Realty Times September 2, 2003

Competition Act Triggers Legal Battle Over Commission Rates
by PJ Wade

When real estate professionals battle for listings, service fees become an issue for sellers and the profession alike. Consumer demand has promoted the creation of many variations on traditional real estate commission structures. These new service options may cause disputes between Canadian brokers, their companies and associations. The final word on these pricing battles comes from the Federal Competition Bureau, an independent law enforcement agency which maintains and encourages fair competition in Canada under the basic operating assumption that "competition is good for both business and consumers."

Virtually every Canadian is a consumer. For the Canadian marketplace to function efficiently and fairly, consumers need to be able to shop with confidence and with the information necessary to make good decisions. That's where the Competition Bureau comes in. By administering and enforcing the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act, it promotes and maintains fair competition so consumers can benefit from lower prices, product choice and quality services. The Bureau's operating principles can be summarized in five words: Confidentiality, Fairness, Predictability, Timeliness and Transparency.

In February, the Competition Bureau settled a price maintenance case involving Re/Max Ontario-Atlantic Canada Inc. (Re/Max Ontario), Re/Max of Western Canada (1998) (Re/Max Western) and Re/Max International Inc. The parties agreed to a binding court order issued by the Federal Court of Canada under the Competition Act, requiring a change in their policies to allow the advertising of commission rates or fees. The Consent Order further prohibits Re/Max International, Re/Max Ontario and Re/Max Western from:

  • Adopting a policy or engaging in acts which prohibit their franchisees or their sales associates in Canada from setting independent commission rates or advertising such rates;

  • Attempting to influence commission rates upwards by any means; and,

  • Pressuring independent publishers to refuse advertising from any Re/Max franchisee or sales associate because of commission rates advertised.

    Under the Competition Act's price maintenance provisions, it is a criminal offence to attempt to influence upward or discourage the reduction of resale prices by threat, promise, agreement or other like means or to refuse to supply or otherwise discriminate against a person because of their low pricing policy.

    One of the most recent real estate disputes involves Toronto-based Realtysellers (Ontario) Limited and its claims against the Canadian Real Estate Association (CREA), the Toronto Real Estate Board (TREB) and their respective directors and others for damages in the amount of $25 million for alleged anti-competitive conduct.

    In late August, Realtysellers announced that it had been permitted by the Ontario Superior Court of Justice to commence claims against CREA, TREB and others. This is the first step in Realtysellers seeking relief as a result of its allegations that CREA, TREB and their respective named directors engaged in unlawful and anti-competitive conduct and have breached various sections of the Competition Act in an attempt to limit the competitive threat to the traditional industry presented by Realtysellers and its unique business model.

    Realtysellers' claim also asserts that "the defendants unlawfully conspired to cause injury to Realtysellers and used unlawful means to prevent Realtysellers from successfully carrying on its business." The alleged unlawful conduct includes TREB changing its rules to prevent Realtysellers from offering certain types of programs and services which were previously permitted and the setting of minimum commission levels by CREA.

    "Consumers of residential brokerage services should be entitled to competitive prices and product and service choices" said Stephen Moranis, Chairman of Realtysellers and a former President of TREB and director of CREA, adding that in the late 1980's the Competition Bureau investigated the resale residential real estate industry which resulted in the Federal Court of Canada issuing a Prohibition Order to prevent anti-competitive activity by real estate associations including CREA and TREB. "Unfortunately the Prohibition Order governing organized real estate expired after 10 years meaning the Competition Bureau has to start from scratch in dealing with these serious problems."\

    Realtysellers offers sellers two options, a traditional full service sellers program with a listing fee of 1.25%, which is half the typical listing fee in the Greater Toronto Area and a List on MLS for $695 flat fee program. These seller programs complement Realtysellers' 1/2 Back Buyers program where buyer clients are paid a rebate equal to half of the commission that Realtysellers receives.

    The Competition Bureau ensures all Canadians may enjoy the benefits of a competitive economy, but its up to individual consumers to make sure that happens. Learn more about pricing and fair practices in everything from prepaid long-distance cards and membership renewal to telemarketing by visiting the Competition Bureau website.


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