Promoting Free and Open Competition

Transcription

1 Promoting Free and Open Competition 1. How do I respond to Isn t this the rate that everyone charges? CREA, BCREA and your local real estate boards do not tell licensees how to run their businesses or what fees or commissions to charge. Licensees should avoid agreements with competitors that fix the level of fees, commissions or commission splits which is a serious offence under the Competition Act. However, the negotiation of commission splits between two licensees on an individual transaction basis is generally acceptable. Members of the public choose with whom they want to work and negotiate the terms (services and fees) of the relationship with their licensee. Reference Source: Q&A: Yes Vote Scenario- March 22, Competition Member information Zone REALTOR Link. In relations with customers and clients, brokers and licensees should explain their pricing and other business policies in terms of the services their brokerage provides. Promote your brokerage s track record, detail your marketing or negotiating expertise, and explain the functions and the value of the services performed by a real estate professional. Defend your qualifications. Reference Source: Real Estate Competition Guide Promoting Free and Open Competition CREA Why don t we all just pay less to those licensees who traditionally charge less? Licensees and brokers should avoid agreements with competitors that establish a fixed commission split. Further, two or more brokerages should not agree to offer to a third brokerage, or other particular brokerages, a lower commission split. Discussions with competitors about commission fees, calculation of compensation, and commission splits can result in allegations of price fixing, which is prohibited by the criminal conspiracy provisions of the Competition Act. Reference Source: Real Estate Competition Guide Promoting Free and Open Competition, CREA Do not discriminate against or refuse to deal with brokerages that use alternate business models. Reference Source: Real Estate Competition Guide Promoting Free and Open Competition, CREA 2009, p. 14.

2 3. Are the cooperating Brokers commissions set? Licensees should avoid agreements involving competitors that establish a fixed compensation rate to be paid for cooperative efforts. Listing and cooperating brokerages may negotiate the compensation they will pay to each other, but these discussions should never include a third brokerage. Reference Source: Real Estate Competition Guide Promoting Free and Open Competition, CREA 2009, p.5 4. I d like to lower the commission rate, but the Board has a rule CREA, BCREA and your local real estate boards do not tell REALTORS how to run their businesses or what fees or commissions to charge since doing so would raise issues under the federal Competition Act. As members of organized real estate, REALTORS adhere to Rules that ensure accuracy and quality of information. Members of the public choose with whom they want to work and negotiate the terms (services and fees) of the relationship with their REALTOR. Reference Source: Real Estate Competition Guide Promoting Free and Open Competition CREA 2009 Q&A: Yes Vote Scenario- March 22, Competition Member information Zone REALTOR Link 5. I d like to lower the commission, but no board member will show your house unless the commission is X%. A licensee should not be part of any agreement, formal, informal or otherwise to fix commissions or to collectively refuse to deal with other competitors or work on listings. A licensee should similarly never suggest or infer that there is an agreement or arrangement between competing licensees to set commissions or collectively refuse to deal with someone, which is what the above language implies. This type of conduct can raise serious issues under the criminal conspiracy provisions of the Competition Act. It is also prudent for licensees not to be part of any threat, or predatory or exclusionary conduct, that could be interpreted as pushing up prices (or discouraging the reduction of fees or discount offers or excluding alternative business models from the market). Such conduct might raise issues under the criminal conspiracy provisions of the Competition Act if more than one licensee is involved. Attempts to exclude competitors, even if done by individual licensees, may raise potential issues under the new price maintenance provision (although the lack of case law on the new provision makes this unclear). Price maintenance had formerly been a criminal offence punishable by criminal fines and imprisonment, but significant amendments in 2009 converted it into a civil provision with the sole remedy now being an order to stop price maintenance conduct.

