Once again, anti-competitive accusations are being leveled against our industry, this time in the McFall case. I remember back in the early 1990s when the first discount broker of substance came to our market. We were all upset, I still think rightfully so, and there was much talk about not showing their listings or offering them the same fees they offered us.
This was really our first foray into competition law, and we really weren’t well prepared for it. One large brokerage decided to offer the discounter what they offered us — that didn’t go so well.
The question of what is right is complicated
This was a prime example of the complexity of the world of laws and ethics. Sometimes laws conflict and sometimes both laws and ethics conflict. The law is very complex and even lawyers don’t know where cases will end up, but when we add in ethics the water becomes very muddy.
Let’s say, for example, you and I are the only two barbers in town. I cut your hair for $20 and you cut mine for $30. Fine, I start charging you $30 even though I charge all my other customers $20. Arguably, I am ethically right but legally wrong. Now, of course, this is oversimplified, but hopefully, my point that the question of what’s right is complicated is clear.
MLS systems: Serving two masters, something courts have trouble with
Let’s roll this back into real estate. I argue the MLS is the best system ever created, and better by a country mile. It allows buyers access to the greatest number of homes, it allows sellers access to the greatest number of buyers and it allows agents to better serve their clients’ needs. But, just as important, it allows both parties to have their own agent working for their best interests.
The argument against the MLS is that a cooperative system is also collaborative and it breaks competition law. It is, arguably, a system where a consumer (or an agent) is being asked to serve two masters, and courts have a very difficult time with the concept of serving two masters.
Before going any further, let me state that nothing exists in a vacuum, and it’s my firm belief that it’s time the concept of competition is knocked off the pedestal we have placed it. Let me explain.
The problem is not lack of competition but a perceived lack of competition
I think it’s safe to say that anyone who has spent any time as a realtor knows that our industry is one of the most competitive to be found anywhere on this planet and that no organized price fixing exists. The argument that our system is collaborative is correct in that we collaborate to help clients but the collaboration stops there.
The industry’s barrier to entry is quite low and many people leave in their first two or three years. The problem is not lack of competition. The problem is a perceived lack of competition (or maybe, an ability to claim a lack of competition) and that competition law is on this pedestal, a shining light for all to see, never to be questioned or subjected to scrutiny. It’s the manifestation of pure goodness on earth. And it’s time this assertion is challenged.
Let’s get competition law off its pedestal
Let me start by saying I do believe competition is a critical component of a market economy and should indeed be given a priority ranking; my issue is that it’s given an almost divine ranking, placed so far above any mitigating factors that it can become destructive.
Cooperation can be a strong mitigating factor deserving of consideration. As mentioned, our cooperative system benefits everyone — I think that’s unquestionable. I do not believe it’s unethical to argue that if you want the benefits of the system, you must also pay the cost.
Arguing for a middle ground
The problem arises in how we set that cost. An industry-wide agreed-upon buyer’s agent fee is clearly anti-competitive and very few would argue that. I think just as few people would argue that to ask someone to work for weeks or months for $1 is also wrong, and in many cases where this argument is being made, it’s hypocritical.
Is it wrong to argue for a middle ground? Is it wrong to say “You have to pay something?” Even more defensible, is it wrong that something is anything more than zero?
I think that’s an easy argument to make ethically but clearly, it isn’t so easy legally. Maybe the law is wrong? Maybe it’s time the courts realize that the benefits of a cooperative system in which everyone is better off is worth some cost?
Nothing exists in a vacuum and that includes competition. I predict that if we continue down this anti-competitive allegations road, we will soon throw the baby out with the bath water.
Gerald has been a licensed real estate agent for thirty years and an industry instructor for over twenty. He has served on several committees with the Realtors Association of Edmonton and on the Board of the Real Estate Institute of Canada (REIC) Edmonton chapter. He is also an ethics instructor for REIC nationally and enjoys family, various sports, and the outdoors. Check out his popular real estate podcast The Real World of Real Estate here.
Greetings, Gerald:
Having just reeled through your article, I must say I agree with your position wholeheartedly. In the world of politics, perception is reality. In the world of real estate sales, reality is often trumped by misperception. Unless one has been in the saddle as a real estate salesperson for more than a few deals, or years, whichever comes last, one will never fully appreciate the workings of this convoluted, sometimes part-time venture, sometimes full-time try-out scheme, or, sometimes full-time profession. Take your pick. That’s the problem; onlookers and overseers from without who have never experienced the trajectory of the money flow between buyers and sellers who use the M.L.S. system of offering properties for sale on a competitive, but, cooperative, platform, simply can not, and seemingly, do not, want to admit to its longstanding success that benefits buyers, sellers and, licensed operatives alike. Government types don’t seem to like or respect sales people, it seems.
What the government overseers only want to see is the misperception that ‘every’ real estate deal is struck by two operatives working together in the back rooms to ‘pull’ deals together behind their charges’ backs. We both know this kind of dirty-dealing behaviour goes on in this business. That is why government types view this business with a jaundiced eye. Too many brokers cryptically condone this kind of double-dealing for the good of their own back pockets. When this kind of chicanery gets out, of course it tars the whole industry. I have been retired from the business for nigh on thirteen years now. It’s not the system that needs rejigging; it’s the operators. This is a commission-only sales position, and for better or worse, it will continue to attract slippery, unsavory types to its ranks. I blame some brokers for their hiring practices, and, applaud others for theirs. Therein lies the rub.
