Ethical Dilemmas: The federal investigation into CREA's commission rule & Cooperation Policy

No surprise to most of us, the Competition Bureau (CB) is investigating the Canadian Real Estate Association (CREA)’s MLS commission policy requiring a commission be paid to buyers’ agents, and the Cooperation Policy requiring all listings to be on the MLS within three days.

I expected both, and I’ll be surprised if the Cooperation Policy comes out unscathed as I find it unethical no matter how many times I re-evaluate it, but I take real issue with the investigation into the mandatory buyers’ agent commission policy.

Now, this is clearly a complex issue involving both law and ethics and, as we realtors get used to saying, I am not a lawyer, but I would like to comment on both the legality and the ethics of the situation.

Our MLS at a high level

Before I comment, I need to back up a few steps and discuss our MLS from a high-level standpoint. MLS in North America is, to use the parlance of our times (Big Lebowski fans will recognize that line), a unicorn. In many, if not most, countries, listing agents do not cooperate with buyers’ agents, and even in North America we see that commonly with commercial transactions.

In other countries, buyers are forced to peruse multiple websites, drive around, talk to multiple agents — none of whom work in their best interests — and then ultimately work with one of these agents whose primary job is to get the most money from them as possible. Whether or not it’s the best home for them is secondary. These agents are’t bad people; this is just their duty, same as listing agents here. 

Of benefit to buyers, sellers and both agents

Our MLS strikes me as one of the best creations the world has ever seen, and I’m not exaggerating. For most of us, our home is an extension of who we are and one of the most important purchases of our lives. American psychologist Abraham Maslow recognized this almost 100 years ago when he placed shelter at the very base of his hierarchy of human needs. A comfortable, happy home is probably one of the most important factors of a fulfilling life.

The MLS gives homebuyers easy access to the widest selection of potential homes while simultaneously allowing them to have a trusted representative on their side in what may very well be the most expensive purchase of their lives. I dare say only a few things in this world are more important than that to the average person, though we rarely take the time to think that through.

At the centre of this transaction is the trusted representative, the buyers’ agent, the realtor. In my career, I’ve had the opportunity to work across the table from some very competent realtors. Watching these professionals at work has been a great pleasure and learning experience over the years. Many homebuyers have been able to purchase the best home available to them at the time with the least amount of effort and under the best terms and conditions available, thanks to the guidance of these professionals. MLS is truly a win-win-win-win — homebuyers, sellers and both agents benefit.

A conflict of legality and ethics, of cooperation and competition

Considering all these factors, the question arises: how should we reward these practitioners fairly and adequately? This is where the divergence between what is legal and what is ethical comes into conflict.

Is it ethical to have these people work for us with no guarantee of any pay, even up to the time of possession? No, but it is legal. Is it ethical to allow buyers to use this system without having to make any commitment to paying anyone anything at any time? No, but it is legal.

Before expanding on my answers, I need to cover a couple more things. As I mentioned, the MLS is a unicorn in that realtors cooperate and compete at the same time, and our legal system seems to have a difficult time wrapping its collective head around such a system, especially since the legal system is primarily an adversarial system and the notion of cooperation is foreign (I do find it particularly ironic and satisfying that both parties in a legal dispute start out adversarial but once nobody wins and they run out of money for legal fees, they quickly become cooperative.)

The real question: Is it unreasonable to ask that consumers using the system must pay for it?

The critical distinction is that whether we’re cooperating or competing, it is always in the client’s best interest. We cooperate to get the seller’s home sold and to get the buyer a home purchased; we compete to attract and keep business, and that means competing on fees. I can’t recall ever, not once, in 30-plus years having another realtor try to conspire with me for a mutually higher fee, but I sure have lost a lot of business to lower fees or better service.

Now, given the benefits I’ve just listed, here’s the real question, in my opinion: is it unreasonable to ask that consumers using this system must pay something? That something could be a dollar but it must be something and both parties are free to negotiate that fee. Is that unreasonable? Is that anti-competitive?

Negative price competition and steering: Not remotely possible

And this brings me to the current situation. The CB is investigating whether the commission policy negatively influences price competition and whether it enables steering. I cannot see how either of these is remotely possible given that the policy simply states that a fee must be offered — this could be any fee, even 10 cents.

Our Buyer Agency agreements in Alberta, and I suspect across the country, address specifically what happens when a listing offers more or less commission than we have agreed to with our buyer. If a buyer has chosen not to sign an agency agreement with us for their own interests, then we owe them the same commitment they owe us: little or none. This is both legal and ethical. We’ve offered them a mutually satisfactory arrangement and they refused. Additionally, it takes away a seller’s right to make their property more attractive to the marketplace, something I argue the CB and no human entity has the moral or legal authority to do.

A comical yet sobering proposition: Value of services rendered diminishes greatly once services are rendered

I remember being at a conference some years ago where an economist was speaking and he mentioned the system in which realtors only get paid after a transaction is completed. Economists had come up with a casual, humorous principle by which they described this system.

Decorum does not permit me to provide all the details, so let me just say that they compared our system of payment to the system of payment for one of the world’s oldest professions, as follows: the value of services rendered diminishes greatly after services have been rendered. It was comical for a moment but has been rather sobering since then, and it applies directly to today’s situation.

When we really need a service we will negotiate a higher fee; once we’ve received what we wanted, we want to renegotiate. That may be legal but it’s not ethical. If you use a product or service, you must expect to pay for it.

I don’t know the answer but I’m becoming more confident in my conviction that the CB needs to take a step back and re-evaluate the ethics of what they are doing. Competition is only one factor of many in the world of economics and business — nothing exists in a vacuum.