Are Realtor Â® Commission Structures In Direct Violation Of The Competition Act?Tweet Loading
North America, more specifically Canada affords the public a free market.One of the key features of a free market system is the consumer’s “freedom of choice.”A free market is the opposite of a controlled market, where the government regulates prices or how property is used. The concept of commission structures has taken centre stage here, where the focus of discussion should be directed at the public’s use of the Realtor.ca platform.As the general public continues to rely on online platforms, and is increasingly relying on Realtor.ca, the role of a Realtor has come into question.Does the general public need a Realtor and if so, are we paying too much commission to Realtor’s interface is provided for by Realtors via their board membership dues.The Multiple Listing Service is keeping both these facts in mind, one would have to:
a)Be/become a member of the private institution in question, in order to enact new rules, or reform existing rules.
b)As the non member does not pay board dues which fund decisions and the interface in question, they should not be entitled to change policies.(ie:listing their property on Mississauga condos for a flat fee.)
c)Board members have written the requisite testing to become professionals within the industry of which they are board members of, whereas non members have not completed the knowledge based testing required to transact.Therefore non-members should not benefit from the use of the Multiple Listing Platform until they have completed the requisite testing, as this is a tool for board members and their clients.
d)As the government can not dictate what price a consumer purchases or sells their property for, the government should not be allowed to dictate what Realtor’s will charge for their services. Unless there is definitive Cartel in an industry, a government within a free market system should not be allowed to intervene.
With average Realtor commissions decreasing in the recent past and trending lower yearly, rather than arguing that Realtor’s earn too much commission, one can argue that Realtor’s earn too little commission.On an average purchase of $350,000 at 5% the total commission is $17,500.This commission is split 50/50 with the purchaser’s agent equaling $8,750 each.At this point, the brokerage (Re/Max) who the independent contractor (your agent) works for may take up to 50% of the gross commission.This leaves each Realtor with $4,375.Keeping in mind the Realtor has paid for all marketing fees in advance before the sale of the property, does not receive Employment Insurance, has no Employee Benefits, pays tax on this gross amount, and membership dues including continuing education yearly.At the end of the day, this Realtor would be lucky to walk away with $2,000 net revenue.Maybe there should be an industry wide minimum commission rate protecting Realtor’s earnings.Under this structure Realtor’s would not be able to undercut other Realtor’s, and all commission structures would be at an industry minimum of 4%.Oh wait, this would be a cartel, and this is the scenario the Competition Bureau should be protecting the public from.Since there are no minimum commission structures industry-wide, and Realtor’s may charge anywhere between 1% and 6%, we are currently in a free market.This has caused some Realtor’s to offer there services at a discount, which has already driven average commissions down industry wide.As a result, the free market has dictated that Realtor commissions have decreased, and this has already benefited consumers.
This has empowered the consumer to negotiate what they are willing to pay for a Realtor’s services.At the end of the day, if the consumer is willing to pay 3.5% of the purchase price of their home as commission to the Realtor, and the Realtor will only accept the contract for 5% of the purchase price, then the Realtor and the consumer have the option of walking away from the contract.
Quite possibly the solution to this dispute may lie in the fact that the Realtor’s who funded the use of the MLS, should have the exclusive benefit and use of this platform.Until the general public is willing to pay the same amount of dues, and go through the same amount of knowledge based testing as Realtor’s do, the general public should not be granted free use of this service. Home Seller’s should continue to have to pay the commission fee to which they agree to pay their Realtor.ca in an open market.At the same time, home purchaser’s should have to pay to use the MLS service as this is a service paid for by Realtor’s for their clients, and not intended for use of free riders that sell their homes for a flat fee, and get to search properties on the same service for free.Realtor’s would essentially be paying into a service that has no inherent benefit to them.
In this type of free market where consumers and Realtors collectively decide what is a fair commission rate, there is no need for government intervention, as there are no infringements on the Competition Act.