People are asking me about the suggestions made by the Competition Bureau of Canada following their investigation of the Canadian Real Estate Association (CREA). The Competition Bureau has indicated that some of CREA’s policies that govern the operations of MLS® systems restrict consumer choice and limit the scope of alternative business models, which might be viable and beneficial to consumers if the policies didn’t exist. The purpose of these policies while clear to Realtors are not often clear to consumers. This article will clarify some of the major points in this area of debate.
First let me set the record straight with respect to some of the twist placed on this topic by the media in recent days for the sole purpose of making headlines. CREA has indicated to its members that it disagrees with the Bureau’s views. The media would have you believe that the CREA will be opening up the MLS® system for all to use. This is simply not the case nor is the Competition Bureau even suggesting that. An understanding of what the MLS® system actually is should help.
First of all it is necessary to know that CREA is a national association of REALTOR® members. All REALTORS® working in Canada are members of the association. CREA provides governance for the real estate industry at the national level. In Ontario, the Ontario Real Estate Association (OREA) and the Real Estate Counsel of Ontario (RECO) provide service and governance for its members at the provincial level. Below are details of what the Competition Bureau is challenging CREA on.
In 2007, the membership of the Canadian Real Estate Association approved the “Three Pillars of the MLS® Mark” and Interpretations.
The Three Pillars of the MLS® Mark are;
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.
3) Compensation to Cooperating Broker – The listing REALTOR® agrees to pay to the cooperating REALTOR® compensation for the cooperative selling of the property.
The Interpretations of the Three Pillars of the MLS® Mark are;
1) The listing REALTOR® shall receive and present all offers and counter offers to the seller.
2) The listing REALTOR® shall be available to provide professional advice and counsel to the seller on all offers and counter offers 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 REALTOR.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.
The same year that these articles were passed, CREA was served a Section 11 Order, an investigatory order requiring CREA to produce documents related to CREA’s rules and the operation of an MLS® System. CREA has been engaged in regular discussions with the Bureau since the issuance of the Section 11 Order.
The Bureau ultimately concluded that specific aspects of CREA’s Three Pillars of the MLS® Mark and the accompanying Interpretations prevent innovative business models, and the potential “unbundling” of real estate services that could allow sellers to play a larger role in the home selling process, even while utilizing the limited services of a REALTOR®.
Specifically, the Competition Bureau has asked CREA to remove the “Agency” pillar, as well as interpretations 1, 3 and 6. Under the Bureau’s proposed remedy, the other two “pillars” would remain, and so would Interpretations 2, 4, 5 and 7.
It seems apparent, based on the articles targeted for removal that the Bureau would like to see REALTORS® having the option to offer limited services that do not bind the REALTOR® to meet their fiduciary duties normally provided as a result of an agency relationship. Those obligations include accountability, confidentiality, full disclosure, competent care, obedience, loyalty, as well as protection and promotion of the client’s interests. If these obligations were removed, a REALTOR® could, on behalf of a seller, list a property for sale on an MLS® and then allow the seller to perform all of the other services normally provided by agents, for themselves. Some REALTORS have attempted to provide this minimum level of service and claim to have been forced out of the membership and/or had their business models fail as a result. These were models basically resembled a for sale by owner with access to putting their listing on the MLS® listing data base.
In the past, CREA has taken the position that “agency” is a key component of the service that a REALTOR® provides, and continue to believe that. Reality is that all REALTOR®s in Canada have the freedom to choose what levels of service they might provide to a seller, and determine the fee that they will charge for that service. That is obvious with numerous and present discount brokerages that exist right now. The only difference is that those Realtors are still bound as an agent, owing fiduciary duties of care to the seller. In my 22 years as a REALTOR®, I have continually seen discount brokerages come and go. I have never seen one prosper or even continue in business for any length of time.
CREA has also expressed concern that removing this particular pillar does not relieve the REALTOR® from agency obligations, as a matter of law and regulation. Even if the agency component were removed from the “pillars,” provincial and federal law and regulation would still bind REALTOR®s. In fact, some of the interpretations which would remain if CREA agreed to remove those in question clearly imply the existence of an agency relationship, namely articles 2 and 4. In essence, the concern seems to be that REALTORS® could find themselves offering substantially limited services, which ultimately expose them to greater risk and liability resulting from a breach of fiduciary duty.
