Competition Bureau Recommends Easing Regulations in Canada's Real Estate Industry

Written by Posted On Tuesday, 25 December 2007 16:00

A new study by Canada's Competition Bureau says it did not find "major restrictions" to competition in the country's real estate industry, but the report makes several recommendations concerning educational requirements of real estate agents and the way commissions are paid, and it suggests that the regulatory distinctions between real estate brokers, agents and sales reps be eliminated.

The study looks at five self-regulated professions in Canada: accountants, lawyers, optometrists, pharmacists and real estate agents. The purpose was to "determine whether and to what extent selected professions have restrictions that limit competition in their own, or related markets."

It says that all professions need to re-examine their rules to ensure they are serving a public good and don't go too far in restricting competition. "We understand that regulation plays a legitimate role in protecting consumers and meeting public policy goals," says Sheridan Scott, commissioner of competition. "However, not all the regulations we looked at appear necessary, and removing some of these restrictions could benefit consumers and the Canadian economy."

The Competition Bureau report doesn't mention that the Bureau is currently investigating the Canadian Real Estate Association's policies concerning the Multiple Listing Service. Earlier this year the Bureau's deputy commissioner, Richard Taylor, said it had launched an investigation "into whether CREA has restricted access to MLS in ways that are anti-competitive … . The Bureau is also looking at whether the way CREA is interpreting some of its rules constitutes a violation of civil or criminal provisions of the Competition Act."

Taylor said, "The risk we now face is that agents offering traditional service models may succeed in imposing rules on MLS users that effectively preclude innovators from getting access to that service. The Bureau is watching this with interest."

CREA and its member real estate boards and associations have provided the Bureau with some 77,000 pages of documentation as part of that investigation.

In the new report, it's noted that real estate in Canada falls under provincial jurisdiction, which means each province has its own legislation, rules and regulations governing how the industry operates. "The length of the mandatory pre-licensing courses varies significantly between jurisdictions, which the Bureau questions, since the jurisdictions with the least requirements do not seem to have a significantly poorer quality of real estate services," says the report.

It says that Quebec's real estate council is considering introducing non-mandatory pre-licensing courses. "Anybody could then write the examinations without having to take the courses. This would effectively eliminate education as a barrier to entry," it says. The report recommends that other regulators across the country also consider this idea. "Given the relatively short process individuals have to follow to become real estate agents, educational requirements are not a significant barrier to entry," says the report. "However, the inconsistencies across provinces and territories in educational requirements do raise questions as to whether regulators have set the requirements at the minimum level necessary for real estate agents to be sufficiently qualified.

The report also notes that all provinces and territories except Quebec place restrictions on the way real estate agents are paid. They can charge either a fixed amount or a percentage of the selling price. In Ontario, the Real Estate Act prohibits agents from charging both ways, "meaning that real estate agents may not, for example, ask for a fixed amount for their initial work and then a percentage of the selling price at closing," says the report. "Such a restriction disallows two-part fees, a type of pricing arrangement one would expect to arise in a competitive sales market in which some fixed level of work is generally required, but anything beyond that is uncertain."

Such restrictions should be removed, says the report, because they prevent "what would otherwise be a perfectly acceptable compensation arrangement that should spur competition among agents, since it maintains the incentive for them to work to get a higher selling price for their clients while ensuring that they will be fairly compensated for the preparatory work they do."

Another of the key recommendations is that regulators "reconsider the necessity of making a distinction between brokers, and agents and salespeople. Alternatively, regulators could explore options that would allow agents to become more independent."

The Bureau says that because agents must work on behalf of a brokerage, "only brokerage owners can really be self-employed and independent." It says the requirements needed to become a broker acts as a barrier to agents who would like to start their own business, and is not typical of other professions.

"For example, lawyers may start their own businesses the day they are accepted to the bar after finishing a mandatory articling period, which varies from six months to one year," says the report. It says that Quebec's real estate council will recommend that no distinction be made between brokers and agents, when the province's Real Estate Brokerage Act is renewed. "Only one type of licence would exist. Each person holding a licence would be professionally independent, but brokers could still work in real estate brokerages if they wished. The council's recommendations would ensure that a greater number of agents are independent in the way they conduct their business," says the report.

So far CREA has not issued a formal response to the Competition Bureau's recommendations. The Bureau says it plans to do another review of all the professionals studied in two years, to see if its recommendations have been implemented.

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Jim Adair

Jim Adair has been writing about Canadian real estate, home building and renovation issues for more than 40 years. He is the former editor of Canada’s leading trade magazine for real estate professionals, as well as several home building, décor and renovation titles. You can contact him at [email protected]

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