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Seasoned real estate brokers in new Web turf war

Tony Wong
Toronto Star
February 13, 2010

For Paul Swartz, it's a question that seems to be on the mind of nearly every client.

Why should I pay your commission? I think you guys are overpaid.

The realtor has a ready answer.

"When you go to a brain surgeon, and you spend 2 1/2 hours on the operating table, are you paying him for the 2 1/2 hours, or the 15 years of experience and education?" asks Swartz. "You're paying for the expertise."

Swartz, an agent of 30 years and broker at Sutton Group Old Mill Realty, has lived through boom and bust. But changes in technology mean his profession is at a key turning point, at the mercy of a skeptical public and scrutinized by regulators.

"They think all we do is put up a sign and wait for the money to roll in. They don't understand the amount of work we have to put in to get the job done right," said Swartz. "People think every agent is a millionaire."

After decades in the business, Swartz drives a Chevrolet Cobalt and lives modestly. Walking down a street of bungalows and remodelled homes in Toronto's west end, where he grew up, he points out six homes on the street he has sold over the years.

This week the federal Competition Bureau announced it intends to take the Canadian Real Estate Association to the Competition Tribunal over what it says are unfair rules that limit consumer choice.

The outcome will determine whether consumers can access cheaper fees and commissions, and whether organized real estate can dictate how homes are sold in Canada.

Perhaps what hurts Swartz the most is that "people see now us as the bad guys."

CREA president Dale Ripplinger admits realtors are not winning the PR war with the public.

"We have to do a better job of telling the public what we really do. There is a real misconception that selling real estate is easy," says Ripplinger, a Regina-based broker. "But a sales transaction is a big job, from marketing, strategy to negotiating the deal and all the contract issues, it is an extremely complicated process."

In a hot market like Toronto, where homes sell quickly with multiple offers, buying agents are working harder than ever since they may have to do half a dozen offers on a home instead of one or two before they land the property, said Ripplinger.

Then there is the flip side of that argument, of vendors who sell their home quickly and then complain it was too easy for the agent.

"If a home sells quickly, then the seller should be satisfied. That is a testimony to the skills of the agent," said Ripplinger. "They work hard for the money."

The reality, says Don Lawby, president of Vancouver-based Century 21 Canada, is that the top 10 per cent of agents in Canada make an extremely good living, while the bottom half are still struggling.

"When you lump everyone together, the average wage is probably not as high as everyone thinks," says Lawby.

Laurent Attali doesn't care how much realtors make. All he knows is that he's not willing to pay tens of thousands of dollars in real estate commissions to sell his home.

He's decided to sell his Thornhill backsplit himself. But without an agent, he can't list it on the Multiple Listing Service, where the vast majority of transactions are made.

To market his 2,800-square-foot property, he placed it on www.bytheowner.com, one of several Internet companies that provide an alternative to the MLS.

"I think real estate commissions are much too high," said Attali. "Especially in a good market the home might sell in a day or two."

At a list price of $549,000, the fees on his home would be $27,450, based on a standard 5 per cent commission. (Commissions are negotiable, so consumers may be able to get a percentage point or two off that.)

The upside is that his listing cost him $99, far less than the money he would have to pay an agent. But there's a downside.

In the 10 days since he's listed his home, he figures he's had only a handful of calls.

"You just don't have the reach that the MLS has," said Attali. "If I could list my home on the MLS for the same price I definitely would."

If Attali has a champion, it would be Melanie Aitken. The tough-talking former Bay Street lawyer was given a five-year mandate last year to head the federal Competition Bureau, and she's come out swinging.

"For many Canadians it's the biggest financial transaction of their life," Aitken told the Star this week.

In her submission to the Competition Tribunal, Aitken wants CREA to strike down rules that would bar consumers from choosing agents that will post their listings on the MLS for a nominal fee.

She points out that in the United States, consumers in some states are allowed to post their listings for as little as $99.

"CREA's conduct in enforcing its rules has been successful in preventing or lessening competition," the bureau said in its application to the Competition Tribunal. "Individual member brokers wish to supply a reduced set of brokerage services to meet consumer demand, but are prevented from doing so."