I challenge anyone who works within the Competition Bureau to go to work tomorrow for one dollar. Their mission is to control the uncontrollable, it seems. Government cannot control human nature.
Methinks their ranks are flush with university grads who never got out of the classroom before entering government service. Idealists? Yes. Realists? No. Choosers of misperceptions that fit their prescribed narratives? I think so.
I’ve worked in a government agency staffed by nine-to-five bureaucrats with left-wing political chips on their shoulders. I know of what I speak.
Should you want to form up some kind of lobby group, let me know.
I totally agree. Who thinks that running around for $1 is fair and then you have to ask your buyers to pay which they think is unusual because “we’ve never had to do that in any house that we’ve bought”. Now the relationship turns because they don’t want to pay as “the seller pays”. It becomes complex to navigate thru. A friend said to me, “how come you have to accept this as if I want to sell my old car, I can’t just drop it off at a dealership, leave it on the lot and tell them that I’ll give them a $1 and to call me when it’s sold and I’ll come pay the $1 and collect the balance”. She said that’s what it feels like to her but the car lot would tell her to go to hell even tho her car would get greater exposure there. It’s something to think about. I’m all for competition but not at the expense that someone thinks that my experience and value that I bring is only worth $1. In today’s world there isn’t much you can buy for $1 and I can’t be bought for that either lol.
Amen.
Ever since that former interim-then-permanent Competition Commissioner started amending the Canadian Competition Act so that it had similar offenses (and teeth) as did the USA version AND THEN started applying the USA-like anti-competitive laws against the Real Estate Business … we have had to battle the Cdn Competition Bureau as if THEY were ALWAYS right and we we ALWAYS wrong.
Thanks for this article and thanks to REM
Thanks Gerald. Clearly thought out and eloquently stated. We have come a long way since the old system of assumed buyer sub-agency. The industry is justified in standing up for an equitable middle ground that balances the competing interests of buyers and sellers while allowing the industry an element of control over its own business model.
Ron Farrington
Retired Broker
Peachland BC
Being fairly new, 10 years in, operating in Edmonton AB. I find this dialogue interesting. I have only ever seen consumers have access to multiple different brokerages and services. We have all kinds of brokerages here, and they are well-known.
When I saw the lawsuit regarding “price fixing”. I was confused, There is just as much conflict between brokerages and their brokers as there is cooperation. If we were able to get along so well as to “nationally price fix” We wouldn’t require 225+ different brokerages in a city with just over a million people. The accusations brought about in the lawsuit is bizarre.
The spirit of the lawsuit seems to be, “This quality of people shouldn’t be able to charge so much, we are going to slander them and defeat them legally to prove our point”.
Some brokerages make their living by advertising their comparably low fee structure. That is their value proposition. Higher fee and lower fee brokerages are able to simultaneously exist, except for some multinational flat fee brokerages that have gone under half a dozen times since I entered the business.
A good buyer and sellers agent protects consumers and the industry from bad actors. They can and often are be the conscious guide for well-meaning individuals dealing with enormous amounts of money and risk. They are currently a necessity.
People are motivated by self-interest. Without conscientious professionals involved throughout the entire sales process, this system becomes cheap in price and substance. The Facbook market place of real estate sales. The process is eroded, the value is eroded and the quality of consumer experience, and subsequently property values, and mortgage values are eroded.
If there was a glaring industry issue to point out, it would be the low barriers to enter and stay in the industry. Trades people require a four-year apprenticeship, accountants require undergrad and post-grad certification. Real Estate agents require three months of education and 7K upfront with minimal upgrading and yearly licensing fees. They can then hold on to their license indefinitely. We have huge gaps in the industry where a majority of agents sell next to nothing. 5.5 M homes sold in the US and there are 2 million agents. No wonder public opinion of our profession is so low. Most of us are running around without any experience charging huge sums of money.
I typically sell three times the national average. 21 ish units a year. I have a ton of free time. My cost to compete in the industry erodes this income completely.
I am all for charging less, as my business experiences an obscene amount of deadweight loss from loss-leading activities, much of which is caused by the plethora of agents competing for the same business. If there were higher barriers to entry, more deals would be left to better professionals, who could in turn charge less for a higher volume of business.
Something that never gets discussed in all of this is how will a Buyer pay the Buyer’s Agents fees? If the listing brokerage does not cooperate, it will be up to the buyer to pay their agent directly. The way it works now, lenders will not finance “commissions”, so buyers will be left unrepresented. You can make the arguement for either case for who is actually paying the commissions. On the listing, it is the seller paying, but at the end of the day, it is the buyer’s money. The system works in 99.9% of the cases when there are ethical REALTORS involved. Why can’t CREA put forth a serious challenge and get this stuff resolved once and for all?
Exactly Gerald!
So well stated! I don’t feel after 33 years of real estate, full time, that I should have to “fight” to earn a decent commission/ living. Yes the $1 offer can usually be modified in the purchase contract to a decent amount, but not always. Some Sellers won’t agree to compensate us…. and some Realtors do refuse to show these properties. I don’t blame them.
The sad thing is that there are actually firms offering it in the first place which is an insult to our intelligence and our professional worth. My many hours of time showing houses is worth much more than a dollar.
I completely stand behind you on this.
Thank you everyone for the comments. I do read them on all my columns though I try not to engage in the discussion. I do appreciate all comments, whether in agreement or disagreement.