Federal Competition Bureau investigates CREA’s rules over potentially inflated commission rates

The federal Competition Bureau is investigating whether rules set by the Canadian Real Estate Association (CREA) are pressuring home sellers to pay higher commissions to real estate agents, the National Post reports.

The inquiry, launched in June, is looking into two potentially “anti-competitive” practices, per federal competition law, that could be inflating commission rates.

Competition Commissioner Matthew Boswell’s investigation centres on two specific practices: CREA’s “Buyer Broker Commission” rules and the newer “Realtor Cooperation Policy.”

Boswell is looking for the Federal Court to approve an order mandating CREA to provide records dating back to January 2019, including information about why the rules and policy being investigated were developed.

First potential breach: ‘Buyer Broker Commission’ rule

The “Buyer Broker Commission” rule requires sellers to offer part of their agent’s commission to the buyer’s agent in order to list a property on MLS. The Bureau suspects this rule may push sellers to offer higher commissions, as agents might steer buyers toward listings with higher-than-average payouts.

The National Post cites a statement from Bureau spokesperson Rosalie Leblanc:

“We want to determine if these rules discourage agents from competing on commission rates and incentivize them to prioritize listings with higher commission offers, which might not always align with the buyer’s best interest. There are also concerns that these rules could pressure sellers into offering higher commissions to buyer’s agents to avoid their listings being overlooked by the buyer’s agents.”

Second potential breach: ‘Realtor Cooperation Policy’

The Bureau is also scrutinizing the “Realtor Cooperation Policy,” introduced in January, which mandates that most residential listings must be posted on MLS within three days of being publicly marketed, or agents could risk having their CREA membership revoked.

The Bureau is concerned the policy could disadvantage non-MLS services and smaller brokerages, which may struggle to meet the fast turnaround time, having fewer resources than larger providers. As well, it notes that services “differentiating themselves from an MLS system on privacy or by offering different features” could experience challenges.

Bureau investigator Adam White wrote in a court-filed affidavit: “Large brokerages have a greater number of agents working for them, and thus these agents can advertise listings to a larger network of agents without contravening the Realtor Cooperation Policy.

Conversely, smaller brokerages with only a few agents working in them will have less of an opportunity to advertise listings outside of an MLS system.”

CREA: ‘Pro-competitive & pro-consumer …  increasing transparency & helping realtors better serve buyers & sellers’

In a statement to REM, James Mabey, chair of CREA, says it’s unaware of any determinations or conclusions made at this time (this is also noted in the National Post article.)

Rather, as part of its investigation, he says it’s typical for the Competition Bureau to seek a court order, as it’s currently doing, to produce records and provide written responses.

Mabey notes the organization is cooperating with the Bureau as part of this investigation phase, and that CREA believes its rules and policies are “both pro-competitive and pro-consumer, including by increasing transparency and helping realtors better serve Canadian property buyers and sellers.”

Mabey references realtors’ long history of serving their clients by being knowledgeable about developments in real estate, actively updating their education and committing to the Realtor Code. He also cites the professional services realtors offer, including “posting property information to an MLS system and handling every element of the transaction, including market analysis, pricing advice, advertising, making and receiving offers and much more.”

He continues: “CREA’s realtor members know the benefits of an informed consumer and promote transparency and innovation within the industry. They use their collective voice to champion the interests of Canada’s property owners, buyers, sellers and renters. And, they contribute to a cooperative tool known as MLS systems — efficient, collaborative marketplaces that help connect realtors representing buyers and realtors representing sellers — to the benefit of both realtors and their clients.”

Mabey also notes that the industry is built on a foundation of cooperation, expertise and care. “Every day, realtors in every corner of this country are helping Canadians navigate their real estate aspirations and realities,” he adds. “As the world around continues to change — from our housing needs to the market and economic conditions — what realtors stand for hasn’t. Realtors have and will continue to be there to support their clients through it all.”

So far, Boswell has not found any wrongdoing against CREA.