Feb
19
2010

Competition Bureau VS. CREA: How does it affect you?

Posted by - Sam Prochazka 19 Comments Posted in Market News

We all know it’s happening: the Canadian Competition Bureau has launched proceedings against CREA (Canadian Real Estate Association). The question no one has answered yet is: how does it affect you as a Realtor™?

Time Line

  • October 24, 2008 – the Canadian Competition Bureau releases its draft Information Bulletin on Trade Associations for public comment. (Click here to download PDF)
  • January 9, 2009 – CREA submits comments on the Information bulletin. (Click here to download PDF)
  • 2009 – 2010 – The Competition Bureau opens discussions with CREA regarding anti-competitive behavior.
  • Late 2009 – early 2010 – Discussions between the Competition Bureau and CREA break down and no resolutions are reached.
  • February 2, 2010 – The Competition Bureau files a Notice of Application for proceedings with the Competition Tribunal. (Click to download PDF)

The Proceedings

Here’s what the Competition Bureau is claiming (from Statement of Grounds and Material Facts in the Notice of Application):

  1. CREA, through its members (i.e. you) has too much control over the supply of residential real estate brokerage services in Canada.
  2. There are no existing adequate substitutes for the MLS system.
  3. CREA has used its control to exclude real estate brokers seeking to provide discount brokerage packages (or fee-for-service packages) and “MLS-Only” options (ie. no compensation to selling agent).
  4. When working with a broker using the MLS system, consumers are forced to buy a bundle of services, including some they may not want to receive or pay for.
  5. CREA controls boards/associations by imposing MLS restrictions (see below) on them, in exchange for them using the MLS™ (Multiple Listing Service) trademark.

Here’s exactly what they are asking for:

An Order prohibiting CREA from imposing MLS restrictions (see below) on boards/associations when licensing the MLS™ trademark to those boards/associations.

The “MLS Restrictions”

This is the important part – the Competition Bureau is pushing to remove the following restrictions. We’ll start with what CREA refers to as the “Three Pillars”:

Three Pillars

  1. Membership: Only REALTORS® may place a listing on a Board/Association’s MLS® System;
  2. Agency: A listing REALTOR® must act as agent for the seller to  sell the property and to assist the seller throughout the entire time of  the listing contract; and
  3. Compensation  to  Co-operating  Broker:  The listing REALTOR® agrees to pay to the co-operating (i.e.  selling) REALTOR® compensation for the co-operative selling of the property. An offer of compensation of zero is not acceptable.

With these in mind the Competition Bureau elaborates further on the CREA’s MLS Restrictions:

Further MLS Restrictions

  1. The listing REALTOR® shall receive and present all offers and counteroffers to the seller.
  2. The listing REALTOR® shall provide professional advice and counsel to the seller on all offers and counteroffers unless otherwise directed by the seller in writing.
  3. The mere posting of property information in an MLS® system is contrary to CREA’s Rules. A “mere posting” occurs when the listing agreement relieves the listing member of any obligations under the Rules, including the obligation that the listing REALTOR® remain the agent of the seller throughout the term of the listing contract.
  4. The listing REALTOR® is responsible and accountable for the accuracy of information submitted to a Board/Association for inclusion in the Board’s MLS® system, and the Board/Association is responsible for ensuring that the data submitted to it meets reasonable standards of quality.
  5. Only REALTORS® are permitted to display the MLS® trademarks in signage, advertising, etc.
  6. Only the listing REALTOR® name(s) and contact information may appear on REAL TOR.ca. The seller’s name or contact information shall not appear on REALTOR.ca or in the public remarks section of the MLS® system.
  7. In cases where a Board permits listings in which the seller has reserved the right to sell the property himself/herself, that fact shall be specified in the Board’s MLS® database.

“I thought you’d be sparing us from the legal mumbo-jumbo??!!”

Yes, so let me get to the point…

The Point

The Competition Bureau says that item 1 and 3 of the Three Pillars and item 6 of the Further MLS Restrictions

completely prohibit or severely impede the ability of alternatives to the full-service brokerage model to compete.

