Competition Bureau and MLS

As you have probably heard, the Canadian Real Estate Association (CREA) approved changes to the rules governing the use of its Multiple Listing Service and the ability to pay for a la carte services such as a flat fee "listing only" service (akin to For-Sale-By-Owner FSBO). Others have commented on the changes. CBC's The Current ran a piece on November 3rd talking to a Calgarian owner, Bernadette Lonnegan who has tried to sell her property since May, first through an FSBO service, then through a Realtor on MLS offering a "listing only" service.

Ms. Lonnegan, however, has had little luck in selling her property. Her ability to list on MLS produced more traffic but, as it turns out, it also produced a lot of "undesirable" traffic in the form of (likely) scam artists, and, perhaps, anaemic traffic from buying agents at established firms. The overhead in selling a large capital asset, for her, even given she had free time to handle the listing, has turned out to be significant. Herein lies one of the many issues with FSBO in general.

Certainly Realtors have been given a hard time on local real estate blogs, from being called "realtards," shills, used-car salesmen (ouch...), to the more poignant criticisms of the real estate sales industry in general surrounding: the commission structure, obfuscation of previous sales data (which is public through land title offices), conflict of interest when acting as a buyer agent, etc. In the case of poor Bernadette, it turns out selling an expensive capital asset has proven to be difficult. She goes as far to state she thought going FSBO was not worth her time and effort and, doing it again, would have used a Realtor.

The CREA's move to allow access to MLS to FSBO certainly provides a need to a segment of potential home sellers. It should not be underestimated, however, how difficult the sales process for a multi-hundred-thousand dollar capital asset can be. For those who regularly sell in such an environment or simply have confidence they know the sales process, FSBO is a viable choice. But for the overwhelming majority of homeowners this is unlikely the case. Even with FSBO, there is still a chance a buyer agent will want a commission regardless.

What The Current's interview showed me is that, while opening MLS to FSBOs is welcome in principle, it is unlikely to have a significant effect on the marketplace. That the overwhelming majority of Realtors voted to accept these changes is an indication of this.

The next likely step in overhauling MLS will come in the form of opening up the previous sales data to the public, as has been done in the US for several years now. Companies like Google or Redfin, with their various technological innovations, are effectively kept out of the marketplace. Certainly another method of "opening" up the previous sales data could come in the form of changes to the land title offices' distribution of bulk sales data to large companies for a fee. In sum, depending upon what data are provided, it could produce more revenue for them than would the piecemeal requests they receive today.

A big question, as with FSBO, is will access to previous sales data help make the market more efficient? As much as I would like to think so, experience in the US showed that even with unfettered access to sales and mortgage data, many areas of the country saw significant price run-ups regardless. As a value investor looking to buy property, I would not care too much (though not at all) about previous sales data. The price paid is based upon value -- net operating income and development potential -- not what other people are currently paying. As a seller I would care quite a bit about previous sales data, though in theory even if going through a listing-only service, such a service should be able to provide sales data for little extra charge. Nonetheless, in principle, having previous sales data would be a welcome change towards a more open marketplace.