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REAL ESTATE

Opening up home sales to new players

April 3, 2010

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Tony Wong
BUSINESS REPORTER

Nawel Seth says one of the most palpable signs of change in the real estate industry is that many clients don't ask him how much they think their home is worth. They tell him.

"The Internet has changed everything," said Seth, a broker with Coldwell Banker in the Toronto market. "Consumers have much more information and power at their fingertips. Agents don't hold all the cards."

Seth believes that in the near future, the real estate market in Canada will be vastly different for consumers. And he hopes to capitalize on that.

"I think over the next four years, there will be more change and more choice for consumers than you have seen in the last 50 years," said Seth.

Recent changes to rules by the Canadian Real Estate Association have seen to that. Last week the association dramatically changed its regulations, which seemingly allow for greater competition in the marketplace by relaxing some rules.

The decision, sparked by an investigation by the federal Competition Bureau, has emboldened a range of innovative companies and discounters poised to enter the market. The results may well be cheaper fees for Canadian consumers.

However, the Competition Bureau still has reservations over whether the new rules go far enough. The two sides are headed for a court challenge before the Competition Tribunal, likely in the fall.

But regardless of the final outcome, the message is clear for discounters: The market will never be the same.

Seth, a full-service broker with a major franchise, is one example of how dramatically the industry has changed. While he has flirted in the past with offering lower rates of commission on certain deals and a flat fee for certain services, in the wake of the CREA decision he now intends to market lower rates much more aggressively to consumers.

While homes have been sold privately on websites such as Craigslist, the Multiple Listing Service is the first choice of home buyers. The database is responsible for more than 90 per cent of the sales of all homes nationally. Owned by CREA, only members are allowed to post homes on the system.

"We were very careful what we did in the past because we have to abide by the rules and regulations. But the writing is on the wall. Consumers want to be able to pick and choose what services they will buy," said Seth.

The broker now plans to ramp up a package that includes MLS listings for $1,000. Other services are optional. In the United States, consumers already have a plethora of choices after a Justice Department lawsuit against the National Association of Realtors was settled last year.

If the U.S. is any guide, discounters, emboldened by the Competition Bureau's challenge to CREA, are already actively eyeing the Canadian market.

"You would likely have a lot of companies jockeying for position at this time so they wouldn't lose their competitive advantage when the market opens up," said John Andrew, a professor at Queen's University's school of urban and regional planning.

Commissions are variable and negotiable, but are typically about 5 per cent. An average $400,000 home would cost the seller $20,000 in fees, for example, so the savings can be huge.

Other players, such as Lawrence Dale, who had invested millions in his Toronto Realtysellers brand, argues that he was forced to close down because of the very regulations which were struck down last week.

"This is an industry that has used every method to protect itself at all costs," said Dale. "These rule changes are a full admission that the rules to put me out of business were wrong. Now they are going to pay for it big time."

Dale's company, Realtysellers, claims it was the first in Canada to offer a basket of different-priced services, including a flat fee program. The battle between Dale and organized real estate eventually attracted the attention of the Competition Bureau.

However, one big obstacle with entering the market at the moment, said Dale, is that the rules still aren't clear. That's the case at least until the Competition Tribunal makes a final judgment, or a settlement is reached between CREA and the Competition Bureau.

"Until the industry is prevented from implementing any new rules that affect what an agent has to do, the cloud remains," said Dale.

Competition Bureau commissioner Melanie Aitken said CREA's new rules did not fix the problem in the long run.

"There is nothing in these proposals that we haven't seen before and they do not solve the problem," said Aitken.

The Competition Bureau feels that CREA's rules are still too restrictive and intends to take the organization to the tribunal, which has the power to exact administrative and financial penalties.

Insiders say the stumbling block is wording in the new rules that state that any additional service to be provided by the listing realtor is applicable to "regulatory requirements and the rules of CREA and boards/associations."

The commissioner is concerned that the wording could off-load responsibility to local boards, which might then form their own anti-competitive rules.

"There are still 101 local boards out there that could change their rules, so nothing is certain and that's the problem the commissioner has with CREA," said Andrew.

In a response to the Competition Tribunal, CREA called the challenge "fundamentally misconceived." It also pointed out that competition in various forms, from flat-fee companies to commission discounters, already exists in the market and no further regulation was needed.

"Neither CREA nor its member boards tell its members how to run their businesses or what fees or commissions to charge," said CREA.

Queen's University professor Andrew said while discounters do exist in the market, some were likely not in full compliance with CREA regulations.

"There were already a few brokers out there who were more aggressive. But what we needed are rules that created a level playing field and where you didn't have to second guess whether you were in violation or not," said Andrew.

Andrew said he considers the move by CREA to change their rules as a good first step. But he still feels it doesn't go far enough. He would like to see the MLS system opened up so that listings information would be available on other websites as it is in the U.S. That's likely the other shoe to drop as the Competition Bureau pursues local boards.

This has been a tough sticking point with organized real estate since its says it created the MLS system. After paying millions to fund it, it is now forced to open it up to competition.

"We've done everything we can short of shutting down the MLS system," said a frustrated Dale Ripplinger, the former CREA president referring to the recent rule changes.

Andrew said he understands the sentiment from the real estate community.

"Just because you built up a successful business and now own 90 per cent market share why should you be forced to give that up?" he said.

"But I think if you liberalize the information, as we have seen in other industries, there will be more home sales and everyone will ultimately benefit."

 

Toronto Star

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