Canada’s competition watchdog has obtained a court order requiring the national association for realtors to turn over documents as part of a probe into whether the group’s rules lead to consumers paying more in sales commissions.
The Competition Bureau said on Thursday that it is examining the Canadian Real Estate Association’s policies to see whether they result in less competition and higher costs for both buyers and sellers. The watchdog is also probing whether the rules make it more difficult for other listing services to compete with CREA’s Multiple Listing Service.
The order from the federal court requires CREA to produce records and information relevant to the bureau’s investigation. The watchdog said there is no conclusion of wrongdoing at this time.
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CREA, the country’s largest real estate association with more than 160,000 realtors, said in a statement on its website that it was co-operating with the Competition Bureau.
“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,” CREA chair James Mabey said.
When asked to comment on the investigation, CREA directed The Globe and Mail to the statement.
Under CREA’s buyer broker commission rule, sellers’ agents collect commissions from their clients and are required to offer compensation to the buyers’ agents for properties listed on the MLS, which is the dominant database for realtors to post their listings.
The watchdog said information it has obtained from market participants suggests that the buyer broker commission rule reduces incentives for the agents to compete on the basis of commission rates.
“This is in part due to the fact that when a buyer does not pay their agent directly, they have less of an incentive to select their agent based on commission rates,” Adam White, the watchdog’s competition law officer, said in the Competition Bureau’s application filing with the Federal Court dated Sept. 19.
The court document also said the rule creates an incentive for the buyers’ agents to steer buyers away from listings that offer lower-than-average buyer broker commissions.
“According to market participants, buyers’ agents prefer to show buyers listings that offer higher commissions,” Mr. White said. “It would therefore be in the buyer agents’ interest to persuade the buyer to prefer listings with higher commissions. This in turn can disincentivize sellers from offering commissions that are lower than average, in order to prevent their listing from being disadvantaged.”
The public is able to view the MLS listings via the CREA-owned and operated website realtor.ca. However, realtors, brokers and sales agents are able to view information not visible to the public, such as the commission for the buyer’s agent and the seller’s name.
Many realtors in Canada charge a 5-per-cent commission on the selling price of the property, which is normally split evenly between the realtor who lists the property and the buyer’s realtor.
In places such as Toronto, where the typical home price tops $1-million, the commission works out to a large amount.
For example, the commission on a property that sells for $1-million is $50,000, plus tax. The seller’s realtor, or listing agent, typically earns 2.5 per cent or $25,000 and the buyer’s realtor earns the other 2.5 per cent or $25,000. (The seller pays the tax.)
A second rule under scrutiny is CREA’s realtor co-operation policy, which went into effect Jan. 3 and requires that residential real estate listings be placed on an MLS system within three days of the listing being marketed to the public, with some exceptions.
Marketing includes putting up yard signs, flyers and adding listings to a brokerage’s website that are available to the public. But real estate agents are allowed to market their listings to other agents within their own brokerage without running afoul of CREA’s co-operation policies. That means it could give allow them to get first dibs on listings for their clients.
The watchdog said this favours large brokerages because they have a greater number of agents working for them and these agents can advertise to a larger network of agents without contravening the rules.
“Smaller brokerages with only a few agents working in them will have less of an opportunity to advertise their listings outside of an MLS system,” Mr. White said in the court document.
The watchdog said it is also trying to determine if the co-operation policy makes it more difficult for non-MLS listing services to compete.
The Competition Bureau also said on Thursday that it is inviting Canadians – including buyers, sellers and people working in the real estate sector – to share their experiences with real estate commissions and CREA’s policies by Nov. 6.