Canada’s Competition Bureau concludes CREA’s rules are anti-competitive

There’s a good chance that you’ve come across news stories like this one published in today’s Star Phoenix about the conclusions reached by the Competition Bureau of Canada following their investigation of the Canadian Real Estate Association(CREA), owners of the MLS® trademark in Canada. The Competition Bureau has ruled that some of CREA’s policies that govern the operations of MLS® systems restrict consumer choice and limit the scope of alternative business models, which might be viable and beneficial to consumers if the policies didn’t exist. CREA has indicated to its members that it disagrees with the Bureau’s views.

For the record, CREA is a national association of REALTOR® members. All REALTORS® working in Canada are members of the association. CREA provides governance for the real estate industry at the national level and works in the interest of REALTOR® members. While I am a member of CREA, I do not a represent the organization and I have no authority to speak on their behalf. The following post reflects my opinions and understandings of what has transpired to date, based on a letter to members from CREA president Dale Ripplinger.

Here is a bit of a backgrounder and an overview of the policies, which the Competition Bureau has challenged CREA on.

In 2007, the membership of the Canadian Real Estate Association approved the “Three Pillars of the MLS® Mark” and Interpretations.

The Three Pillars of the MLS® Mark

1)    Membership – Only REALTORS® may place a listing on a Board/Association’s MLS® System.

2)    Agency – A listing REALTOR® must act as agent for the seller to sell the property and to assist the seller throughout the entire time of the listing contract.

3)    Compensation to Cooperating Broker – The listing REALTOR® agrees to pay to the cooperating REALTOR® compensation for the cooperative selling of the property.

The Interpretations of the Three Pillars of the MLS® Mark

1)    The listing REALTOR® shall receive and present all offers and counter offers to the seller.

2)    The listing REALTOR® shall be available to provide professional advice and counsel to the seller on all offers and counter offers unless otherwise directed by the seller in writing.

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® remain the agent of the seller throughout the term of the listing contract.

4)    The listing REALTOR® is responsible and accountable for the accuracy of information submitted to a Board/Association for inclusion in the Board's MLS® system, and the Board/Association is responsible for ensuring that the data submitted to it meets reasonable standards of quality.

5)    Only REALTORS® are permitted to display the MLS® trademarks in signage, advertising, etc.

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

7)    In cases where a Board permits listings in which the seller has reserved the right to sell the property himself/herself, that fact shall be specified in the Board's MLS® database.

The same year that these articles were passed, CREA was served a Section 11 Order, an investigatory order requiring CREA to produce documents related to CREA's rules and the operation of an MLS® System. CREA has been engaged in regular discussions with the Bureau since the issuance of the Section 11 Order.

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The Bureau ultimately concluded that specific aspects of CREA’s Three Pillars of the MLS® Mark and the accompanying Interpretations prevent innovative business models, and the potential “unbundling” of real estate services that could allow sellers to play a larger role in the home selling process, even while utilizing the limited services of a REALTOR®.

Specifically, the Competition Bureau has asked CREA to remove the “Agency” pillar, as well as interpretations 1, 3 and 6. Under the Bureau’s proposed remedy, the other two “pillars” would remain, and so would Interpretations 2, 4, 5 and 7.

It seems apparent, based on the articles targeted for removal that the Bureau would like to see REALTORS® having the option to offer limited services that do not bind the REALTOR® to meet fiduciary obligations that are normally assumed as a result of an agency relationship. Those obligations include accountability, confidentiality, full disclosure, competent care, obedience, loyalty, as well as protection and promotion of the client’s interests. If these obligations were removed, a REALTOR® could, on behalf of a seller, list a property for sale on an MLS® and then allow the seller to perform all of the other services normally provided by agents, for themselves. Some REALTORS have attempted to provide this minimum level of service and claim to have been ejected from membership as a result.

In the past, CREA has taken the position that “agency” is a key component of the service that a REALTOR® provides, and seemingly continues to believe that. I believe, that CREA would contend that all REALTORS® have the freedom to choose what levels of service they might provide to a seller, and determine the fee that they will charge for that service, but that the REALTOR® should continue to be bound as an agent, owing fiduciary duties of care to the seller.

CREA has also expressed concern that removing this particular pillar does not relieve the REALTOR® from agency obligations, as a matter of law and regulation. Even if the agency component were removed from the “pillars,” provincialand federal law and regulation would still bind REALTORS®. In fact, some of the interpretations which would remain if CREA agreed to remove those in question clearly imply the existence of an agency relationship, namely articles 2 and 4. In essence, the concern seems to be that REALTORS® could find themselves offering substantially limited services, which ultimately expose them to greater risk and liability resulting from a breach of fiduciary duty.

The Bureau has taken the position that if CREA does not remove the restrictions noted above, the Commissioner of Competition will initiate an application before the Competition Tribunal, a judicial body, which has authority under Canadian law to issue monetary penalties and prohibition orders.

CREA’s Board of Directors has agreed to work with the Competition Bureau towards a settlement, which would be presented to its membership for approval.

CREA is in the process of scheduling consultations with Boards and Associations across Canada to discuss the issue further.

Only time will tell how this all unfolds but we can hope that wherever it goes, it leads us forward and results in improvements to the real estate industry, for the consumer of real estate services.

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Norm Fisher
Royal LePage Vidorra