Thursday, November 5, 2009

A hill to die on?

Pay no attention to the man behind the curtain
Had another post planned for today, but in light of this emerging story that will no doubt be on the forefront for the next while, I figured lets run with this. So, the shit has kind of hit the fan this past week in MLS land, as the Competition Bureau concluded that the CREA has rules deemed anti-competitive.

While the specific details of the Competition Bureau's findings have not been officially released, there was news of a leaked CREA letter more or less detailing said findings. I've obtained a copy of the original, and you can view it in all it's glory via this link if you're so inclined.

Nothing particularly earth shattering about it, just kind of outlines the Competition Bureau's findings, which the CREA states they disagree with (duh!), the some possible ramifications of the requested changes.

Seems the CREA is leaning towards pursuing a settlement agreement, rather then face a Competition Tribunal... which basically translates to their not liking their odds if they had their day in court, and would rather try to plead it down rather then risk really having their asses handed to them at the tribunal.

But that is just the higher-up's position, the actual decision will be made in December when they're holding something of an emergency meeting where the members will decide on their ultimate strategy... I would think if they thought they had a hope in hell they'd probably fight this one to the death. If their is any hill this cabal would be willing to die on, these issues would be it as this would really draw the curtain back. So, it will be interesting to see what comes out of the meeting next month.

These are the items the Competition Bureau wants changed/removed from CREA policy:

Section Agency
A listing REALTOR® must act as agent for the seller to sell the property and to assist the seller through the entire time of the listing contract.

Section 17.2.1: The listing REALTOR® shall receive and present all offers and counter offers to the seller.

Section 17.2.3: The mere posting of property information in an MLS® system is contrary to CREA’s Rules. A “mere posting” occurs when the listing agreement relieves the listing member of any obligations under the Rules, including the obligation that the listing REALTOR® must remain the agent of the seller throughout the term of the listing contract.

Section 17.2.6: Only the listing REALTOR® name(s) and contact information may appear on The seller’s name or contact information shall not appear on or in the public remarks section of the MLS® system.

Basically it boils down to wrestling much of the control over dealings with the seller, and allowing the seller more options when it comes to what services they want (sort of like going from a table d'hôte system, to an à la carte one).

While none of that seems like particularly egregious requests, agents are resistant because this would effectively shine a light on a region of their dealings that they benefit greatly from a tacit agreement from their ranks to toe the party line and keeping the public in the dark.

Even with the recent emergence of reduced commission brokers, while they may get on MLS, they are still often shunned by regular agents, or potential buyers are scared off those properties by the prospect of paying their agents commission directly out-of-pocket (though, it's effectively coming out of there anyway). The entire process is kind of ambiguous to the general public, whose real estate transactions are few and far between... which is advantageous to agents, as knowledge is power, and the less the public has the better it is for you.

In my opinion, I think the Competition Bureau's requests would actually be beneficial for both the public and agents. As it stands now when taking on clients, agents bear all the risk. The listing agent goes out of pocket for all the listing and marketing, and only gets paid if the property sells. Same goes for the buyers agents, they do all the leg work, and again only gets paid if there is a sale.

If there is no transactions, the agents end up eating all those costs, fiscal and their time/effort. The commissions currently being earned are excessive (IMO), but they are in no way guaranteed... commission sales can be highly compensated, but remains a tough and risky gig.

So, assuming the Competition Bureau gets its way, I think we'll see some very distinct changes to the operations of these outlets. We'll probably see a lot of specialization, some outfits will just get you listed and a lockbox and charge a flat fee (sort of like ComFree does now)... others will offering marketing services, again for a fee upfront. Which for the sellers will transfer all risk and reward onto them.

On the buyers side, we may see commissions stay, or a move toward charging an hourly rate, and/or some hybrid(s) of the two... but I think the payments will eventually be coming directly from the buyers, rather then the current situation. Probably also see even more focus on certain areas/segments of the market.

Ultimately I think these changes will be good, for the consumer and the industry. Services should improve, transparency definitely will, and highly competent agents would probably make just as much and have the added bonus of dealing with others of their ilk, as hopefully the increased competition would weed the bad ones out.

What effect will all this have on prices? Probably not much. Sellers may be a bit more willing to negotiate from their asking price, but in general they'll still be looking to get every penny they can. Just look at ComFree, those listings don't tend to be any cheaper then those on MLS. The benefits would be felt in the processes, not in the prices.