Toronto MLS decision under appeal
The Competition Bureau has filed an appeal with the Federal Court of Appeal today, seeking to overturn the Competition Tribunal’s ruling in the Toronto Real Estate Board's ‘abuse of dominance’ matter.
“The Bureau believes that the Tribunal’s ruling was based on an overly narrow interpretation of section 79 of the Competition Act — the ‘abuse of dominance’ provision. The Tribunal ruled that TREB, as an incorporated trade association, does not compete with its own members in the real estate brokerage market and therefore cannot be found to have contravened the abuse of dominance provision,” says the Bureau in a news release.
“Allowing the Tribunal’s finding to stand could leave a significant loophole in the application of the Competition Act,” says Interim Commissioner of Competition John Pecman in the release. “While most trade associations comply with the Competition Act, we are concerned that, if the Tribunal’s decision is left to stand, trade associations may be tempted to develop rules aimed at preventing or eliminating potential new forms of competition.”
Pecman says: “We believe that the Competition Tribunal erred in dismissing our application and in not ruling on the facts of the case. Tt is our view that TREB’s anti-competitive behaviour continues to restrict potential homebuyers and sellers from taking advantage of a greater range of service and pricing options when making one of the most significant financial transactions of their lives.”
Making Sense of New MLS Rules
See an excellent analysis of new MLS environment by John Pasalis in his Move Smartly blog »
MLS and the Competition Bureau
The process of selling in Canada is effectively controlled by Multiple Listing Service. Over 80% of sales transactions take place though this medium. The CREA, Canadian Real Estate Association, owns the MLS® trademark, has proprietary ownership of the REALTOR trademark. CREA sets up the rules for using their trade mark and only the members of Canadian Real Estate Association, primarily Real Estate Sales persons, brokers and other professional affiliates can use the trade mark. Under MLS, the members of the service, share the information among each other to expedite the process of selling. The access to the important data is not open to the public.
The process of selling a property through the services of MLS can be divided in 5 different stages.
Processing a MLS Listing:
This includes things like, collecting the pertinent information about the property, such as measurements, legal description, zoning, liens if any, Title, Insurance, property taxes and converting this to the format that the board accepts and then processing it through the MLS system. The important information about the property is then made available to the consumers by CREA’s on its website however, it does not carry the names of the owner, his contact information or any thing that would help the consumer to contact the seller directly. He must contact the broker representing the seller to get more information and to see the property.
Marketing the property:
This includes all those steps the broker takes to expose the property to the prospective buyers to bring in the sale. This includes, but is not limited to, activities like, advertising, in papers, sign on the property, holding open houses, face to face meetings with prospective buyers, sending flyers, advertising on the net, canvassing, etc. etc.
Servicing the Listing:
Encompasses answering questions and queries of consumers, brokers, lawyers, mortgage broker, building inspectors, appraisers, providing answering desk, making appointment and keeping a log of the activities to facilitate the sale and seeing it through the closing.
Representation and Negotiations:
This is the most important phase for the sale of the property. This is where the knowledge, expertise and experience of the agent shines and can have a huge impact on the final outcome. It includes representing the Seller in negotiations with the buyer / buyer’s agent. The goal here is to promote and protect the interests’ of the seller and maximize his returns from the sale of the property.
During any of the stages stated here above, there may be situation where the seller needs the advice concerning any issue effecting the sale of the property.
So if one wants to use the services of MLS, he has to contact a member of the CREA and hire him to process the listing of their house/property through CREA’s MLS system. The standard agreement does not allow, except few basic amendments, any changes to the listing agreement. CREA’s approach is take the MLS agreement as it is or leave it, no exceptions.
Under the current MLS rules and regulations, the consumer must keep the services of the broker through all stages of selling and the broker must stay involved. There is no provision for the consumer to hire the broker just for posting the property on MLS, servicing the listing, marketing or have the broker represent him in negotiations. Currently it is all or none for the consumer.
This is where the government feels that CREA has a monopoly. Government wants that the consumer should be able to hire only those services that the consumer needs rather than being forced to take the full bundle. Government wants to see more competition for the benefit of the consumer. Competition should help to bring the cost of selling down for the consumer as he will be able to choose only the services that he needs.