They have cited several examples of fee-for-services brokerages either leaving or not entering the market purely because of these restrictions, and that this represents anti-competitive behavior.

How it Affects You

Removing “restriction” 3 from the Three Pillars isn’t a big deal and, in fact, is already being done in many boards/associations across the country. The reality is that if there is no compensation offered to selling agents then properties won’t be shown.

Now’s where it gets interesting: removing “restriction” 3 from the Three Pillars and “restriction” 6 from the Further MLS Restrictions could create a flurry of  activity from Realtors™ undercutting one another to offer the cheapest “listing only” services to sellers. The truth, however, is that sellers would quickly realize that they’re doing hundreds of showings to nosy-neighbors rather than qualified buyers. The eventual outcome would still see most career Realtors continuing to sell homes on behalf of home-owners.

Removing “restriction” 1 from the Three Pillars would allow casual and unqualified entry of data which would destroy the integrity of the MLS System altogether. I’d be extremely surprised if the tribunal ruled in favor of this.

Ok, so guess what? The National Association of Realtors (CREA’s sister organization in the US) went through all of this 3 years ago and guess how it resolved?

  • Restriction 3 was removed

Yep, that’s it; and that’s what I think will happen in Canada.

I’m very interested in what you think: be sure to write a comment or two below.

Comments - Leave a Comment
  1. Sam Prochazka said the following on April 6, 2010 at 10:28 am:

    Hi Raz,

    Thanks for the comment!

    It’s always a good time to get into a business if you’re planning on putting in 110% and are ready to support yourself during the startup phase. Alternatively, it’s ALWAYS a bad time to get into a business if you think it’ll take any less than 110% to get things rolling.

    The real estate industry in Canada is huge and the competition bureau likely won’t impose sweeping, industry-destroying changes.

    All the best,

    Sam

  2. raz said the following on March 26, 2010 at 9:18 pm:

    Hi, i am new to this industry and on my way of becoming a real estate agent. Even though i don’t fully understand what exactly going on here, i still have a clue but I can’t stop myself from asking the ultimate question: Is this a bad time to get into this business since i am planning to become a full time real agent? Regards. RAZ

  4. Gerald Tostowaryk said the following on March 9, 2010 at 8:16 pm:

    Well Sam, a great post. I’m sure you knew the feedback this topic would bring. Perhaps the comment about you selling web sites to fee for service agents says it all. You provide a service and you don’t tell us how to run our business and neither does CREA. CREA would never tell us how to run our business; that is against the law and that would be the day any agent would let someone (and sure not CREA) tell them how to operate. This is a total non-issue (except for the huge waste of taxpayer dollars (and our dollars) by the Bureau).

    The reality is that discount brokers are not discriminated against except maybe by disgruntled non-professionals who generally don’t last. They are totally accepted and, perhaps the only error in your original post, is that their listings aren’t shown if there is no commission payable. Professional REALTORS® just negotiate a commission with their buyer clients because we are bound by the Act to show all suitable listings to our buyers.

    We have a large portion of the market because we are good at what we do. The truth is that we still put more money in the Sellers pocket at the end of the day because we only deal with motivated buyers who are willing to pay fair market value for a suitable property that will provide them with a joyful home for years to come. Let the Commission Free (haha) FSBO companies deal with the folks who aren’t really motivated.

    Anyways, a good topic, but not worth all the time some REALTORS® are wasting worrying about it.

  5. Donna said the following on March 4, 2010 at 10:47 pm:

    What are we doing to fight this? Do we have a petition we can sign? Surely there is enough Realtors in Canada for the government to worry about losing their vote. Do we speak up or just let them steam roll us? Why is it ONLY our industry being attacked? Because we are vulnerable and not valued? How about Doctors next for example? Maybe I think it is against the competition act that I have to go to a doctor to get a prescription renewed and they get a royalty for doing so? In Mexico I can go into any pharmacy and ask for any drug I wish without a doctors prescription and get it filled….see my point? Are we heading back to a non-regulated society? If that’s the case, then I am moving to Mexico cause at least the weather is nicer there…lol. First they tell us we need all these regulations to protect the public then they attempt to remove them…geeesh.

