Slashing Ottawa Real Estate Fees

The usual rate for their service was 5 percent (which was based on a four-way split in commission between the listing agent and a selling agent, and the two real estate brokers who owned or managed the branch office). So that, when the average home price was $200,000 - you would pay $10,000 commission to sell your home in that way.

When average home prices rose to $300,000 you paid $15,000 to sell your home. Now that, since the recent housing boom, most single family home prices are over $400,000, the cost to sell a detached house is over $20,000.

Obviously, this is a huge burden for first-time owner-occupiers. It is also a liability for today's real estate speculators who have benefited hugely from the inflation in real estate prices and hope to exploit the market by flipping over their properties to make a good profit in 18 months to two years.

The reality of real estate sales conforms pretty much to the 80/20 principle of economics, in which 20 percent of realtors are likely to make 80 percent of the sales. (In fact, an even smaller number do, for a multitude of reasons). Those that do not - or believe in the principle that narrower profit margins attract a greater volume of sales - began to offer 3 percent (instead of 5 percent) to drum up more business.

It was seen as a realistic move, by some people, in view of higher home prices creating obscenely greater earnings (compared to, for example, conveyancing lawyers, who charge a fixed fee which does not increase to exploit the housing market when real estate prices rise). 3 percent might therefore be seen as a reasonable compromise in times of real estate price inflation. But even that is shockingly high, and a possible barrier to the movement of free market forces.

The federal Competition Bureau, however, is set to change all that, which should result in lower realty commissions and fees. A landmark investigation by the Competition Bureau concluded that the Canadian Real Estate Association (CREA) maintains anti-competitive rules which they will have to change.

Such changes may have a profound impact on the real estate industry and encourage more innovative discount brokers to enter the market and permit sellers of homes to list their properties more cheaply on MLS.

The Competition Bureau stated its concern that the Ottawa-based Canadian Real Estate Association (with a membership of over 96,000 real estate brokers) "have restricted consumer choice and limited the scope of alternative business models." In other words, it alleges that CREA's rules or regulations "create restrictions and barriers" to trade.

The Bureau began to investigate in 2007 after consumers complained of high realty fees and a need for more affordable services. Its stated position, in a meeting on October 23 with CREA executives, is that "if CREA does not remove these restrictions, the Commissioner of Competition will initiate an application before the Competition Tribunal." Reports suggest that CREA is pursuing a settlement rather than go before the tribunal which can administer penalties.

The rules that the Bureau want changed include ones which state that "the listing realtor must act as the agent of the seller and receive and present all offers to the seller, and property information cannot be posted on the Multiple Listing Service without an agent representing the seller." Such changes would permit offers to be sent to sellers without the involvement of listing agents, and for a small fee instead of commission - perhaps only $100 to $300.

Changes proposed by the Competition Bureau will be discussed at an emergency meeting of CREA in December 2009.