While travel agents and stock brokers have already succumbed to the reach of the Internet, resulting in dramatically lower fees to consumers who buy their tickets or stocks, the real estate industry has been slower to respond, said John Andrew, a professor at Queen's University and director of executive seminars on corporate investment and real estate.

"Twenty years ago you couldn't pick up the phone and call Air Canada directly to book a flight, but you can do it now on your smartphone," said Andrew. "It's a lot cheaper and more efficient."

Controlling the MLS has been key to the survival of organized real estate. But in the U.S., the tide has already turned.

A Department of Justice lawsuit against the National Association of Realtors resulted in a settlement in 2008 allowing consumers to post listings cheaply on the MLS. The justice department went further by striking down rules preventing brokers or organizations from accessing and repackaging listings.

While the focus of the Competition Bureau's case at the tribunal is on allowing sellers to list their properties less expensively on the MLS, they are also aggressively investigating how to open up this second front. Toronto realtor Fraser Beach lost his case against the Toronto Real Estate Board last year when he was shut down after his company downloaded MLS listings from the board. But sources have told the Star the Competition Bureau plans to focus on that issue next.

Andrew says it is only a matter of time before the same rules apply here.

"It will make barriers to entry a lot easier. There are people who say, `I can't be bothered to call an agent just for some information on a house because I don't want to be pestered or they don't think I'm serious.' But if you have a lot of casual browsers entering the market, it will ultimately generate more sales."

Opening up the MLS means that companies formerly on the fringes are also looking at the opportunities that might arise if listings are more widely available.

"They've defended their turf ferociously and you've got to hand it to them," said Walter Melanson, managing director of Propertyguys.com, a private sales company. "I think finally the public is understanding that there are alternatives out there and it doesn't make sense to pay somebody $20,000 to show you where the washroom is."

However, opening the system to outsiders is the last thing many agents want to see.

"We spend $25 million a year on the MLS system. We built it, we nurtured it. Why should we open it to every competitor?" asks Swartz. "It's just not fair."

Ariel Katz, an assistant professor at the University of Toronto's law school who specializes in competition law, says the reaction of realtors is understandable.

"It's not just their livelihood, there is also some merit in their argument," said Katz.

"They could argue that if a retailer such as Amazon were 90 per cent dominant in the marketplace, would it be fair to force them to open up their system to other booksellers?"

The CREA case is expected to be heard by the tribunal over the next couple of months. Realtors argue it is unnecessary, that there is already competition in the industry.

"There are a full range of business models out there from discount to full-service brokers, and you are certainly free to negotiate whatever commission you like," said Ripplinger. "We certainly don't agree with the bureau's findings."

One thing is likely if the bureau has its way. In the brave new consumer-friendly real estate world, there will be casualties.

"There are a lot fewer travel agents working today than 15 years ago," said Andrew. "And the same will be true for real estate agents, the ones who weren't doing so well will be gone."

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New MLS policy won't prevent tribunal

The Canadian Real Estate Board was about to propose key rule changes at its March annual general meeting that it hoped would satisfy the Competition Bureau and avoid a meeting with the Competition Tribunal.

As first reported in the Star on Wednesday, internal documents show substantial amendments to the rules. One of the big changes included the deletion of a controversial rule that said listings could not be posted without having a realtor represent the seller for the entire transaction.

The "mere posting" rule, as it was called, was controversial because it meant sellers could not simply list their property without paying for a fuller basket of services.

According to CREA, "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 contract."

Removing this rule would theoretically allow agents to post listings for a cheaper fee, as it did not require the agent to represent the seller through the entire process.

However, Commissioner of Competition Melanie Aitken said the changes didn't go far enough.

"The suggestions didn't solve our principal concerns, regarding consumer choice and flexibility for agents and introducing competition to the markets," said Aitken.

CREA president Dale Ripplinger said his organization was negotiating in "good faith" and was blindsided by the decision to go to a tribunal.

But according to a source, the Competition Bureau "pulled the trigger" because after three years of talking to CREA the bureau was "fed up. They were worried this was another delay tactic. They were worried CREA would take this to a vote, and then start making more changes and more delays. They just wanted clarity."

Posted on Tuesday, February 16, 2010 at 06:25PM by Registered CommenterElaine in | CommentsPost a Comment | References1 Reference

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