By Kathy Bevan

Following a two-year inquiry by the federal government’s Competition Bureau that concluded some of CREA’s rules governing MLS access are anti-competitive, discussions to reach a settlement agreement between CREA and the bureau are ongoing.

“At this stage, we’re trying to very clearly understand all the issues involved,” says CREA CEO Pierre Beauchamp.  “We want to try to find a consensual resolution with the bureau, as that’s obviously the best for all concerned.”

The bureau also appears to be interested in coming to an agreement.  “Although we will not comment on the specifics of this matter, generally when we identify a potential violation of the Act, the Competition Bureau is prepared to work with organizations to reach a voluntary resolution that will fix the competitive problem,” says Greg Scott, senior communications advisor for the bureau.

If a mutually agreeable resolution cannot be found, CREA has said it will go to its members to determine next steps.  While the association has expressed its hope that this does not involve legal action, CREA has built up a significant Legal Defence Fund over the past seven years, in large part due to concerns that ongoing scrutiny by the Competition Bureau might lead to litigation.  Legal action instigated by the bureau in the late 1980s led to fines against several Calgary Realtors and the issuing of a Prohibition Order under which CREA and its boards and associations operated for 10 years.

As a result of the latest investigation, the Competition Bureau wants CREA to remove its “Agency Pillar” and three of its seven “Interpretations” of how existing MLS rules are applied.  The bureau’s goals:  to give buyers the ability to send offers directly to sellers and to allow sellers to post their contact information on MLS listings, where that information could be directly obtained by buyers’ agents.

The bureau also wants to make it possible for Realtors to submit “mere postings” to MLS, as long as the listings comply with the remaining CREA rules and regulations.  According to CREA’s current MLS “Interpretations”, mere postings occur when a listing agreement relieves the listing Realtor of any obligations under CREA’s MLS Rules and Regulations – to date, these have been deemed contrary to those Rules and Regulations.

The changes put forward by the bureau impact key aspects of CREA’s trademarked MLS system that the association has been striving to protect since 2002, when it began actively promoting the importance of what it called “the Three Pillars of MLS” – membership, agency and compensation sharing.  At CREA’s AGM in the spring of 2007, members approved the “MLS Interpretations”, seven guidelines to ensure that MLS Rules and Regulations would be uniformly interpreted and enforced by all boards across Canada.

The three Interpretations and the Agency Pillar that the bureau wants removed represent a core CREA principle – that Realtors remain central to the listing and selling of real estate carried on the MLS system and posted on Realtor.ca, CREA’s public website.  CREA’s existing MLS Interpretations clearly state, for example, that listing agents must receive and present all offers and counteroffers to the seller and that only a listing agent’s contact information can appear on Realtor.ca listings – the seller’s information is not to be shown.

CREA defends its MLS Interpretations as a way to ensure consumers receive consistently high-quality listing information and service through Realtor.ca; critics accuse CREA of using these Interpretations to prevent real estate firms from offering unbundled services to consumers via the website.

In a short news release issued after media began reporting the bureau’s findings, CREA stressed that listings on MLS would still have to go through Realtors. “The media has inaccurately reported that a proposed resolution between CREA and the Competition Bureau would result in members of the public being able to access the MLS system to list their homes for sale without involvement of a Realtor member of CREA. This is incorrect,” CREA wrote in its brief statement. “The MLS system is a system for Realtor members of CREA.”

The fact that issues between the bureau and CREA have raised the spectre of court action once more does not sit well with Don Lawby, one of Canada’s veteran industry leaders.

“Our industry finds itself in a complicated position largely due to the creation of a portal for the consumer – MLS.ca, now Realtor.ca.  Good or bad, we went down a path, but that sure isn’t where organized real estate started from,” says Lawby, president and COO of Century 21 Canada.  “If organized real estate had stayed where it originally was designed to be – providing information and data between members and not dealing directly with the consumer – we wouldn’t be in this position today.”

Lawby added, “Maybe it’s time for the industry to go back to its roots and just share data between licensed professionals, not with consumers.”

The bureau’s conclusions were welcome news to Lawrence Dale, Toronto lawyer and co-founder, with Stephen Moranis, of RealtySellers, a Toronto-based discount brokerage that offered unbundled real estate services.  RealtySellers suspended operations two years ago, stating that the company could no longer operate under CREA’s MLS rules.  Dale and Moranis have now filed a $100 million lawsuit against CREA, the Toronto Real Estate Board (TREB) and a number of related directors, alleging that the terms of an earlier settlement of a lawsuit by RealtySellers had been breached by CREA and TREB “by implementing new offer negotiation rules”.  (See article on page 4)

“We are pleased that the Competition Bureau has agreed with us that these activities were anti-competitive and must be stopped,” says Dale, going on to say that he saw this as “a wakeup call” for the industry.  “Consumers should have the choice to decide which services they want to engage a real estate agent for – it shouldn’t be dictated by the boards and associations.”

The concerns the bureau communicated to CREA at the end of October were the culmination of an inquiry that began in 2007, when the bureau launched an investigation to determine if CREA had restricted access to MLS in ways that were anti-competitive.  As part of that inquiry, the Bureau had also looked at whether the way CREA was interpreting some of its rules constituted a violation of the Competition Act.  CREA provided more than 77,000 pages related to its MLS operations to the investigation, in compliance with the bureau’s Section 11 requirements.

In a letter to CREA members detailing the bureau’s concerns, CREA president Dale Ripplinger says that CREA does not agree “either as a matter of fact or as a matter of law” with the bureau’s findings and conclusions, citing in particular the bureau’s concerns that CREA’s rules have restricted consumer choice and limited the scope of alternative business models.

“Unfortunately, the bureau seems to believe that CREA’s rules, namely the Agency Pillar and Interpretations 1, 3 and 6, create restrictions or barriers.  CREA does not believe this is true,” Ripplinger said in a memo to all CREA members dated October 29.  “Our challenge is to understand the effect of removing Interpretations 1, 3 and 6 and the Agency Pillar on the operation of a board or association’s MLS system.”

Ripplinger also said the association was faced with two immediate options after receiving the bureau’s findings and proposed remedies:  to argue against the bureau’s proposals in front of the Competition Tribunal – a quasi-judicial body that has the authority to issue fines and prohibition orders – or to seek a settlement with the bureau. CREA’s Board of Directors opted for the latter approach, subject to member support.

Intellectual property and Canadian competition law expert Steve Szentesi questions what the ultimate impact of restructuring CREA’s MLS rules will be for Realtors and for consumers.  “While some may take the position that CREA’s ‘three pillars’ of MLS operate as a barrier to entry for some business models, they have historically been intended to ensure that a high standard of service to consumers is provided by Canadian Realtors, and perhaps more importantly aiming to ensure that Realtors’ professional agency obligations are fulfilled,” says Szentesi, a Vancouver-based lawyer who has previously provided legal counsel for CREA.  “For this reason, it is not clear to me that removing or altering the ‘three pillars’ will necessarily have the intended benefit for consumers that the Competition Bureau seeks.”

Ripplinger echoed the concern about Realtors’ agency obligations in his letter to CREA members.  “Even with the removal of the Agency Pillar, Realtors may still have agency obligations as a matter of law and regulation.  Realtors will still be obligated to comply with provincial and federal law and regulation.”

Ripplinger acknowledged that CREA and the Competition Bureau do share a point of view on one key concept: “The bureau’s position is that the marketplace and competition should dictate what business models exist – CREA agrees with that.”

Now CREA and the bureau have to see if they can also find enough common ground to reach a settlement agreement that all parties can accept.