The Canadian Real Estate Association (CREA)’s Realtor Cooperation Policy has been in effect for nearly six months now. During that time, I have been asked whether CREA can actually direct or control realtor communications. The short answer: it depends on who you ask.

CREA certainly thinks it can, and it carries a big stick. The association’s leverage to direct or control realtors’ ability to communicate with one another flows in large measure from its control over the MLS mark and other marks it controls. A realtor who does not adhere to CREA’s Realtor Cooperation Policy is subject to discipline by CREA and/or their local board.

To be clear, the restrictions in the policy are different from CREA Rules which direct that realtors using CREA’s marks, for example, must ensure that claims in real estate advertising are “accurate, clear and understandable.” That requirement obviously makes sense.   

A heavy-handed policy

I was surprised to learn the details of CREA’s policy and the restrictions it imposed on realtors and their clients. My initial thought was that this appears to be very heavy-handed. In addition to the three-day rule included in the policy, I was struck by the fact that realtors are forced to require those who want to sell their property by pocket listing, but don’t want their listing to appear on MLS, to confirm that decision in writing and to include in that confirmation: 

a “specific instruction” to their realtor not to engage in “public marketing” of their property, as defined by CREA, and an acknowledgment that not placing their property on MLS could result in the property being seen by fewer potential buyers, could result in fewer offers being received and could prevent the seller from getting the most favourable offers in terms of price or other terms.

In other words, not only does the policy place limits on realtor-to-realtor communications, but it also imposes requirements on realtors’ clients.

This places realtors in an awkward situation with their clients. It also means if a client refuses to be told what to do by CREA, their realtor could be forced to turn them away. Why? If a realtor working with a pocket listing client failed to get CREA’s required confirmation, that realtor would be in breach of the policy and subject to discipline by CREA and/or their local board.  At the limit, that could include termination of their CREA and/or board membership. They could be out of a job.

It’s also worth noting that the policy says if a pocket listing client instructs their realtor not to engage in the “public marketing” of their property, but the public marketing nevertheless occurs, for example through inadvertence, the listing “must” be placed on the MLS system, even though that would override the client’s explicit instructions to their realtor.

The policy and ‘abuse of dominance’ under the Competition Act

The Competition Act contains provisions that prevent large players in a market from acting in ways that are anti-competitive. This includes something called “abuse of dominance” which, in simple terms, is where a party, such as CREA, uses its dominant position to target a market participant or to lessen competition.

The policy may well raise serious issues under the abuse of dominance provision of the Competition Act.

First, I think there’s a good argument that CREA is in a position of dominance, given the power that the MLS mark and other marks give it over both realtors and the real estate market generally.

Second, without getting too technical, the policy could constitute a “practice of anti-competitive acts” because it appears to target certain market participants. In that regard, a study commissioned by CREA (described below), which led to the creation of the Realtor Cooperation Policy, specifically identifies pocket listings as a problem and then proposes mandatory MLS listings as the solution.

The study states that “legitimate exceptions” to mandatory MLS listings should be permitted, but it’s of course for CREA, not realtrs or homeowners, to decide what exceptions are “legitimate.” In addition, the policy may prevent or lessen competition substantially in the market for pocket listing services for realtors.

CREA says pocket listings make MLS systems less useful

CREA’s rationale for the policy can be found in a study prepared by an economist hired by CREA. That study says that “MLS Cooperatives” (an expression coined by CREA’s economist), which are underpinned by MLS systems, get their value from something called “network effects.”

Uber provides a good example of network effects. If you had just a single driver and a single rider signed up for the Uber app, it wouldn’t be very useful to anyone. But as more drivers join the app, it becomes more useful to riders and more will sign up — as more riders sign up, the app becomes more useful to drivers, and more drivers will sign up. And on it goes.

MLS systems benefit from network effects because they contain, with few exceptions, a comprehensive listing of all resale residential real estate for sale in a given area. CREA’s study suggests that pocket listings and private networks of listings can diminish the value created by MLS systems because, among other things, they can decrease the percentage of listings placed on MLS. If the listings placed on MLS decline, MLS systems could become less comprehensive, making them less useful. 

But that argument could be made by any dominant market player as a justification for engaging in anti-competitive conduct. If Uber had adopted practices to impede Lyft’s entry into the ride-sharing market, would it have been an answer for Uber to say that having a second ride-sharing app would mean that its service would be less useful because some riders and drivers might move over to Lyft? Similarly, could Uber have said to consumers wanting to move to Lyft, that it would be in their “best interests” to remain with Uber and then adopt measures to limit rider choices? 

Clearly, the answer to these questions is no. Why? Because that’s not the way competition works, with large market players dictating consumer choice and deciding what’s in the best interest of individual consumers, as well as the broader public.

Competition works when consumers are allowed to decide for themselves what products they want to use, at what price and on what terms. It’s these consumer choices that collectively drive innovation and lead to more competitive markets — to the benefit of all Canadians.  

CREA’s Pledge of Competition states: “Member Boards and Associations of The Canadian Real Estate Association support free and open competition. We believe in the principles embodied in the Competition Act of Canada.”

It’s time to ask, is CREA’s Realtor Cooperation Policy consistent with this pledge?