REM, a Canadian real estate industry publication, reports that discount brokerage Realtysellers is suing the Toronto Real Estate Board for $41 Million.
The Toronto Real Estate Board (TREB) disabled Realtysellers' access to the MLS system because Realtysellers was using the MLS “in a fashion contrary to the rules and user agreements which Realtysellers had entered into as a member of TREB”.
Realtysellers along with BNV Real Estate Inc., an affiliate of Bell Canada, are the companies behind a real estate website called Real Estate Plus (www.realestateplus.ca). Real Estate Plus was downloading all homes available for sale from the Toronto MLS database and displaying them on their website. They were also displaying information that is typically restricted to realtors and not included on public sites like MLS.ca.
TREB’s MLS rules don’t allow brokerages to download all available homes for sale from the MLS database. Brokerages are allowed to download their own listings and typically only display their listings on their brokerage's website. According to the REM article:
Realtysellers is asking the court for restored access to the MLS system, as well as $10 million in general and special damages for breach of contract; $10 million in damages for conspiracy to injure; $10 million for breach of the Competition Act; $10 million for “intentional interference with economic interests” and $1 million in punitive damages
The outcome of this case could have a profound impact on the future of the residential brokerage industry in Toronto and set a precedent for other real estate boards in the province.
The key issue in this case is the access and permitted use of MLS data by member brokerages. Should member brokerages of TREB have access to download all MLS data and should those members be permitted to display that information on their websites? Is it anti-competitive for TREB to restrict this access and use? Do these issues even matter outside the realm of jockeying real estate industry bodies and professionals? Let’s look at some recent developments in the US market to find out.
Unlike Toronto's board, US real estate boards allow their member brokerages to download and display all available homes for sale in their MLS area. This policy has had two main effects. First, because everyone has the same data, it has allowed brokerages to differentiate themselves by building innovative online tools that help HomeBuyers search for homes more efficiently. Anyone who has searched for homes on MLS.ca understands why new search tools are necessary.
The second, and by far more important, side effect has been the emergence of new business models in the real estate brokerage industry and the impact they might have on the industry’s future. Redfin is a Seattle based brokerage that was one of the first ‘virtual brokerages’ in the US.
Redfin clients can use Redfin’s innovative website (www.redfin.com) to search all available homes for sale in their area. The website also displays information that is typically restricted to real estate agents. Since their clients have access to the same information their agents do, Redfin passes all of the leg work of searching for a home to the customer. In return, Redfin offers home buyers a rebate of up to 2/3 of their commission. Wondering how this works? The following video describes their business model in more detail.
The emergence of virtual brokerages like Redfin led the National Association of Realtors (NAR) to create a new policy that would allow brokerages to ‘opt out’ of having their listings show up on competing brokerage websites. This meant that most of the ‘traditional’ real estate brokerages, unhappy with Redfin’s commission cutting model, would have likely opted out of having their listings show up on Redfin’s site. Since access to information and allowing home buyers to search for homes themselves is the cornerstone of Redfin’s model, this new policy would have meant the end for companies like Redfin.
The Department of Justice prevented this new policy from taking effect when they filed an anti-trust complaint against the National Association of Realtors alleging that the NAR is ‘maintaining or enforcing policies that restrain competition from brokers who use the Internet to more efficiently and cost effectively serve home sellers and buyers, and from adopting other related anticompetitive rules’. No decision has been reached in the case.
A brief survey of developments south of the border reveals that Toronto's real estate board is years behind their American counterparts when it comes to access and use of MLS data. The fact that TREB continues to restrict access to MLS data - even from its own members - means that websites like Real Estate Plus get shut down and companies like Redfin that are trying to provide new and innovative options for consumers will never see the light of day in our city.
The Realtysellers case raises a very important question for the Toronto real estate industry; if the experience of virtual real estate brokerages in the US suggests that allowing brokerages to download and display MLS data on their websites improves competition, than are TREB’s policies against this innovation anti-competitive? Are TREB’s policies suppressing technological innovation, discouraging competition on price and quality and raising barriers to entry as the Department of Justice claims about the NAR’s new policies?
Time will tell what the courts decide. Will Realtysellers force TREB to open up their database and allow its members to start building better websites and more efficient businesses the way the US market has been doing since the late 1990’s? Or will TREB convince the courts that restricting access to information is in the best interest of consumers and in doing so leave Toronto stuck in the dark ages of real estate innovation? Stay tuned - Realosophy will be certainly doing the same.