Proposed MLS changes may boost real estate agents' fees
By Peter Diekmeyer • Bankrate.com

For the past five years, Ian Martin has been working hard to become a British Columbia home seller's best friend. For as little as 0.5 percent of a home's selling price, Martin, the president of ERealty.ca, will get a home-seller's property listed on the Canadian Real Estate Association's, or CREA's, Multiple Listing Service. In addition, he provides them with online access to professional guidance from a licensed real estate agent as well as a slew of tools and forms.

True, Martin's clients need to do the leg-work of showing their properties to prospective buyers, but the savings once they are sold are substantial. On a $500,000 home, ERealty.ca's commission is just $2,500 compared to the $25,000 the seller would pay a typical real estate agent. Not surprisingly, the country's real estate industry stakeholders are starting to get worried about operators like Martin who offer competitive do-it-yourself home-seller services. And lately, they've started to do something about it.

In the coming months, CREA members will debate a slew of rule changes and amendments that will make it substantially harder for Martin's clients and other Canadians who want to sell their own homes. "In practice, the implementation of these rules will mean that listings, which are in essence For Sale by Owners, cannot be posted on the board's MLS system," said Alan Tennant, CREA's president, in a letter to real estate board directors earlier this year.

MLS: Canada's premier property listing
That's no idle threat. If you are thinking about buying a new home or selling your existing property, chances are fairly good that that you will eventually get involved with the MLS. The system is a hugely popular archive of existing homes for sale that includes the inventories of all of the association's brokers. According to Media Matrix, the MLS web site gets an impressive 2.98 million unique users per month.

The problem is that Canada's real estate professionals have been increasingly under the gun during the past few years. The advent of discount brokers has put severe pressure on the prices that real estate agents charge their customers. To make matters worse, with of the advent of the Internet, it is now possible for almost anyone with a PC to market properties online.

How proposed changes could boost prices
However, by making it harder for individuals to get their properties listed on the MLS, Canada's real estate agents, who own the database, should be able to leverage their access to a crucial selling tool better. That's because the changes are basically structured to ensure that any property sold via the MLS is done so with the participation of a real estate broker from a CREA member firm.

Among the key MLS listing requirements that are defined in the proposed rule changes are guidelines for property inspection, the posting of new listings, the structure of broker relationships with clients as well as the compensation-sharing arrangements with other brokers.

In ERealty.ca's case, the biggest challenges would be overcoming regulations stipulating that all properties listed on the MLS be inspected first in order to ensure the accuracy of posted information. Right now ERealty.ca's clients provide the property details. According to Martin, getting an inspector involved would increase costs, which would eventually have to be passed along to clients.

Competition law versus trademark law
However, CREA's Tennant downplays the possibility that the rule changes would lead to higher fees. "The proposed amendments do not restrict or determine the fees of commissions that realtors may charge," said Tennant in a written statement. "They are also flexible enough to permit a wide range of business models for real estate."

One of the biggest challenges facing a monopoly or quasi-monopoly such as the MLS is how to use its power in ways that it does not attract the attention of regulatory authorities. As a result, CREA officials have been preparing themselves for any reaction the proposed changes could generate from the Government of Canada's Competition Bureau. The officials have held meetings with Competition Bureau personnel and have obtained legal advice to make sure they are on solid ground.

Gregg Erwin, a senior competition law officer with the Competition Bureau, refused to comment on the ongoing MLS case. But he did say that merely being a monopoly or initiating actions to boost prices are not in themselves violations of the Abuse of Dominant Position provisions of the Competition Act. For this to occur, CREA's actions would have to be such that it was using its market power to stifle competition.

But CREA spokesman Bob Linney denies this is the case. "Our primary goal here is to protect the MLS trademark and brand by ensuring that all listing meet certain standards," he says. "We have built our reputation gradually and carefully over several decades, and we intend to make sure that it remains a good one."

Peter Diekmeyer is a freelance business and economics writer.