In the long run, it should be a win-win scenario for the consumer and the people in the real estate brokerage industry. Brokers will get more freedom and will be able to custom tailor the services according to the needs of the consumer. It will bring down the selling costs for the consumer and will also lower the costs of doing business for the brokerages. Currently to comply with CREA’s rules and regulations, brokerages must have the infrastructure to see the sale through all the stages of the selling process. The restrictions imposed by MLS are unproductive and ultimately the consumer pays.
Only time will tell who will benefit more, the consumer or the brokerages.
Real estate industry battle - II
"In Toronto, 20% of realtors with the Toronto Real Estate Board didn’t complete a deal in 2009", says Michael Polzler.
The real-estate industry is no longer only battling with the Competition Bureau. It is now fighting amongst itself, with one of the country’s largest firms starting a campaign against part-time agents. Michael Polzler, head of Re/Max Ontario-Atlantic Canada, launched a new offensive this week with an advertising blitz in the greater Toronto area that says: “Warning! Don’t use a part-time agent.”
The campaign follows a letter Mr. Polzler paid to have printed in The Real Estate Magazine, an industry publication. In the letter, he declares it’s time to “take back the industry” and calls for the creation of new requirements for agents such as increased education, a one-year apprenticeship program and a referral program that would allow inactive realtors to transfer clientele to full-time professionals for a fee.
“I don’t believe part-time agents can do the job,” he said in an interview. “Many consumers use part-time agents without ever knowing it. If an agent doesn’t do at least one deal per quarter, they are not active in the business, excluding the obvious people like managers.
“Someone who has a non-real-estate, full-time job should not be allowed to handle the largest financial transaction most people make in their lifetime. You have taxi drivers with real-estate licences and that’s not cool,” Mr. Polzler said.
Re/Max Ontario-Atlantic Canada’s campaign for more professionalism in the industry comes as the Canadian Real Estate Association (CREA) continues a legal battle with the Competition Bureau.
The government watchdog has launched a complaint with the Competition Tribunal over what it says are anti-competitive practices. The case revolves around the Multiple Listing Service system owned by CREA and responsible for about 90% of the transactions in Canada.
Last week, CREA passed new rules that will allow consumers to decide how much they use an agent on a deal and allow them to conduct parts of a transaction -- including listing on MLS -- without using an agent at all. But the case is still proceeding because the bureau maintains the new MLS rules can be changed by the local boards or CREA itself.
Phil Soper, chief executive of Brookfield Real Estate Services, which operates Royal LePage and La Capitale, wondered whether Re/Max’s proposals would further antagonize the bureau.
“It flies in the face in the face of concerns about competition. We are an industry that is full of diversity. There are many models in which our profession is practiced. To state that lower fee-charging realtors who adopt a different model have no place is similar to saying only high-priced lawyers should exist. You can’t say people shouldn’t have the opportunity to hire somebody who is less experienced.”
Some in the industry suggest Mr. Polzler’s proposed business model is an attempt to squeeze out smaller agents as well as being a marketing campaign for full-service brokers. The industry faces consolidation in anticipation of CREA’s new rules.
But Mr. Polzler says he’s been talking about non-producing agents for a year. He gives the example of Toronto, where 20% of realtors with the Toronto Real Estate Board didn’t complete a deal in 2009. Some brokerages have 70% of agents doing less than a deal a quarter, he added.
“Nobody is suggesting these people not be licenced,” said Mr. Polzler. Part-timers could stay in the industry, but on the referral basis, he suggested.
Don Lawby, chief executive of Century 21 Canada, conceded the numbers of agents in Canada does look odd on the surface. There are 98,000 agents or about one agent for every 336 people, including children and people who aren’t home buyers.
“There are some people who get a licence and just elect to keep it active without practicing,” Mr. Lawby said, adding the qualification for being a realtor should be having a licence and knowledge about the market.
“That could include part-time people,” said Mr. Lawby. “I’m sure there are part-time people who perform in a better fashion than some full-time people.”
