It’s money, of course, but the CREA is fighting a losing battle in trying to restrict access to its listing service
Tsur Somerville
Sun
The Canadian Real Estate Association wants to prevent discount real estate brokers from using its website, claiming the current situation hurts consumers.
Who suffers under the status quo? Is it the public, or the full-service realtors whom CREA represents?
From an economist’s perspective, less competition is bad. In the short run, the proposed changes would certainly reduce competition and restrict the availability of low-priced, reduced-service real estate agents to consumers.
The changes would provide more protection for existing CREA members and maintain the current fee structure.
In the long run, however, little the CREA does is likely to slow the growth in alternatives to the traditional realtor business model.
In Canada, the CREA and its local boards dominate the provision of information about homes for sale through their trademark Multiple Listing Service and Web databases such MLS.ca and RealtyLink.
More than 85 per cent of Canadian home sales occur through the MLS. Only member agents, however, are allowed to list homes for sale on these websites.
While commissions are not fixed, they amount to nearly $30,000 for a benchmark house in the Greater Vancouver area. This fee is typically split between the buyer’s agent and the seller’s agent.
Discount online real estate agent services such as Erealty.ca in British Columbia and Realtysellers in Ontario are a challenge to the traditional real estate broker industry and its fee structure.
These businesses offer dramatically lower fees to sellers in exchange for providing a reduced set of broker services, mainly done online.
They use the Internet to replace some of the activities traditionally done by an agent. Critical to their success is their ability to list properties on, and have access to, the MLS.
The CREA is proposing a set of restrictions that would prevent certain types of reduced-service agents from listing on the MLS. By barring access to the MLS, and in the absence of other large Web-based data bases of properties, these proposed changes would remove some reduced-service and lower-fee agents from the market.
If a reduced-service, online agency cannot list your house on the single site where the vast majority of consumers search for housing, why would you sign with it, even for a lower rate? This is why the Competition Bureau has raised concerns that these changes may be an “anti-competitive act,” or unduly lessen competition.
If enacted, the changes mean those consumers willing to accept fewer services in exchange for a lower fee will have fewer options, and be forced to pay more than they would like to. Even those of us wanting to use a higher-priced, full-service agent will be hurt because of reduced competition.
The problem for the CREA is that, in the long run, its proposed restrictions on access to MLS are unlikely to make much of a difference.
The Internet is driving a revolution in the way people acquire products. It gives consumers unprecedented access to information about goods and services and brings buyers and sellers together at a much lower cost.
The Web excels at connecting buyers and sellers or disseminating information at very low cost. Agents who provide reduced service at full-service prices, doing nothing more than linking buyers and sellers and showing them their download of MLS listings, are the ones who have the most to fear from Web-based real estate agents.
Ironically, the true full-service brokers whom the changes are intended to protect are the ones least in need of any protection. These agents provide advice, guidance, insight, understanding, and hand-holding that computers cannot match.
Buying or selling a home is a major financial decision that most people do only a few times during their lives. Many consumers will continue to prefer a full-service agent. These agents are not threatened by the reduced-service agents because they provide what is largely a completely different service.
If the CREA wants to protect consumers from inaccurate information and protect the MLS, there are ways to do so without restricting competition and reducing consumer choice.
More information about the listing agents, their experience, records, consumer satisfaction and the services they will provide would be a start.
This would go a long way towards protecting homebuyers from being mislead by those agents who pretend to offer full service, at either a discount price or at full price.
Tsur Somerville is director of the University of British Columbia’s Centre for Urban Economics and Real Estate.
© The Vancouver Sun 2006