3 CREA and BCREA will be watching for future cases which test the ability of individual licensees to choose which business models with whom they do business while still fulfilling the agency and other commitments that a licensee has to a client. Reference Source: Real Estate Competition Guide Promoting Free and Open Competition, CREA 2009, p.4 6. What is a Mere Posting? A listing on a member board s MLS system where the member has chosen or agreed not to provide services to the seller, other than submitting the listing for posting on a member board s MLS system. 7. What are the Rules for a Mere Posting? All MLS listings, including Mere Postings, must comply with CREA s Three Pillars and their interpretations. This means that listing licensees who take Mere Postings must: offer compensation for the cooperative selling of the property; be available to provide professional advice and counsel to the seller on all offers and counter offers, unless otherwise directed by the seller in writing; take responsibility for the accuracy of the information submitted for inclusion in a board s MLS system and; specify in the REALTOR remarks if the seller has reserved the right to sell the property himself/herself in the MLS listing; CREA s Rules provide that the seller s contact information shall not appear on REALTOR.ca or in the general (public) remarks section of a listing on a Board/Association s MLS System. Further, comments such as visit the REALTOR website for seller s contact information would not be permissible as these comments specify the nature of the additional information. The seller s contact information may appear in the REALTOR ONLY REMARKS (NON PUBLIC) SECTION of a listing on a Board s MLS System. Reference Source: Application of the Competition Tribunal s Consent Order, CREA Pod Cast, December 13, 2010 A prudent licensee will ensure that any agreement made with a consumer to modify or limit their duties, as described in section 3-3(1) of the Council Rules, is done in writing, before providing any services. Reference Source: Real Estate Competition Guide Promoting Free and Open Competition, CREA 2009 Report from Council, February 2011 Volume 46, No.4

4 8. Can the owner request the cancellation of MLS listed properties to avoid sales reporting responsibilities? An important part of the inherent value of the board s MLS system is the transaction data accumulated for sales of listed properties. Therefore, it is the responsibility of all board members to ensure, regardless of their business model, that property sales information for properties listed on the board s MLS system, including the reporting of conditionally sold properties and sale prices, be reported to the board (in a timely fashion or insert some reasonable time period). Members are not permitted to avoid these reporting responsibilities to the board by, for example, cancelling a listing between receipt (or anticipated receipt) and acceptance of an offer, or encouraging a seller to do so. Reference Source: Real Estate Competition Guide Promoting Free and Open Competition CREA 2009 Legal Practices Memo - December Competition Member Information Zone REALTOR Link. 9. What should I say if a member of the public calls asking to list his or her home on an MLS System without working with a REALTOR? A board s MLS system remains a member to member service for REALTORS. If a member of the public would like to list a property on a board s MLS system, they should contact a REALTOR. REALTORS may individually decide whether to accept mere postings as part of their business model, in which the only service provided by the REALTOR is to place the listing on an MLS system. Reference Source: Real Estate Competition Guide Promoting Free and Open Competition, CREA Competition Bureau information Zone REALTOR Link. 10. What if a listing will not be shown based on the commission structure? There are two potential issues under the Competition Act that can arise in connection with not showing a listing in which a buyer s agent feels that the commission structure is insufficient. First, if a listing will not be shown based on an agreement, arrangement or other understanding between competing licencees, this could potentially raise criminal conspiracy issues under the Competition Act. Section 45 of the Competition Act makes it a criminal offence, among other things, for competitors (or potential competitors) to enter into agreements to fix, control or lessen the production or supply of a product including services. This language is potentially broad enough to include concerted (i.e., collective) refusals by competitors to deal with other marketplace participants (also known as group boycotts ). Second, a refusal to deal by one licensee or broker based on another broker s or licensee s low pricing policy could also raise civil price maintenance issues under the Competition Act.