The Bureau has taken the position that if CREA does not remove the restrictions noted above, the Commissioner of Competition will initiate an application before the Competition Tribunal, a judicial body, which has authority under Canadian law to issue monetary penalties and prohibition orders.
CREA’s Board of Directors has agreed to work with the Competition Bureau towards a settlement, which would be presented to its membership for approval.
CREA is in the process of scheduling consultations with Boards and Associations across Canada to discuss the issue further.
People have been asking me if I am concerned about the potential settlement. My answer is that I am no more concerned now than I was in 2002 when the discount agencies started trying their new "models" and which later failed. The fact remains that the consumer can use the discount brokerages now on the MLS® database and that those brokerages can set their fees wherever they want. Home sellers are also free to sell their homes themselves and have powerful networking tools and companies offering for sale by owner postings. Fact is, while the MLS® system offers a database of homes for sale, its all the other services Realtors provide that make it work. Quiet simply, unless your a REALTOR® or have a close friend who is one, you may not be aware of the amount of actual work, time, effort, training, and costs that go into it. Over the past 22 years, I have listed hundreds of for sale by owners who have indicated they listed with me for a variety of reasons including;
1) They have been approached by potential buyers and did not know where to begin.
-Some for sale by owners were of the opinion that their lawyer would negotiate the real estate transaction for them.
-Having a professional 24/7 negotiator who knows the market and is not part of the actual transaction has very distinct advantages and may be one of the most underestimated values of selling with a Realtor.
2) They have been offend by the people making offers trying to save the same commission they are trying to save.
- Buyers know that it does not cost them anything to be represented by a REALTOR® on the majority of listings and approach for sale by owners themselves with the intent to save.
3) They have been approached by buyers being represented by a REALTOR® which was still being paid the same and they had no representation themselves.
- Buyers are often under contract with a REALTOR® and even if the seller thinks he didn't pay commission, the offer was less in order that the buyer compensate his REALTOR®
4) They were getting numerous calls, questions, and good showings with no results.
- I know from experience that if the seller is even home, much less showing the house, that the buyer cannot relax a see the details of the home. The buyer also frequently
has a different view of the house than the seller which only comes out when privacy is obtained.
5) They were concerned about liability or they heard about problems/civil actions arising from a private sale.
- Failure to disclose pertinent information or misrepresenting some aspect of the property or surrounding area is one of the many potentially serious problems facing for sale by owners.
The problem here is that private sellers don't have any idea how many things need to be addressed and disclosed in writing to prevent problems.
REALTOR®s must complete ongoing mandatory continuing education themselves just to stay on top of issues like disclosure and unfolding case law in the industry.
REALTOR®s must also maintain errors and omissions insurance to cover the potential liability.
6) They simply did not know why their house was not selling or even if it was priced right.
- REALTOR®s spend their career evaluating, viewing, analyzing and negotiating real estate values. Being able to articulate why market value is what it is,
can often be critical to the sale.
7) They had seen or heard about my Home Selling System and all the services it provides. They often indicate that they had noticed the results my system gets over that of other REALTOR®s, especially that of discount agencies.
- Simply being on the MLS® database is VERY far from everything necessary to getting sold, much less getting top dollar for you house. Can sellers do it themselves...sure they can. The question
is how much money is left in their pockets afterwords if they can get even get sold. That means after any civil actions against them and also after they account for their own time and money. This answer alone is why the vast majority select full service REALTOR®s to sell their house.
- I have written articles on this topic which I call "The Real Estate Secret". One is included in this blog, but suffice to say that the quality of your on-line representation beyond the MLS® database representation
is CRITICAL, but is also the beginning of the process, not the end. Case in point...here is a link to a custom web page I built for a client that spent 14 months on the market with another REALTOR®. Yes, they were on the MLS® database and even had a REALTOR®. This is not some exception or past history, but rather last month. Once listed by me the seller sold for 99% of asking less than a week. Oh yes, the process still takes up hours of my time almost daily servicing the transaction.
9) They didn't feel good about some of the people that were showing up in their home.
- I think this one speaks for itself, but I will add that without a negotiator, the success of the transaction additionally becomes whether or not the buyer and the sell like one another.
Only time will tell how this all unfolds, but regardless, there is no way what is required to get a house successfully sold and closed will magically become cheap and easy. If you have read this article and still think that the MLS® database does it all and REALTOR®s do little work and are overpaid, I suggest you give selling real estate a try. Stats show that one in nine REALTOR®s are still in the business two years after they start.