Canadian regulators say rules that govern the use of multiple listing services still limit competition from flat-fee service providers, despite changes to the rules approved this month by the Canadian Real Estate Association.

The Competition Bureau of Canada says it will continue its challenge of the rules before the Competition Tribunal, a quasi-judicial body that decides disputes over issues ranging from mergers to restrictive trade practices.

In a complaint filed Feb. 8, Canadian Commissioner of Competition Melanie Aitken said Canadian brokers are "expressly prohibited by (CREA’s) MLS restrictions" from providing MLS-only listing services.

CREA — Canada’s version of the National Association of Realtors — denied that and other allegations, but made several changes to rules singled out in the commissioner’s complaint.

The changes were approved by 87 percent of CREA members in a March 22 vote at the group’s annual meeting, CREA said in its response to the complaint.

In a press release issued the same day, Aitken dismissed the rule changes: "There is nothing in these proposals that we haven’t seen before and they do not solve the problem."

In fact, Aitken stated that the rule changes are "a step in the wrong direction," amounting to "a blank check allowing CREA and its members to create rules that could have even greater anti-competitive consequences."

In Canada, each local real estate board operates its own MLS under the terms of licensing agreements with CREA. CREA also operates, which compiles listings from around the country and makes some information, such as listing price, available to the public.

The MLS system as a whole provides CREA’s members with "the only comprehensive listing of homes for sale in Canada," Aitken said in her complaint.

CREA’s ability to impose rules on brokers and MLSs gives it "market power" to prevent members from competing with each other by offering a range of services, including MLS-only listings, regulators claim. That, in turn, limits competition on the basis of price, Aitken said.

The terms of use of the MLS and related trademarks include what CREA refers to the "Three Pillars" governing membership, agency and compensation.

Before it was amended last week, the "Agency Pillar" required that the listing Realtor "act as an agent for the seller to sell the property and to assist the seller throughout the entire time of the listing contract."

In March 2007, CREA published a set of rule interpretations, including requirements that the listing Realtor receive and present all offers and counteroffers to the seller.

The rule interpretations also stated that "the mere posting of property information in an MLS system is contrary to CREA’s rules," and that the seller’s name and contact information could not appear on or in the public remarks section of an MLS listing.

"CREA’s own documents establish that the MLS Restrictions were implemented for the purpose of excluding or preventing suppliers of fee-for-service real estate brokerage services from competing in the market for residential real estate brokerage services to home sellers," Aitken said in her complaint.

The restrictions "have virtually eliminated" fee-for service real estate brokerages in Canada, and closed the door to new businesses that would employ such a model, the government said. …CONTINUED

In a response filed Friday, CREA said its MLS rules "allow for a range of options for residential real estate brokerage services, including the ability to contract for minimal service offerings, ‘discounted’ commission rates, flat-fee product offerings and fee-for-service products."

The rules are intended to "ensure the high quality, reliability, and accuracy of the information provided to member board MLS systems" and "constitute reasonable conditions for access" to the system.

CREA disputes the government’s contention that it has "market power." The group described itself as "a trade association that does not provide residential brokerage services" and said its members "compete vigorously with one another."

While denying the regulators claims that its MLS rules restrict competition, CREA amended the "Agency Pillar" rule, deleting the requirement for the Realtor to assist the seller "throughout the entire time of the listing contract."

The "Agency Pillar" rule now states:

"A listing Realtor must act as an agent for the seller in order to post, amend or remove a property listing in a board’s MLS system. The nature of any additional services to be provided by the listing Realtor is determined by the agreement between the listing Realtor and the seller, subject to applicable regulatory requirements and the rules of CREA and boards/associations."

Aitken interpreted the last clause as a potential loophole for CREA members to pass their own rules and requirements limiting the ability of fee-for-services brokerages to use the MLS.

In its response to the government’s complaint, CREA dismissed Aitken’s claim as "preposterous," saying the government cannot base its case on "unfounded speculation that anti-competitive rules will be created some time in the future."

The government’s complaint is "fundamentally misconceived," attorneys for CREA said, because it "is simply untrue that consumers have only one option if they want to sell their house using an MLS system operated by a local real estate board or association."

Canadian Realtors offer services through a wide range of business models, including discounted commission rates and fee-for-service models that include listing a property in the MLS for $109 or less, CREA said.

The government’s complaint does not mention the rule changes enacted by CREA, and is therefore moot, lawyers for CREA argued.

In addition to amending the "Agency Pillar" rule, CREA deleted the provisions of its March 2007 rule interpretations that required the listing Realtor to receive and present all offers and counteroffers to the seller, and the prohibition on "mere posting" of MLS-only listings.

CREA says the only "substantive" issue raised by the commissioner that the changes do not address is the ban on displaying the seller’s name on or in the public remarks sections of MLS listings.

"Valid business justifications support this requirement, including the need to protect the distinctiveness of the MLS (trademarks) and the quality, reliability and accuracy of the information on board MLS systems," CREA said.

The Competition Bureau has been looking into the rules governing the national MLS since March 2007, when it served CREA with a court order (see story), and has held meetings with limited-service brokers in the U.S.


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