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The real estate industry can change without help from the federal government


Blog by The Schacter Team | February 17th, 2010


 
 

Almost everyone who has contemplated buying or selling a house has at least a nodding acquaintance with MLS, the Multiple Listing Service system of the Canadian Real Estate Association. Roughly 90 per cent of residential property transactions involve MLS to some degree, mainly because it offers the most comprehensive database of properties for sale in the country.

In order for real estate agents to post listings on the MLS system they must be members of the Canadian Real Estate Association (CREA) and pay annual dues. A member -- there are 98,000 of them -- is entitled to use the term Realtor, which is a CREA trademark. A Realtor listing a property on the MLS system must act as agent for the seller.

Now, there's nothing wrong with a private club restricting access to its members; however, MLS is no ordinary club. CREA says 465,251 homes were traded through the MLS system in 2009, while the average residential sale price was $320,333. That works out to an annual $149 billion, which is bigger than Canada's petroleum industry.

Too big to ignore, the MLS system was targeted by the federal Competition Bureau in 2007. In the bureau's view, CREA's rules regarding the MLS system "prevented or lessened competition" in the market for residential real estate brokerage services, such that brokers wishing to offer fewer services at a reduced cost were unable to do so, limiting consumer choice.

Unable to negotiate a settlement with CREA, the bureau has filed a complaint with the Competition Tribunal, which has the power to strike down rules deemed to be in violation of Canada's Competition Act.

Among the allegations is that CREA requires those using the MLS system to offer an entire suite of brokerage services at full price, which on average is five per cent of the purchase price, although it varies among local real estate boards. But you won't find such a restriction in CREA's rule book. Instead, you'll find an expectation of high standards of business practice, providing assurance for consumers that services provided will be of a certain quality, and that there is an avenue of recourse if they are not.

To be sure, MLS has the appearance of a monopoly. But appearances can be deceiving. The real estate brokerage business is highly competitive and discount brokers, such as One Percent Realty in British Columbia, have been offering an alternative for consumers for many years. If they are breaking the rules, then CREA must be looking the other way.

The fact is that new communications technologies and innovative business models are changing the business, without government intervention. CREA will be presenting rule amendments to its membership next month that provide greater flexibility for real estate agents and consumers alike.

Soon, we hope more data will be made available to the public, such as sale prices of properties in specific neighbourhoods, and street addresses in those jurisdictions where this information is not yet offered. The liberalization of information and its dissemination through conventional means as well as mobile devices will benefit the industry and consumers. These developments bear a striking resemblance to the restructuring of the financial services industry, where both full-service brokers and discount online brokers have prospered (often under the same corporate umbrella), while consumers have been given a broad range of services and prices.

If the Competition Bureau has served as a catalyst to accelerate change in the real estate business, bravo. Now it should step back and let the market finish the job.