5 While any such refusal would have to also result in an adverse effect on competition, in some circumstances (e.g., a refusal to deal by a licensee or broker with a significant market presence), such a refusal could lead to civil price maintenance liability under the Competition Act. As such, based on the potential criminal conspiracy risk, a broker or licensee should never discuss with competitors the idea of not showing or working on another broker s or licensee s listing. With respect to price maintenance, the potential risk of a licensee or broker refusing to work on a listing would depend on the circumstances (e.g., whether it could be shown that any such refusal was based on the listing broker s or licensee s low pricing, whether such a refusal would result in an adverse effect on competition, etc.). Having said that, a licensee or broker that wished to avoid potential price maintenance issues arising should seek an alternative way to be compensated for working on a listing rather than refusing to work on it or show it (see the discussion below). In addition to the above potential competition law issues, an agent or broker may also have agency obligations to show a client all listings. For a useful reference on the agency aspects of this issue, see: Kim Spencer, Manager Professional Standards, Real Estate Board of Greater Vancouver, Three may be company, but no one likes a third wheel. This article discusses both a buyer agent s agency obligations to his/her client and options to seek increased compensation for working on a listing where a licensee or broker feels that the compensation being offered is insufficient. 11. What is the average/typical commission structure in (place)? It is important for brokers and licensees to set their own commission rates and splits individually without agreement or arrangement with competitors. This is because the Competition Act makes it a criminal offence for competitors (or potential competitors) to agree to fix the prices of goods or services, including real estate services. In addition, merely suggesting that there is, for example, an average, typical or usual commission in a particular market, even when that is not the case, may allow the Competition Bureau or a court to infer the existence of an agreement that may contravene the conspiracy provisions of the Competition Act. The negotiation of commission splits between two brokers or licensees on an individual transaction basis is, however, generally acceptable. If asked about rates, it is generally prudent for individual brokers or licensees to explain that their rates are determined individually based on their own level of service and business

6 model and never to suggest or infer that rates have been arrived at by agreement, arrangement, industry norms or practice, etc. with competitors. 12. Can a real estate brokerage set a fee? Whether a broker can set an office policy for commission rates, or establish related policies such as specifying the areas in which his/her salespeople work, their areas of specialization, etc., raises the issue of whether such policies may violate the criminal conspiracy provisions of the Competition Act (under section 45). This generally was not an issue prior to the 2009 amendments to section 45 since the former provision contained a market power test and it was unlikely any single brokerage would have enough market power to substantially lessen competition in a market by itself. The new section 45 of the Competition Act, however, prohibits agreements between competitors (or potential competitors) to fix prices, divide/allocate markets or restrict output/supply, with no market effects now needed to be proven. This may mean that an office policy for a single office might raise an issue under the new section 45. In the context of broker office policies for commission rates (or other aspects of services provided by a broker s salespeople), the key issue is whether a broker could be seen as a competitor of his/her salespeople, such that any such office policy may be shown to be a price-fixing or other agreement between competitors. Given that section 45 was recently amended in 2009 (and came into force in 2010), there is as yet no case law interpreting key aspects of section 45, including the definition of competitor in that section or when individuals should be considered to be one party (or a single firm) as opposed to multiple parties, such that they can be found to be conspiring for the purposes of section 45. For this reason, until there is case law interpreting section 45, there is, depending on the structure of a particular brokerage, potential risk for brokers that set office policies for commission rates (or establish policies for other aspects of their salespeople s services e.g., the areas in which they work, their areas of specialization, etc.). Having said that, the Competition Bureau informally (verbally) advised CREA in December, 2010 that brokerage office policies have not been on the Bureau s radar and that the Commissioner of Competition has no present intention to investigate brokerage office policies under the Competition Act s criminal provisions (i.e., under section 45 of the Act). Moreover, the Bureau informed CREA at that time that if it were to receive any complaints about bona fide brokerage office policies, it would not likely investigate the complaint under the criminal provisions of the Competition Act but would rather consider them under non-criminal provisions such as the price maintenance or, abuse of dominance provisions or potentially under the CREA Consent Agreement.

