Smashing the MLS monopoly

Critics lambaste the Multiple Listing Service as a throwback that penalizes prospective buyers. But what would happen if it lost its power?

Whether you’re a pewter thimble in search of a Baltic-like starter plot in Brampton or a top hat looking to live Boardwalk large on the Bridle Path, the rules of the Toronto’s game of Monopoly apply. If you want a listing on the Multiple Listing Service housed at Realtor.ca, you must have a full-service real-estate agent, or there’s no dice.

That’s what critics of the real-estate industry have charged for years. No matter how good or bad your agent is, or how much he or she actually bothers to help you sell or buy your house, there is almost always a 2.5-per-cent commission.

But this week, the federal Competition Bureau threatened to tip the game board upside down. After years of investigations and talks, it said it was taking the rule-making Canadian Real Estate Association to the competition tribunal for anti-competitive behaviour.

The problems begin with the way agents conduct business, detractors say. If an upstart broker wants in by offering lower commissions or services à la carte, those clutching their tidy piles of Monopoly money try to send the interloper to the Jail square – using lawsuits to shut them down, as the Toronto Real Estate Board has done.

Rejecting the Monopoly metaphor, traditionalists argue that there is a reason for freezing out the new players: unscrupulous discount brokers could exaggerate the square footage, for example. They say the current system protects buyers and sellers by ensuring they have the help, advice and full services of a seasoned real-estate agent.

In the event the competition tribunal rules against the old guard, the way Torontonians buy their homes could change. Instead of a system that imposes a one-size-fits-all approach, buyers and sellers who want their homes listed on MLS could decide what help they need from a real-estate professional and what they want to do on their own. Here are four scenarios.

Joe Fresh v. Holts

Lawrence Dale, the Bay Street lawyer who has been fighting the real-estate establishment for years on this issue, compares the prospective change to the advent of online stock trading. Anyone can use E*TRADE and the like from their homes, meaning only wealthier investors who need specialized advice pay big fees for their own stockbroker.

In other words, you are free to make wads of dough with your kitchen-table laptop, but you make your decisions at your own risk.

New discount businesses, such as Mr. Dale’s short-lived Realtysellers, which was shut down by the Toronto Real Estate Board in 2006, would offer a menu of services for different prices. Sellers would have the option of just paying a minimum fee to have their house listed on MLS, say for a few hundred dollars. Help with negotiations or offers or pricing your home would cost more. (Similar services exist now in the United States, where the rules have been loosened.) The result would be a more two-tiered market, Mr. Dale says. Some people would rely on discount real-estate outfits. Meanwhile, high-end real-estate agents would flourish, and perhaps even charge more.

This will replace the one-size-fits-all situation now, he says, where everyone buying or selling a house is forced to pay the same rates, no matter how useful the real-estate agent is.

“You want to go get your Chanel dress, you go to Holt Renfrew. But you don’t want to? You go to Joe Fresh,” Mr. Dale said.

Click, download, buy

While anyone is free to set up a website and list houses for sale privately, why go to one of those websites, or start your own, when Realtor.ca is the place where, according to estimates, well over 90 per cent of sellers and buyers do their business?

Some Toronto agents have tried to launch competing websites, using their access to the database. The idea was to create websites that offer more services, such as adding crime rates or school districts or other information, to MLS listings.

It is the Toronto Real Estate Board that controls access to Realtor.ca here. And TREB has been more aggressive than other boards by heading to court and shutting such operations down for violating the rules. (Among them was Mr. Dale’s Realtysellers.) While not strictly part of the current case before the tribunal, pressure has long been building on TREB to open up its data to everyone. If that happens, buying a home in the future could mean less driving in circles with your real-estate agent and more time navigating your laptop, or even your iPhone, for properties. A whole new sector of Web-based real estate services could flourish, like Redfin.com in the United States.

One day you may also be able to submit offers electronically, or search for nearby properties to compare prices on your own, which many buyers do today anyway. With the wealth of information on the Web, and a discounter who will list your house for a small fee instead of a large commission, more people might even consider selling houses on their own.

Or, the worst-case situation

Some veteran real-estate agents warn that upending the current system could be costly. Real-estate agent Barry Lebow, who has been in the business since 1968, said the possible changes would sacrifice the security and peace of mind it brings buyers and sellers. He compares MLS’s role to a stock exchange, an official body that protects investors by instituting regulations to control listings.

“Do you know how many fraudulent people would put properties on MLS because no one’s done diligence because some jerk is listing it for $300 a pop under some discount thing?” he said, adding that even well-meaning sellers inaccurately state the size of their lots and homes inadvertently. “The protection for the public is poor. Very, very poor.”

It’s still going to cost you

Even if it technically is against the rules, some brokers apparently will list a house for a small fee – say, $50, or for no commission at all, says Wilfred Veinot, an agent with Sutton Partners Realty Inc. But once the sale goes through, the buyer’s agent would take his or her standard 2.5 per cent. “There’s lots of agents out there who will take nothing,” Mr. Veinot said. “It’s very simple: The sign goes out, you get calls from neighbours. It’s just another form of picking up business.”

The prospect is new discount businesses promising everyone this kind of deal up front. Other services (running an open house, photographing your house) would also be available for flat fees.

These possible changes, and the addition of major companies breaking into the business of Web housing listings, could dramatically drive down what Torontonians pay the pros when they buy and sell homes. The average sale now involves 5 per cent in commissions, totalling an average of around $20,000. But discount brokers could do the same deal for as little as $1,500.

Still, this won’t actually make houses cheaper, according to an analysis by Scotia Capital economist Derek Holt. It may even stoke this hot real-estate market, driving prices even higher as buyers put the money they would have spent on a commission toward the cost of a new home. And according to Mr. Holt, this could more than wipe out any cooling effect on the housing market from the federal government‘s plans to tighten mortgage rules.

Either way, you will need still plenty of that pretty money.

http://www.theglobeandmail.com/news/national/toronto/smashing-the-mls-monopoly/article1466678/


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