Source: Financial Post
Home selling system makes no sense
For years, the regulators were after the broker cartel.
The reason? The brokers owned the marketplace where buyers and sellers came together. And for generations, brokers had been using that monopoly to impose high prices on those transactions. The rates, in fact, were so high they felt like extortion. But if you wanted into the market, what choice did you have?
The above story is about the Wall Street and Bay Street brokerage firms, circa 1975, when they controlled the New York and Toronto stock exchanges.
But I might as well be talking about Canada's residential real estate brokerage industry, circa 2010, and its control of the Multiple Listing Service (MLS) of homes for sale.
This week, Canada's Competition Bureau announced that it is taking the industry's long-standing business practices to the federal Competition Tribunal.
Why? Replace "Bay Street securities broker" with "Canadian real estate broker," and "TSX" with "MLS," and you'll get the picture.
Competition Commissioner Melanie Aitken, says that the Canadian Real Estate Association is "improperly and unlawfully leveraging" its control of the MLS system "to deny good old-fashioned market competition."
What she wants is to "let consumers have the choice, let agents have the opportunity to satisfy and serve those choices."
Amen and hallelujah.
Of course the Competition Bureau investigated the industry more than 20 years ago, promising big changes to the MLS system. Triumphant press releases were issued. And then nothing happened.
This go around may be different. The government that appointed Aitken is expected to deliver a Throne Speech next month built around the themes of free enterprise, free markets and free trade.
Lowering realtor prices by promoting competition fits nicely into that agenda.
If you'd like to see what might happen if Ottawa really pries open the MLS system, take a look at the history of brokerage commissions on Wall Street.
Within a few months of deregulation on May 1, 1975 — "May Day," to the pin-stripe set — average commission charges had fallen sharply and entrepreneurs such as Charles Schwab were using the new rules to create the first discount brokers.
The arrival of the internet two decades later redoubled the downward pressure on prices.
It allowed consumers to do most of the work of investing for themselves and to rely on a broker solely for the low-cost execution of trades.
Today, you can buy and sell large blocks of stocks through a discount broker for $9.99 or less per trade, a tiny fraction of the pre-May Day price.
The U.S. experiment worked so well that Canadian regulators followed suit in 1983. The Toronto-Dominion Bank immediately set up Green Line Investor Service, Canada's first discount broker. It went on to become TD Waterhouse Discount Brokerage.
Before May Day, if you wanted to buy shares in a company through the stock exchange, your options were limited: Every broker was a full-service agent charging a full-service fee.
That's pretty much what you'll face today if you want to buy or sell a home.
The old system for setting stock market commission rates also matches today's real estate agency commission system.
Pre-May Day, brokerage commissions were based on the number of shares purchased. The bigger your order, the more you paid. That's what you'll be dealing with if you hire a real estate agent and have your home listed on the MLS.
Someone selling an $800,000 house today can expect to pay a commission of about five per cent, or $40,000 (split between the buying and selling agent), regardless of how much work the agents did, and despite the fact that it likely took no more time and effort than earning a $20,000 commission on a $400,000 home.
This can explain why, as the authors of Freakonomics put it, "most real-estate agents seem to spend 95 per cent of their energy chasing clients (for which they are paid nothing) and five per cent actually serving them (for which they are paid way too much)."
In a truly free market, just how far could those commission rates fall?
By many thousands of dollars, according to Scotiabank economist Derek Holt.
He recently speculated that the drop in commission rates might be so steep, putting so much extra money in the pockets of buyers and sellers, as to further overheat an already overpriced Canadian housing market.
No one wants that, but forcing Canadians to massively overpay a real estate agent is not the most rational, efficient or fair way to go about moderating the cost of owning a home.
What's a travel agent?
Another industry that resembles the business of buying and selling houses is travel.
Until a little more than a decade ago, if you wanted to buy a plane ticket or book a vacation, you called up your travel agent, who would take a cut to find you the flights and accommodations you were looking for.