  6. Sam Prochazka said the following on March 3, 2010 at 12:58 pm:

    Hi Mark,

    I’ve seen listing systems come and go, and they all have the same BIG problem: once a property sells, the seller no longer cares enough to remove their listing from the database. The isn’t the case on MLS where the REALTOR/Broker is required to remove the sold listing as a term of their board/association membership.

    Liability clauses like the one you’re referring to are fairly standard in most information system documents. The fact remains that data on the MLS is the most accurate available, even in light of these disclaimers.

    Sam

  7. Mark said the following on March 3, 2010 at 11:01 am:

    I’m with you on regulator likely removing rule 3 but I’m confused about rule 1.

    Many if not most of the contracts I’ve seen lately have something to the effect of;

    THE BUYER ACKNOWLEDGES that the Feature Sheets, marketing materials and any pre- inspection reports provided by the Listing Broker with respect to this property were ordered and obtained for their respective purposes. The Listing Broker makes no representations or warranties regarding these materials and/or their content. Any reliance on the materials is at the Buyer’s sole risk. The Buyer agrees to indemnity and hold harmless the Seller, the Listing Broker and its Sales Representatives for any errors, omissions and any representations, express or implied, contained in the materials.

    If realtor’s aren’t going to take any responsibility for the accuracy of the data they share via MLS.ca why would the Bureau not be right in saying the data is provided caveat emptor whether it comes from full service realtor, a discount realtor or a FSBO?

  8. Sam Prochazka said the following on March 2, 2010 at 10:34 am:

    Hi Greg, thanks for the comment. RealPageMaker sells websites to REALTORS, but we’re not in the business of telling our customers how to run their businesses (short of educating them on everything internet).

    If you want my personal opinion, however, here it is: in transactions dealing with property I use the full-service model because:
    - REALTORS I work with put in the hours and provide me with a valuable service – this value is worth paying for.
    - In general terms, REALTORS provide consumers with choice by “lubricating” the real estate market. Without REALTORS there would be no amalgamated database, FAR fewer transactions, and far less choice of property on the market. This is worth paying for, and the government should recognize that it’s also worth protecting.

    Having said that, fee-for-service and discount brokerages are extremely important in soliciting customers who would otherwise go to comfree or propertyguys and their value to the industry should not be underestimated.

  9. Vincent Bruno said the following on March 2, 2010 at 10:26 am:

    Hi Sam,

    Good article.

    I think you’re right: Canadian policy in most things has a way of following suit with the USA. I expect the eventual CREA outcome will mirror that of the NAR decision a few years back,

    The real bottom line remains that house transactions are intimidating for most people, and that’s why the industry exists, and is valuable. Even within the current constraints, consumers have options (fee-for-service, discount brokerages, several crappy FSBO sites, etc.). Funnily enough, it seems to be the guys that are experts at the conventional model (good website, marketing, excellent follow-up programs, good customer service) that hold most market share, and not so much the novel ones, despite a myriad of attempts over the years.

    It will be hard to hold my breath for the next 5 years while the government and industry associations burn mega$$ to reach a predictable conclusion.

    Vincent

  10. Greg said the following on March 2, 2010 at 9:22 am:

    Hi Sam,
    I just wanted to know why you support Fee-for-service Realtor clients with your Real Page Maker websites?

  11. Joseph F said the following on March 2, 2010 at 1:27 am:

    I agree with Harvey. We should close the MLS.ca and Realtor.ca sites, so that MLS would become a members only site, and the issue would disappear. This will also prevent some of the low ethic realtors from being non-cooperative to buyer’s realtors and to wait for a street buyer to get double ends.

  12. Harvey McCallum said the following on March 1, 2010 at 1:24 pm:

    Hi Sam

    I will say it again. If there is no MLS.ca or Realtor.ca there is no issue about the public listing on MLS.

    In fact it would be handy for FSBO’s to list on MLS so we can find them easier.

