Competition Consent Agreement

There has been a lot of reporting about the new changes to the way the real estate market will operate in Canada with the acceptance by Canadian Real Estate Association (CREA) of the Competition Consent Agreement. This agreement states that CREA or individual real estate boards cannot discriminate against agents who wish to merely list a property on the Multiple Listing Service (MLS®) rather than offer the full service. Interestingly CREA does not believe that there are any rules currently in place prohibiting mere listing but if any real estate boards do have any such rules then, under the new agreement, they must be abolished or the board will run the risk of losing its license to operate under the MLS® trademarks.

The model currently used is of a full service where the listing agent lists the house on the MLS®, organises any showings, advertises the property and negotiates the final sale with the buying agent. A fee is paid for this service which is negotiated between the sales representative and the owner of the property. This fee can be either a fixed amount or a percentage of the property selling price but not a combination of the two. More commonly a percentage is charged and is shared with the co-operating brokerage who is acting on behalf of the buyer. There is no industry standard as to what the fee or percentage charged should be although it is common to see 2.5% as the share for the co-operating brokerage. Under the new arrangements sales representatives are free to offer an ‘a la carte’ service where sellers can purchase a subset of these services, again for a negotiated cost. So if a seller just wants his property listed on MLS® then he can approach a realtor offering the services and pay merely to list. He would then be responsible for arranging showings, open houses, advertising and negotiating the final contract on his own. Alternatively he may want the realtor to list his property and arrange showings but to pay for his own advertising etc. There will be a number of different options and business models appearing in the market place over the next few months as brokerages and realtors decide which model works for them. Some of the more established brokerages are already indicating that they will be staying with the full service model as they believe that this offers the best service to their clients. And, as the cut price brokerages, and ‘For Sale by Owner’ options have been around for some time it may well turn out that there is little change in the way the majority of homes are marketed and sold.

However, if more sellers do go the way of using a realtor merely to list the property then it will be interesting to see what happens to the buyer’s representative. Under the current model listings indicate the fee (either percentage of sale price or fixed fee) that will be paid to the cooperating brokerage. Realtors are not supposed to discriminate against a house based on the commission offered and are obliged to show the house that best suits their clients requirements, however if one house is offering 2.5% commission and a very similar one is offering none then it is not hard to figure which will get the showing. So, either the Sellers are going to have to offer to work with the cooperating brokerage and pay them the 2.5% they commonly get now, or there is going to have to be another shake up in the system whereby the buyer would be responsible for compensating his realtor. This could be managed by the Buyers Representation Agreement (or BRA) which outlines the relationship between the buyer and the brokerage that he is working with. The BRA allows for a minimum commission to be determined which is collected in the first place from the Seller, but if the commission offered by the Seller does not reach the stated minumum then the Buyer is contracted to make up the difference.
So watch this space and I will report back on whether the changes do indeed represent the start of a major overhaul of the way the Canadian Real Estate Market operates or whether in reality it is just business as usual.

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