The arrival of new technology-the internet-changed all that. Travel agency commission rates were driven through the floor and thousands of traditional travel agents were driven out of business, replaced by high-volume, low-cost services such as Expedia and Travelocity.
The very same information technology for gathering and making available to customers a world of airline and hotel information already exists for the housing market.
It's called MLS. But as things now stand, consumers can't access all of that MLS information. Nor can they place their own home directly on MLS, or even have an agent provide this basic service for a low fee.
If the Competition Bureau pursues this case to the limit, the future of buying and selling residential properties in Canada will probably look something like a cross between Expedia, TD Waterhouse and Craigslist.
There will still be middlemen between home buyers and home sellers: You will still need a place to advertise your property, a place to compile market information and you may even want some well-compensated expert guidance.
The menu of services offered by real estate brokers may even grow, but some prices will fall and customers will be able to choose what level of service they want.
It will look like, well, a free market. Finally.
Article by Tony Keller. Tony Keller has been an editorial writer, columnist and editorial page editor for The Globe and Mail; a columnist for the Toronto Star; managing editor of Maclean's; and editor of The Financial Post Magazine. He is currently a visiting fellow at the Mowat Centre for Policy Innovation.
Canadian real-estate rules challenged
by federal competition watchdog
Home buyers and sellers may soon be able to choose "a la carte" services from real estate agents if the Canadian Real Estate Association is forced to change its pricing structure, but the association says that's always been the case. Canada's Competition Bureau filed an application with the Competition Tribunal on Monday seeking to strike down the CREA's rules on the use of its Multiple Listing Service.
Those rules stifle competition because CREA uses its control of the MLS to force home sellers who want to list on the MLS to pay for a full package of services associated with buying, said Melanie Aitken, head of the competition bureau.
The Competition Bureau has been discussing the matter with the association since it enacted the rules in 2007 after receiving several complaints, but the CREA has not been willing to make changes to its practices, said Aitken.
But the CREA refuted that claim Monday and said after months of intense negotiation, it decided last week to go ahead with a proposed set of clarified rules that will be voted on by its members in March.
CREA said its rules have always been flexible enough to allow consumers a broad range of services and the proposal will not seek to change rules, but instead make clarifications that will address the bureau's concerns.
"CREA views the commissioner's decision as surprising and disappointing," said its president Dale Ripplinger.
"We do not agree with the bureau's position that certain CREA rules are anti-competitive, either as a matter of fact or as a matter of law. CREA's rules allow for innovative business models and provide a broad range of choice for consumers."
The CREA, which represents more than 98,000 real estate brokers, agents and salespeople, allows only its members to post homes for sale on its MLS database, where the vast majority of Canadian home sales take place.
Aitken said changes that would introduce more competition would benefit consumers, agents and the economy as a whole.
"This is all about providing choice to consumers, its up to them what they feel they want and need in the context of what is the most significant financial transaction most Canadians do," she said.
"Some want to play a real role in selling their house and they're prepared to do the leg work and they don't want to pay for somebody else to do it."
Under current rules, real estate agents must handle all details of the transaction, although there are some services that consumers might wish to do on their own, such as booking interviews to view the property or making an offer, according to Aitken. Agents must agree to offer all services whether consumers want or need them.
Aitken said if the bureau's challenge is successful it would drive down real estate transaction fees.
She added that in the United States, where many such restrictive rules have been lifted, fee prices had dropped significantly and now range from US$99 to $500, much lower than in Canada where fees average around five per cent of the selling price of the home.
Mark Argentino, a broker in the hot housing market of Mississauga, Ont., said the changes would diminish the agent's role as a gatekeeper, leaving uneducated consumers to take on overwhelming responsibility.
"(If) all I'm doing is putting it on the MLS for you then what's the point? You get no representation...but if you personally are shrewd and you have a lawyer and what not, it can be done."
He said while some consumers are fed up with the fees, they always have the option selling their homes privately, without the help of the MLS. But he believes if the bureau wins its challenge, most people would continue to use agents.
"We spend tens of thousands a year to get licensed and keep our license going...we provide a tremendous amount of value to the real estate transaction, it's not just like we're collecting our cheque."