7 Some of the options for brokers that wish to obtain more guidance on this issue include: applying for a binding advisory opinion from the Competition Bureau; 1 seeking legal advice on a particular office policy(ies); or following up with CREA regarding any new developments on this issue. A summary of CREA s communications with the Competition Bureau on this issue is set out below. The following is the CREA communication sent to members in December, 2010 reflecting its discussions with the Competition Bureau on the issue of broker office policies for commission rates (and related policies): The current section 45 criminal conspiracy provision of the Competition Act came into effect on March 12, With the then pending CREA/Competition Bureau litigation before the Competition Tribunal, the application of section 45 to brokerage office policies was not pursued with the Bureau at that time, even though the Bureau had been put on notice regarding this issue. You will remember that CREA had made submissions in February 2009 to the House of Commons Committee studying the then proposed amendments to the Act, and subsequently in comments on the same amendments to a Senate Committee and to the Bureau. With a view to obtaining greater certainty for CREA members with respect to the Competition Bureau s approach to the potential application of the new section of the legislation to brokerage office policies, a meeting was held between CREA representatives and Bureau officials on November 22nd. The issue concerns the right of the Brokerage office under the new legislation to establish the commission rate(s) or fee(s) to be charged by salespersons in that brokerage office and/or allocate markets for salespersons within that office, as well as its ability to limit the service offerings to be provided or marketed as part of that firm s business model. The concern with section 45 of the Act is focused in part on whether or not the broker could be considered a competitor or potential competitor of his or her salespersons and in turn, whether agreements or policies with regard to pricing of services to be offered by the 1 While any person can apply for a binding written opinion from the Competition Bureau for proposed business conduct, brokers and licensees should be aware that the Bureau has discretion as to whether to issue such opinions. In addition, given the fact that the relevant sections of the Competition Act are relatively new (the result of amendments to the Competition Act in 2009), the Bureau may be unwilling to issue a written opinion on this issue to an individual brokerage (or any such opinion, if issued, may be of such a level of generality as to be of little practical assistance).

8 firm, the business models to be offered by the firm, or the specialization requirements for members within such firm, would be viewed as prohibited agreements. CREA approached the Bureau on this topic with the perspective that a broker or brokerage and the brokerage's salespersons are not competitors or potential competitors within the meaning of section 45 of the Act (even if a broker actively competed for listings or clients with the brokerage's salespersons) because the salespersons can contract only on behalf of the brokerage, and the salesperson normally must register with a brokerage to provide real estate services because of provincial regulation. Likewise brokers and the brokerage may have liabilities arising from the conduct of their salespersons, and certainly the broker often has supervisory responsibilities. As well, it was argued that a brokerage office policy is not the type of mutual agreement that is intended to be prohibited by Section 45 as it is a oneway obligation and in any event, that brokerage office policies are not the kind of conduct targeted for criminal review based on the Bureau s Competitor Collaboration Guidelines. In the event that a broker or brokerage and the brokerage's salespersons were seen as competitors or potential competitors for the purposes of section 45 of the Act, CREA argued that such office policies on price or market allocation are reasonably necessary for giving effect to the broader brokerage/salesperson relationship. This line of reasoning ties into a legislated defence for criminal conspiracy known as the ancillary restraints defence. The outcome of the Bureau meeting is as follows: The Bureau is unwilling to provide any written opinion on the issue as (a) such written advice would not be able to cover all office policies or brokerage structures that may exist now or in the future, and (b) the Commissioner does not want to fetter her enforcement discretion and (c) the Bureau s Competitor Collaboration Guidelines should provide sufficient guidance on the views of the application of section 45 to principal agent agreements. However, the Bureau informally (verbally) advised that brokerage office policies have not been on the Bureau s radar and the Commissioner has no present intention to investigate brokerage office policies under the Act s criminal conspiracy provisions. If the Bureau were to receive any complaints about bona fide brokerage office policies, it would NOT investigate the complaint under the criminal provisions of the legislation but would instead consider them under non-criminal provisions like price maintenance, abuse of dominance or possibly under the Consent Agreement (but that application would be limited in terms of consequences to CREA or indirectly member boards). While not an ideal response, it is hoped that this information provides some comfort to the membership and serves as a basis for some significant reassurance. BCREA 2011