I have been following the story about what is going on with CREA and the Competition Commissioner. For months now, I have been following this case in the news and I just finished reading the entire case which can be found here (link).
Here is an introduction to the people involved and their roles, as well as a summary of what I read and my conclusions.
CREA represents 96,000 real estate agents. They are basically a union for real estate brokers and agents. You must be a member to trade in real estate. Like any union their job is to help provide the best possible pay and benefits for their members.
CREA also owns the MLS and Realtor.ca and the ICX.ca for commercial properties. I don’t imagine that when some hotshot decided to put all their records and listings online that they could not have predicted the future dominance of the internet. All properties listed for sale by real estate agents and sold by real estate agents have been in their database for years. Initially they were just making things easier for themselves; now the internet is here to stay. It could be argued that real estate agents today have less work to do selling a property; according to their statistics 90% of people look up property on the realtor.ca website before calling an agent.
The current Competition Commissioner’s name is Melanie Aitken. Her biography is here for those who want to know more. It speaks volumes that the Commissioner herself is bringing forward this complaint.
How does it work? The Commissioner and other investigators are charged with enforcing the Competition Act. They explore allegations of malfeasance, price fixing and anti-competitive acts. If there is an unlawful act occurring, which cannot be negotiated or resolved, they will bring their findings to the Competition Tribunal, who then pass judgement based on the merits of the complaint. The Tribunal then decides what penalties are appropriate. In some cases people even get sent to jail or get fined.
The Commissioner’s case
The Commissioner alleges that “CREA has used their control of the MLS and related trademarks to impose exclusionary restrictions on their use and thereby maintain substantial or complete control of the market for the supply of residential real estate brokerage services.”
The case is that the MLS restrictions imposed by CREA dissuade and prevent more competitive real estate services from being started or continuing. It goes on to describe the MLS database as a powerful network and essential to any real estate brokerage. As 80% or so of all home sales go through the MLS it’s not difficult to see the power of this system. Furthermore, most historical transactions are recorded including listings and sales. Any broker that did not have access to the MLS would find it very difficult to price homes properly.
CREA requires that real estate boards sign an agreement that they are complying with their rules so that they can access the MLS. Furthermore CREA has continued to add rules to ensure that the only services offered are “full service” with full prices.
Mentioned in the case is a company that used to offer a fee-for-service model called Realtysellers. Lawrence Mark Dale & Stephen Moranis started Realtysellers in 2000, closing in 2006. Realtysellers sued CREA before and reached a settlement and is currently suing them again for damaging their business.
I quote from the first page of their response to the Commissioner’s application “The application is fundamentally misconceived”.
To summarize: We didn’t do it. The Commissioner is out to get us.
As a part of their case there is a list of some fee-for-service and lower cost broker’s to substantiate their claim that competition exists. With 96,000 members the list is 8 brokers long….. For those of you shopping for less expensive service or just an MLS listing here they are.
- Best Value Realty (Ontario) MLS listing for $109 – www.bestvalue.biz
- Remax 1% commission + 2.5% to buyer’s agent – www.saveoncommission.ca
- Calgary Discount Realty $579 – www.calgarydiscountrealestate.com
- Donald Hewie Brokerage flat MLS fee + 1-3% commission – www.hewie.com
- MLSByOwner – $279 – $599 flat fee – www.mlsbyowner.net
For some reason of the 8 links posted for “evidence” 3 are not working which is why I have posted only 5.
I want the Commissioner of Competition to force CREA to sell the MLS database to another company. I want the information within it to be easily searchable by anyone. This information is already in the public sphere. It is possible to find all the information contained on an MLS listing by searching property tax records by address and searching land titles registry. It’s just not practical.
I am absolutely and entirely uncomfortable with a real estate agent being the gatekeeper of this kind of valuable information. It makes me very unhappy, and I’ll give you an example. Last month I was dealing with an investor who wanted to buy a property. When we went to the viewing we got a list of comparable properties. All the comparables were the same or higher priced than the property we were looking at. I was pretty happy about that, and I thought my friend is going to get a good deal. That night, I happened to look at Realtor.ca and found a listing $20,000 lower than the property we were looking at!
What is the effect of this kind of behaviour on the market? Higher prices, that’s what.
What about these bidding wars we keep hearing about? Do the bidders have the proper information to make proper choices?
I have a huge problems with the ethical dilemma of the real estate agents controlling the flow of information to consumers. Consumers have no way of verifying this information. I don’t need a gatekeeper to massage the information I get. Nor do I think that it’s competitive. That is the greatest harm that is being done by CREA. They restrict the free flow of information: they are keeping consumers naive and uninformed. They have a vested interest in keeping us that way; an informed consumer may decide not to participate in multiple offer situations or to pay above market prices.
Are current “full service” real estate fees good value?
In Toronto with an average price of over $400,000 the conventional real estate commission is over $20,000. If you consider that the average income in Toronto for a couple is about $80,000, one partner could stay home and sell their house full time for 6 months and come out ahead. With fee-for-service real estate, people could elect to take their own phone calls, do their own showings, drive their own car, fill out their own offer of purchase and sale and save money. For those who choose full service it would still be an option, but we would no longer be forced to consume these services at enormous expense through loss of choice.
If the MLS database were searchable by everyone, real estate agents would no longer be in the position of having to provide this information to investors and shoppers, an activity that takes up an inordinate amount of time I’m sure. Currently, if you want to sell your house yourself and you want to know how much it’s worth, you call a real estate agent to get an idea of the market price. This is free but really shouldn’t be. Conversely it gives the real estate agent first crack at every transaction on the market. They get an opportunity to change your mind and get you to sign a listing. Most will also tell you about the competitive advantages of the MLS.
What about “the competition” that CREA has talked about? Eight examples out of 96,000? That’s 0.0008%. That alone is suspicious. In fact, it speaks to the success of CREA’s alleged endeavors. Of the 96,000 real estate agents it represents, eight have come up with these competitive business models. One of their examples, Joe Williams of Ottawa, calls himself the most hated man in Ottawa Real Estate (link). The exception does not prove the rule. Clearly, something is underfoot. It’s statistically improbable that the wares offered are not under some powerful shaping influence.
I am grateful to the Competition Board and to the Commissioner for tackling this issue. These government organizations are there to intervene on behalf of the average person who could never hope to tackle a lawsuit against such a large, expansive organization. I hope they win for consumers’ sake. We deserve more options and more competition. We deserve better prices.
Oh, and for those of you who are thinking that I am anti-business, nothing could be further from the truth: CREA has been given monopolistic powers over all real estate trade by legislation. Live by the sword: die by the sword.
About the Author: Rachelle specializes in renting property on behalf of landlords. She also works with investors to find good investments in Toronto and surrounding areas. Her passion is bringing multi res properties back from the brink and maximizing profitability.If you would like to read more articles like this, you can sign up for my free weekly money tips newsletter below (we will never spam you).