OTTAWA – The federal competition watchdog is investigating if rules by Canada’s largest realtor industry group are pressuring home sellers to pay higher commissions to their real estate agent.
New court filings by the Competition Bureau obtained by the National Post reveal that the federal watchdog launched an investigation in late June into two potentially “anti-competitive” rules and practices by The Canadian Real Estate Association (CREA).
CREA is the country’s largest real estate industry group and represents over 160,000 members. It also owns and operates realtor.ca, which it says is Canada’s most popular real estate listing platform, as well as the trademarks for ubiquitous “Multiple Listing Service” (MLS) certifications.
It also submits its members to several rules and procedures, some of which Competition Commissioner Matthew Boswell suspects break federal competition laws.
In an emailed statement, CREA chair James Mabey said the association is co-operating with the bureau’s investigation but denied that any of its policies were anti-competitive.
“CREA believes its rules and policies are both pro-competitive and pro-consumer, including by increasing transparency and helping (realtors) better serve Canadian property buyers and sellers,” Mabey wrote.
The commissioner is asking the Federal Court to approve an order compelling CREA to provide it with a trove of records dating back to January 2019, including information about why it created the rules and policy under investigation.
The first practice Boswell is targeting is CREA’s long-standing “Buyer Broker Commission” rules. They dictate that a seller’s agent must offer a portion of their commissioner to a buyer’s agent in order be allowed to list a property on an MLS system.
Essentially, a seller pays their agent’s commission, who then pays a predetermined portion to the buyer’s agent. Buyers are rarely aware of the portion being offered to their agent.
But the bureau suspects that CREA’s commission rules create an incentive for buyers’ agents to steer their unknowing clients away from listings proposing below average buyer broker commissions.
That also can push home owners to offer higher commissions to their selling agents in order to entice potential buyers’ agents to push their listing because it offers a higher payout.
“We want to determine if these rules discourage agents from competing on commission rates and incentivize them to prioritize listings with higher commission offers, which might not always align with the buyer’s best interest,” Bureau spokesperson Rosalie Leblanc said in a statement.
“There are also concerns that these rules could pressure sellers into offering higher commissions to buyer’s agents to avoid their listings being overlooked by the buyer’s agents,” she added.
The court filings also show Boswell is concerned about a new “Cooperation Policy” CREA put in place in January regarding MLS systems that he believes might disadvantage non-MLS listing services.
The policy requires CREA members to list most residential real estate listings on an MLS system within three days of it being marketed publicly (such as through yard signs, flyers, online ads or email blasts, etc.).
If an agent doesn’t comply with the policy, they risk having their CREA membership terminated.
But the fast turnaround might work only to the benefit of large MLS listing providers who can tailor a listing to a seller’s needs quickly because they have more resources, the bureau suspects.
The bureau is concerned that the three-day requirement MLS system within three days “could be challenging for services that differentiate themselves from an MLS system on privacy or by offering different features,” Leblanc summarized.
The new policy allows for listings to be shared within a brokerage without being listed on an MLS system. Early in the probe, the bureau said it was told that policy favours large real estate brokerages.
“Large brokerages have a greater number of Agents working for them, and thus these Agents can advertise listings to a larger network of Agents without contravening the Cooperation Policy. Conversely, smaller brokerages with only a few Agents working in them will have less of an opportunity to advertise listings outside of an MLS system,” Bureau investigator Adam White wrote in an affidavit filed to court.
The commissioner has not made any findings of wrongdoing against CREA at this time.
The commissioner’s investigation comes on the heel of a landmark US$418 million settlement between the U.S.-based National Association of Realtors (NAR) and millions of home owners claiming that NAR’s commission sharing practices between agents artificially increased prices.
The case in the U.S. is similar in many ways to Boswell’s allegations, namely that commission sharing rules encouraged buyers’ agents to avoid showing their clients listings that offered a lower payout from the seller’s agent.
There is also a proposed class action lawsuit in the Federal Court alleging CREA and other real estate boards conspired “to fix, maintain, increase, or control” agent commissions for listings on MLS in Toronto.
Garth Myers, one of the lawyers behind the proposed class action, says the commissioner’s inquiry is great news for home buyers and sellers.
“The inquiry launched by the Competition Bureau is consistent with doors closing on CREA and reflects a growing concern in Canada with the cost of real estate commissions generally,” he said in an interview.
“I think that residential real estate sellers are undoubtedly harmed by the rule that requires them to make an offer of buyer brokerage commission if they want to post their house on the MLS.”
This is not the first time the competition commissioner has locked heads with the CREA. In 2010, both parties entered into a 10-year agreement after the commissioner raised serious concerns about some of CREA’s rules for posting on MLS systems.
“The 2010 agreement was related to MLS system rules which restricted consumer choice and prevented innovative business models from emerging. This investigation may share some similarities, but our current investigation is regarding both the Buyer Broker Commission Rules and the REALTOR® Cooperation Policy,” Leblanc noted by email.
National Post
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