    Real estate companies, offering $300 MLS listings, are betting on buyers finding the MLS listings on Realtor.ca and MLS.ca for their success.

  13. Sam Prochazka said the following on March 1, 2010 at 1:05 pm:

    Hi Harvey,

    The issue is with the licensing of the MLS and REALTOR trademarks. If the REBGV wants to continuing advertising themselves as an MLS System, they’ll need to continue operating by CREAs rules (the Three Pillars, etc.).

    I agree with you on the seriousness of FSBOs being allowed on MLS, but I don’t think that’ll happen because MLS’s main competitive advantage is accuracy of data and it’s extremely unlikely that the government would compromise it (FSBOs are never accurate because 1. Sellers won’t update listings details when they change and, 2. Sellers won’t remove FSBOs from the database when they sell. ).

    Sam

  14. Sam Prochazka said the following on March 1, 2010 at 12:50 pm:

    Hi Robert,

    Thanks for the comment.

    I disagree that the model is archaic. In the US, after the DOJ won against the NAR, companies like Redfin, ZipRealty, etc. claimed victory and that their new business model would make full-service agents obsolete. In the following years, these companies had to lay off significant staff, and in some cases revert to higher fee structures, similar to full-service. Even in my personal experience I’ve seen half a dozen fee-for-service brokerages go under because their fee-for-service business models couldn’t cut it.

    Fee-for-service companies can be successful, but they won’t be the runaway successes everyone thinks they’ll be. My opinion is that consumers will pay for value and there will always be a place for full-service REALTORS.

    Sam

  15. Harvey McCallum said the following on March 1, 2010 at 12:13 pm:

    Hi

    Lots of good information.

    Why do you think the REBGV MLS Pillars and Interpretations are tied to and mention Realtor.ca? I thought the REBGV was independant of CREA who owns Realtor.ca and Mls.ca. It seems to me if we switch off Realtor.ca and MLS.ca the issue of just listing a property on MLS would go away.

    If fsbo sellers are allowed to list their property on MLS and buyers can find the listings on Realtor.ca and Mls.ca; why would buyers and sellers need a realtor?

    Any comments?

  16. Rod Friesen said the following on March 1, 2010 at 10:51 am:

    This is a complete waste of time and money. NAR has already dealt with this and why we need to spend uber amounts of money to come to the same collusion, er, conclusion as the US is beyond me. The US system is basically status quo as well. If you ask around, it has affected them almost not at all.

    This is just a huge waste of money. It’s a big pit and they will keep increasing our fees and dumping money in it. It seems moronic that both sides can’t just say “hey, the NAR just dealt with this, and this is the result, should we just do that” Both sides answer yes and we carry on.

  17. Robert Harrington said the following on March 1, 2010 at 10:39 am:

    If not the competition Bureau working to change this archaic business model, it would be someone else.

    There is very little cost benefit for either Realtor OR consumer with the present 1955 business model. All benefits accrue to people running the business just like any other MLM business model.

    The present Multi Level Marketing (MLM= Much less Money) with the seperate boards acting as UPLINES and all duplicating the same service is just nuts.

    The neighborhood office has no consumer Benefit and only exists to creat REALTORS…and the Internet makes all regional boards redundant.

    Realtors are now just partime classified ad salespeople selling ads for the MLS on spec.

    …and because of the present MLM 1955 business model the costs are outragous for the Realtor and that’s why it’s so hard to make a full time living and Real Estate is now the biggest generator of part time jobs for adults in North America.

    Don’t sweat the Competion Bureau though, this present 1955 business model cannot stand much longer.

  18. Sam Prochazka said the following on February 20, 2010 at 9:52 am:

    Hi Gerry – I agree – this is all going to be a tremendous waste of money, both from boards/associations and from tax payers who pay the lawyers at the competition bureau.

  19. Gerry Footz said the following on February 20, 2010 at 8:26 am:

    You might be right in regards to the outcome. however in the interim, millions of dollars will be spent defending our MLS system, countless lawyers will be engaged and our fees will have to rise to cover that.

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