almog’s theory is correct. His company had 33 sales in 2007, after launching in the middle of that year. Last year, having expanded to Calgary, the firm sold 203 homes. This year is on pace for 300 sales. That’s a tiny number of sales compared to the size of the market, but the growth rate is the important number. More telling still is the fact that a 2% listing lasts an average of 32 days, about half the industry average. It’s an advantage that Almog ascribes to the flexibility his fees offer for his clients. “They can afford to lower their price a little and still get the same or more for their homes because the agent is taking less.” Other signs of traction: Almog says his agents made $123,000 on average in 2010. The entrepreneur has been named to the Edmonton Medallion Club – an honour bestowed on top agents as measured by sales volume – every full calendar year that he’s been in business.
Almog argues that his model makes even more sense to sellers given the state of the real estate market, which is cooling off and is likely to slow down even more once interest rates start to climb and new CMHC rules, such as shorter maximum amortization periods, take hold. “The market is fluttering, and with the new mortgage rules, it’s becoming more difficult for buyers to qualify for a mortgage,” he says, noting that this is putting pressure on prices. “We’ve noticed that having a lower price point advertised on the MLS is a huge edge for our sellers. They can lower the price and still net the same amount by getting a better deal on the commission.”
Almog has provoked a lot of criticism from skeptics, typically other agents who say firms like 2% can’t provide the same level of service while charging so little.
Even the theoretically objective real estate boards, of which Almog and all his agents are members, are at best coolly cordial on the subject.
“Time will show whether or not it’s a business model that can thrive,” says Chris Mooney, a real estate agent and president of the Realtors Association of Edmonton. “There aren’t a whole lot of them out there that have stood the test of time.” Yes, technology has changed the game, but Mooney says that has only made consumers more demanding of service.
The president of the Real Estate Board of Greater Vancouver echoes that sentiment. “If consumers find value with their services, they’ll be successful,” says Jake Moldowan, an experienced Vancouver Realtor. But he’s skeptical. “You can go online and get a kit that lets you write your own will for $50. I just had mine redone [by a lawyer] for $5,000. Could I have done it cheaper? Probably. Would I have had the same quality of service? Probably not.”
But the argument that fees correlate with service doesn’t wash with at least one real estate analyst. “House prices have doubled over the past decade or so, and so have commissions, more or less. Has the level of service doubled? It hasn’t,” says Tsur Somerville, a University of British Columbia professor who studies the real estate industry. Somerville says it’s this dramatic rise in house prices, and the advent of technology, that create an opportunity for discount alternatives. He’s not convinced Almog’s high-volume, low-price model will work, though; he believes if it was so appealing to the consumer, it would have taken off much faster than it has.
Not so, says Robert Dymont, who argues that revolutions in real estate always start slowly. He should know, given that he’s been in the business since the 1960s. From 1984 to 1989, he ran franchising operations in Western Canada and the Pacific Northwest for what was then a young, ambitious and disruptive real estate company named Re/Max.
Re/Max, like 2%, wanted to revolutionize real estate with one simple innovation: the desk fee. Instead of charging agents a fat proportion of their commissions, up to 40 or 50 per cent, Re/Max would instead levy a small monthly fee to agents in exchange for the use of the office, name, advertising and so on. The result of this new idea was that agents wanted to work for Re/Max, which today, at not quite 40 years old, is the biggest realty firm in the world.
During Dymont’s five-year stint with Re/Max, he grew his region from zero to 130 offices. After that, he joined Sutton Group as CEO and grew that firm from 1,300 to 5,800 sales associates. Sutton was also a game-changer, as it allowed agents to deliver à la carte services to clients. His next assignment was a turnaround of Realty World, which he cleaned up and sold off in parts.
Dymont has a reason to talk up 2%. He serves as a consultant to the firm, for which he will set up and help manage the franchising plan. He believes it can be successful because it’s poised to capitalize on an “uprising” against realtor commissions that’s starting to take place across the country. “I think a lot of homeowners are getting tired of paying high fees. Every time I go to social gatherings, I hear grumblings – except from realtors. ‘My realtor listed my home and made $30,000 for three hours’ work.’ They don’t always understand the realtor’s point of view, of course, but that’s what they think. Our timing is good.”
Dymont is working with Almog to set up franchises across B.C. They’ll then move eastward. As for the naysayers, Dymont says they’re just protecting their turf.
“When I was at Re/Max, they all said it would never fly. They thought I was selling a hot-air balloon [the Re/Max logo]. But the agents will go where the customers are. Everyone wants to grab a rising star.”