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What's at stake in Competition Bureau's MLS fight Add to ...

The Competition Bureau has escalated its case against the Canadian Real Estate Association to the country's Competition Tribunal, in a bid to smash what it says is an anti-competitive home-listings system that artificially increases the cost of real estate transactions. Here's a primer on who's involved and what's at stake.

The players

CREA and its Multiple Listing Service: Canada's national real estate association, which was founded in 1954. The Multiple Listing Service trademark is owned by CREA, which has nearly 100,000 members, and each of the country's real-estate boards (there are 101) operates the service in their region. The MLS, which has come under fire, is an Internet-based system where homes are listed and agents can find additional information about a home's history. Roughly 90 per cent of all residential real-estate transactions in Canada involve MLS data.

Competition Bureau: Led by Commissioner Melanie Aitken who was appointed last year. Her mandate is the "administration and enforcement of the Competition Act and three labelling statutes, the Consumer Packaging and Labelling Act, the Precious Metals Marking Act and the Textile Labelling Act. Under the Competition Act, the Commissioner can launch inquiries, challenge civil and merger matters before the Competition Tribunal, make recommendations on criminal matters to the Attorney General of Canada, and intervene as a competition advocate before federal and provincial bodies." It has been investigating CREA for three years.

Competition Tribunal: A "specialized tribunal that combines expertise in economics and business with expertise in law. The Tribunal is a strictly adjudicative body that operates independently of any government department. The cases it hears are complex and deal with matters such as mergers, misleading advertising and restrictive trade practices." Any decision made by the body can be brought before the Federal Court of Appeal.

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What's at stake

For CREA, the MLS system generates billions of dollars in commissions. In 2009, 465,251 homes changed hands on the Realtor.ca system, at an average price of $320,333. Any ruling that loosens access to the system and allows competitors to offer cheaper a la carte services will have an economic impact on the association.

The stakes are also high for the bureau. When Ms. Aitken was appointed commissioner last summer, she promised to improve the bureau's lacklustre record of challenging companies and organizations accused of anti-competitive conduct. By taking the case against CREA to a tribunal, the bureau will have to convince a specialized body that the association's practices are limiting competition in the home-selling business.

Consumers are also affected - prices may come down if more competition is introduced, but some worry that a "wild west" mentality could overrun the market as more companies begin to offer cut-rate services. With MLS regulated the way it is now, the industry has tight control over the listings and is able to ensure they are accurate and timely. The most obvious benefit, however, is that those who want minimal interaction with an agent would still be able to get their homes listed on MLS, which guarantees the widest possible audience of potential buyers.

The allegations

In its filing to the Tribunal, the Competition Bureau makes the case that CREA's rules which force a consumer to employ an agent if a home is sold (usually for a set commission) on the MLS is unfair because it prevents competitors from creating alternative business models. From the filing:

"CREA controls access to the MLS system in Canada. CREA sets the terms of competition among brokers and establishes rules involving minimum service requirements. CREA's rules restricting the access to and use of the MLS system prevent or lessen competition in the market for residential real estate brokerage services by excluding competition from brokers and others wishing to offer a reduced set of services to their customers including "mere posting" or "MLS-only listing" services; raising the cost of providing real estate brokerage services; and reducing consumer choice. CREA is able to discipline individual brokers who wish to circumvent the rules by threatening to or revoking the non-compliant member's access to and use of the MLS system.

The prevention or lessening of competition from the low end of the service scale keeps service prices higher and choice lower than would otherwise be expected to occur if CREA members and others were not restricted in the packages of services they were able to offer home owners. The threat of losing access to and use of the MLS system prevents individual members from offering a reduced set of services even in the face of evident consumer demand for such a reduced-service package.

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

CREA's conduct has prevented disintermediation of the real estate brokerage industry in Canada and has prevented the emergence of a wider diversity of business arrangements between brokers and consumers."

The defence

CREA president Dale Ripplinger said the organization was close to striking a deal with the Bureau, which would have allowed buyers and sellers who use the MLS system to negotiate their own offers and would have made it possible for listings to be posted on MLS by an agent, who would then leave the rest of the process in the hands of the consumer. Throughout the process, the organization has maintained it hasn't done anything wrong and it was willing to work with the Bureau on a solution.

"The Commissioner's press release states that CREA's rules restrict consumer choice and prevent innovative business models. That is simply false. CREA is disappointed that the Bureau would make this statement in view of the months of discussions about CREA's rules and CREA's consistent position that its rules are not intended to and do not restrict any business models.

The real estate industry in Canada is highly competitive and thrives on small businesses with independent agents, brokers and franchises conducting a wide variety of transactions every day. CREA currently has more than 98,000 members operating independently across the country to compete for consumer business, offering a wide array of services and pricing structures."

What's next

Now that the paperwork has been filed to the Tribunal, a date will be set for a hearing some time within the next several months. The process could take up to a year, but could be extended if appeals are involved. In the meantime, the real estate association will operate as usual. A settlement could be reached before any hearing.

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