Federal Competition Bureau vs. CREA

The commission costs of buying and selling homes in Canada may be set to drop. The federal competition bureau has wrapped up a two-year investigation of real estate practices and they are pushing for big changes. They want the Canadian Real Estate Association (CREA) to open up its Multiple Listing Service (MLS) to discount real estate brokers.

Until now CREA has kept commissions on the sale of homes in Canada at artificial levels (usually 5-6% of the house’s sale price) by refusing access to MLS to any broker offering lower commissions. Because most homes for sale are listed in MLS, being denied access is a serious impediment for discount brokers.

For now CREA is sticking to its guns saying that they don’t plan to grant greater access to MLS. This may ultimately lead to a showdown before the Competition Tribunal. It seems that we can eventually look forward to lower real estate commissions driven by market forces rather than a monopoly.

Comments

  1. Big Cajun ManNovember 4, 2009 at 10:29 AM

    Monopoly? Can I put up a hotel on Baltic then?

    Ask any Agent they work hard to earn the $10,000 they get to sell your house. If you didn't have them, housing prices might drop!!!

    ReplyDelete
  2. Michael JamesNovember 4, 2009 at 10:41 AM

    Big Cajun Man: Actually, I suspect that some real estate agents will be happy to see this change. Some energetic agents will want to break out on their own, but are held back right now. The prospect of being your own boss and getting to keep all of the commission (even if it is somewhat smaller) has its appeal.

    ReplyDelete
  3. PatrickNovember 4, 2009 at 2:15 PM

    BCM: The issue is not how high the commissions are. The issue is price fixing. If prices are permitted to float to competitive levels, and level out at $10k, then fine, that's what the Agent's services are worth.

    ReplyDelete
  4. Michael JamesNovember 4, 2009 at 2:25 PM

    Patrick: You are absolutely correct (I suspect that BCM's comment was tongue-in-cheek). There was a time when maintaining the MLS took considerable resources and it made sense for agents to give up a significant fraction of their commissions to maintain it. Now MLS could be a simple web site run by a few people for the whole country.

    ReplyDelete
  5. The PrinceNovember 14, 2009 at 2:14 AM

    Michael, You should read a little more about the subject before making a post. CREA does not refuse access to brokers offering discount commissions. The MLS system is open to discount brokers. There are many out there. That is not the issue. Currently CREA says that if a Realtor takes a listing, they must be involved in any offers that come in and act as the agent for that listing. The competition bureau wants them to drop that requirement. They say that a Realtor should be able to take a listing, post it on MLS and not have anything to do with the listing after that. That is the issue.

    ReplyDelete
  6. Michael JamesNovember 14, 2009 at 9:41 AM

    Prince: It's true that I didn't discuss which discount brokers were being denied access or the precise reason why. However, the truth is somewhere between your characterization and mine. To say that "CREA does not refuse access to brokers offering discount commissions" is like saying that go cart tracks don't deny access to young children, they just don't let anyone under 4 and a half feet tall on the track. CREA's rules are designed to suppress business models that seriously reduce commissions. However, I'll take your point that I should have expanded the post to discuss the underlying technicality that you explain clearly in the latter half of your comment.

    ReplyDelete
  7. StanNovember 15, 2009 at 5:10 PM

    Just listed my home on MLS for a flat $789+GTS. I still have to pay 2.5% (or less I hope) to a cooperating broker.
    The problem today is that the commissions are too high, there are two many agents who spend too much time looking for listings. This is a problem with the system, and it needs to change-we also do not need so many agents (spending large amounts of time hunting for listings) The agents should be paid well for progession services, $150 an hr for lets say 30 hrs work to sell a house-NO More

    ReplyDelete
  8. Michael JamesNovember 15, 2009 at 5:57 PM

    Stan: You're right that we don't need so many real estate agents any more. Improved efficiency due to the internet and other technologies is putting pressure on many occupations.

    ReplyDelete

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