The Dirt: Competition Bureau v. CREA:

The Canadian Real Estate Association represents more than 95,000 real estate agents and brokers in Canada and is the registered owner of the ubiquitous Multiple Listing Service and related trademarks, all of which it licenses to its member real estate boards and associations across the country.

The MLS system provides CREA members with a comprehensive listing of properties for sale in Canada in a uniform format familiar to agents across the country.

There’s no doubting the effectiveness of the MLS system, which currently accounts for approximately 90 per cent of all home resales in Canada together with a decent number of smaller commercial real estate transactions.

Although there’s limited public access to the MLS through CREA’s web site, the public information is little more than teaser material with the comprehensive property listing information available only to member licensees.

Although the basic business model for CREA’s MLS had been in place for decades, in March 2007 the association imposed additional restrictions on the terms of use, allegedly to curb the growth of discount brokerage operations.

The new rules allowed only CREA members to list homes on the MLS system and added new conditions requiring, inter alia, that the listing agent receive and present all offers; members be prohibited from making “mere postings,” a prohibition preventing a listing agent from being hired only to post the property at a commensurately lower fee; and listings not disclose the seller’s name and contact information.

According to the discount brokerage lobby, these new rules precluded agents from offering prospective sellers the option of paying a flat, and presumably much lower, fee to list the home on the MLS system, instead requiring consumers to buy the full spectrum of more costly agent services rather than selling their homes by themselves with the help of a cheap MLS listing.

The 2007 amendments attracted the attention of Canada’s Competition Bureau, culminating in charges against CREA filed with the Competition Tribunal alleging abuse of dominance, which occurs when a dominant entity or a group of dominant industry players engages in conduct intended to eliminate competitors or deter their entry, thereby resulting in a decrease in competition.

More specifically, the Competition Bureau claims CREA and its members use their control of the MLS system to maintain substantial or complete control of the market for the supply of residential real estate brokerage services, all in alleged contravention of the Competition Act.

The Competition Bureau’s actions came on the heels of the similar 2005 antitrust lawsuit in the United States brought by the Department of Justice against the National Association of Realtors, CREA’s southern counterpart.

The U.S. antitrust lawsuit struck a blow against the association’s stringent rules in place at the time preventing access to the MLS system to web-based brokerages. The arguments weren’t conceptually dissimilar to the arguments levelled against CREA today.

In response to the recent scrutiny from the Competition Bureau, CREA recently recanted many of the 2007 amendments, electing instead to eliminate the requirement that the agent represent the client for the duration of the listing and allowing the homeowner’s name and contact information to be posted.

CREA also clarified that agents can, and always could, provide a reduced scope of services. But even after CREA changed course, Melanie Aitken, the competition commissioner, stated the amendments “do not solve the problem” and “are a step in the wrong direction.”

In particular, she noted that a provision in the 2007 amendments allowing for the changes to be subject to the rules of local real estate boards remained intact.

There’s little doubt that significant changes are coming to the MLS system, regardless of the outcome of the Competition Bureau action. Furthermore, there’s no doubt that some of these changes will be real game changers for the business of real estate brokerage.

If the U.S. experience is any example, we can expect the rise of discount brokerages and Internet-based realty at the expense of traditional full-service offerings. The U.S. association has lost nearly 13 per cent of its membership since the antitrust lawsuit, with many local boards merging to form regional and statewide entities.

While it’s true that the apparent decline in traditional brokerage is also concomitant with a massive real estate meltdown south of the border, most American pundits still think that traditional full-service realty brokerage will soon go the way of full-service travel agents in the Internet age.

One statistic gleaned from a 2009 Los Angeles Times article is illustrative. According to that article, in March 2009, approximately 2,000 people took the California realtor licensing examinations. In contrast, there were 8,000 realtor wannabes writing the same test back in March 2005.

So what? As lawyers, what will the liberalization of MLS access do to our business? It’s trite to conclude that increased accessibility to the MLS system will result in a decrease in the overall compensation being paid to many residential real estate brokers, but the impact on lawyers of realtors’ lost income isn’t readily apparent.

In many markets, realtors are a huge referral source for real estate lawyers, something that Internet and discount brokers who are expected to start mowing the lawns of the full-service realty firms aren’t likely to replicate.

Of course, that might just mean a slightly different approach to marketing since the overall demand for legal services shouldn’t decrease with the advent of discount brokerage.

Recall that real estate lawyers, at least in Ontario, have also experienced the warm and cuddly embrace of the Competition Bureau. Ever since encounters with the bureau in the 1980s, the word “tariff” has disappeared from the vocabulary of all real estate lawyers in the province.

The corresponding decrease in competence and service is a separate issue, but suffice it to say that the residential real estate bar has never really recovered its former robustness, in large part because of the chronic, if not permanent, price undercutting that now permeates that corner of the bar.

One can only expect the same fate for full-service realtors, but just as they survived the predation of the residential real estate bar after 1988, we can perhaps expect very little impact on lawyers after this paradigm shift for the agents.

Indeed, some observers even posit that the liberalization of MLS access might finally spur the movement towards lawyers actively entering into the brokerage business.

Another possibility is that the savings that clients realize in their realtor commissions might then translate into a corresponding rise in the average legal fees payable for a residential real estate transaction.

All that we really know for sure is that revolutionary change is coming to the real estate brokerage industry. Such change will forever upset the status quo for this country’s realtors.

Jeffrey W. Lem is a partner in the real estate group at Davies Ward Phillips & Vineberg LLP. His e-mail address is [email protected]

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