The CREA doesn't stipulate how much brokers charge for commission, which hovers around five per cent on average.
Bill McMullin of Halifax's ViewPoint Realty who makes some MLS data available to customers on his website, is not threatened by the prospect of sellers and buyers navigating the sales process and believes most prefer to go through a professional.
"We bundle those services together because we feel that's what the market wants," he said.
"There's great flexibility within the current set of rules every industry has to have rules, if there's no rules its a free for all...its up to the innovators to be creative and to work within the rules."
The bureau's challenge comes on the same day the CREA forecast resales for homes will set a record in 2010, largely driven by activity in the first six months of this year.
In December, the Ontario Superior Court of Justice ruled against a veteran Toronto realtor, Fraser Beach whose access to the Multiple Listing Service was terminated in May of 2007 shortly after he launched a discount brokerage and made the data available to consumers.
The judge said the company's use of MLS data violated the standard agreement between brokers and real estate boards.
Source: The Canadian Press - ONLINE EDITION
Competition Bureau vs. CREA
Federal watchdog challenges real estate MLS rules.
The Canadian Competition Bureau says it’s challenging rules imposed by the Canadian Real Estate Association, a body that represents more than 98,000 real-estate brokers, agents and salespeople. The federal agency says the CREA rules limit choices for consumers and force them to pay for services they don’t want, also stifling innovation in the market for residential real estate services.
CREA represents more than 98,000 real-estate brokers, agents and salespeople operating through more than 100 local boards and associations.
The Competition Bureau is challenging CREA rules imposed on agents who list properties on the association’s Multiple Listing Service, also known as MLS.
The agency says most real estate transactions in Canada make use of the MLS system, which includes information available only to CREA members.
But under CREA rules, according to the Competition Bureau, agents are forbidden from offering consumers the option of simply paying a fee to list a home on MLS.
Competition Bureau Press Release:
Competition Bureau Seeks to Prohibit Anti-competitive Real Estate Rules
OTTAWA, February 8, 2010 — The Competition Bureau announced today that it will challenge rules imposed by the Canadian Real Estate Association (CREA) that limit consumer choice and prevent innovation in the market for residential real estate services.
The Commissioner of Competition has determined that CREA’s rules restrict the ability of consumers to choose the real estate services they want, forcing them to pay for services they do not need. The rules also prevent real estate agents from offering more innovative service and pricing options to consumers. The Commissioner’s application to the Competition Tribunal seeks to strike down these anti-competitive rules.
“Selling a home is one of the largest financial transactions that most Canadians make in their lifetime,” said Melanie Aitken, Commissioner of Competition. “Consumers should be able to choose which services they want to buy in order to facilitate that transaction, including lower-cost options. While the Bureau would have preferred to resolve this matter amicably, CREA’s leadership was unwilling to agree to changes that would have opened up competition, and offered options for consumers and real estate agents.”
The Bureau’s challenge is against rules imposed by CREA on agents who list properties on the Multiple Listing Service (MLS) system. The overwhelming majority of real estate transactions in Canada make use of the MLS system, which includes important information available only to CREA members. Before listing a property on MLS, agents must agree to comply with CREA’s restrictions on the service options they provide to Canadian consumers.
For example, under CREA’s rules, agents are prohibited from offering consumers the option of simply paying a fee for an agent to list a home on the MLS system. Instead, all consumers looking to list a property on MLS must purchase a pre-determined set of additional services from a real estate agent, such as the presentation of offers and negotiation of a final deal.
“The Bureau is focused on striking down these anti-competitive rules, so that real estate agents wishing to offer innovative services can do so, and consumers can benefit from greater choice,” said Commissioner Aitken. “While the market will ultimately determine prices for residential real estate services, we expect that if the Tribunal strikes down the anti-competitive restrictions, there will be downward pressure on real estate fees in Canada.”
Once filed with the Competition Tribunal, the full text of the Bureau’s filing will be available on the Tribunal Web site.
The Competition Bureau is an independent law enforcement agency that contributes to the prosperity of Canadians by protecting and promoting competitive markets and enabling informed consumer choice.