ne day in 2002, a self-professed computer nerd named Glenn Kelman scratched his head. Why was it, he wondered, that he could get more information about a $20 book for sale at Amazon.com than he could for a $500,000 home listed on the national Multiple Listing Service?
Later that year, Mr. Kelman founded Redfin.com. He describes the site as a cross between Century 21 and E*Trade. A more pointed description would be to call Seattle-based Redfin a dart aimed at the heart of the real estate industry. Internet-savvy companies like Redfin are breaking MLS's lock on listings data, which the industry uses to ensure that consumers buy and sell houses the traditional way: through real estate agents who are paid hefty commissions.
The move hasn't endeared Redfin to the real estate industry.
“I get death threats,” Mr. Kelman says. “I gave the finger to an industry that only exists to charge a commission on the most important buying decision you'll ever make. We save people money by automating most of the process.”
The battle to free real estate data is well advanced in the United States. Now, it is coming to a head in Canada as the technological attack on the old order is bolstered by both industry rebels and government: The federal Competition Bureau accuses the industry of dampening competition and consumer choice. To consumers whose houses often sell in a few days – but still net agents tens of thousands of dollars in commissions – Canada's real estate boom has made MLS's monopoly on information seem all the more anachronistic.
[/b]Like sectors such as travel and retailing before it, the multibillion-dollar Canadian real estate industry is finally facing a reckoning with the Internet's power to make data free and open.[b]
The watchdog intervenes
“There is a lack of information and a lack of transparency in this industry that simply does not exist in any other industry,” says Bill McMullin, an industry dissident who owns Halifax-based ViewPoint Realty. “The real estate industry may be uncomfortable with this, but once you automate a lot of that data, you circumvent the need for a realtor. Things are changing, and they are changing quickly.”
In 2009, 465,251 homes changed hands on the Realtor.ca system, at an average price of $320,333. Owned by the Canadian Real Estate Association, the database amasses listings from Canada's 101 local real estate boards. Only registered real estate professionals can obtain key data such as selling prices, and only they may use the site to connect buyers and sellers.
CREA tightened its access policy in 2007, after rival real estate websites such as Toronto-based Housing123.com emerged. The interlopers downloaded data from MLS and enhanced it to draw consumers to their own services.
But the clampdown backfired, catching the attention of the federal Competition Bureau, which told the CREA that its rules “restricted consumer choice and limited the scope of alternative business models.” The bureau questions whether consumers should continue to be forced to employ a registered real estate agent to represent them throughout the entire listing and sale process on MLS, including the shepherding of all offers and counteroffers.
In a letter written last October, CREA said it hoped to resolve its differences with the Competition Bureau by Christmas. The bureau says it is willing to wait for a negotiated settlement, but it will move unilaterally if necessary. CREA says it needs more time to figure out what to do next.
“We've had a number of meetings with the bureau and are trying very hard to understand their concerns and come to a mutually acceptable solution,” says Katherine Kay, outside counsel for CREA.
Any resolution is apt to erode real estate agents' traditional gatekeeper status. One possible resolution would allow a seller's name and address to appear on a listing so they can be contacted directly by potential buyers. A bigger step would be to allow homeowners to list their homes on MLS for a small fee, then negotiate the sale of their homes without the help of an agent. As the process becomes commodified, consumers stand to benefit in lower transaction costs.
The American Way
The transformation of the real estate industry in the United States was spurred by a 2007 Department of Justice order to relax restrictions on how brokers could use MLS information. The change seeded dozens of companies that created feature-rich websites offering à la carte services as an alternative to the traditional commissioned agent.
House hunters can find and bid on a home using one of dozens of Web-based applications. A single map can show which houses are for sale, the area's crime rate, average test scores at the local elementary school and the location of the nearest Starbucks.
At Zillow.com – created by the founders of travel site Expedia.com – consumers are flooded with information. Not only do they see a home's complete sales history and average tax bill, they can find out the assessed value of each house on the street and other neighbourhood information, such as how many married couples live on the block.
At Mr. Kelman's Redfin, commissioned agents are replaced with salaried (and registered) agents. Consumers are expected to do most of their own legwork, and to deal with an agent only if they hit a roadblock.
“Our agents aren't paid to make it rain,” Mr. Kelman says. “They are paid to serve the customers who want to be served. Ninety per cent of the cost of real estate is finding customers, and the Web can do that for us.”
While Redfin does charge commission – about 3 per cent – it gives half of the payment back to the customer when a deal closes. Thus the average cost on a $500,000 sale is $7,500, compared to a traditional commission of $25,000.
Mr. Kelman says his privately-held company posted its first monthly profit in June and is generating $20-million (U.S.) of revenue a year.
While American consumers are using their phones to scope out houses they drive by, the best Canadians can hope for is CREA's low-tech mobile website, which provides the phone number of the relevant agent for a property. And that only works if you know the property's six-digit Multiple Listing Service number, which someone whizzing past in a car would not. A more feature-rich version is expected to be in place by summer.
Consumers can get selling prices, room measurements and a couple of snapshots for a property on the official industry portal, Realtor.ca. But the most valuable market intelligence – such as what the property sold for in the past, and recent sale prices in the neighbourhood – is kept out of the consumer's reach, forcing prospective home buyers to call an agent. CREA and its affiliates are strict about keeping it that way: Even agents who simply want to repackage such real estate data online into more user-friendly formats as a marketing tool have found themselves slapped down by local real estate boards.
Paul Darrow for the Globe and Mail
Bill McMullin of Viewpoint Realty in Bedford, N.S.
The Canadian Roadblock
The real estate industry's lock on information is one reason why the process of buying and selling a home in Canada has changed little since online real estate listings began in 1996, even as other customer-service-intensive industries such as travel and tourism have seen radical technological transformations. An estimated 90 per cent of all home sales in Canada are still done in the traditional manner.
If the Competition Bureau gets its way, consumers would be able to pay a flat fee to an agent to have their home listed, and then choose how involved the agent would be through the rest of the process.
But even before the CREA settles with the Competition Bureau, some smaller brokers are brazenly defying local real estate associations by providing consumers with richer data than the associations allow.
Mr. McMullin, of Halifax's ViewPoint Realty, has spent close to $1-million on the company's feature-rich website – he's downloaded all of his region's listings onto his server, and then enhanced them with previous sale prices and maps. The service far surpasses what's available on realtor.ca, and he's counting on it to win him customers in a competitive market.
He's navigating tricky territory – in the past several years, local real estate boards have shut down several brokers who have attempted to repackage data without permission. The industry won a key court ruling in Ontario in December against Toronto-based realtysellers.com. The judge said the upstart company's use of data violated the standard agreement between brokers and real estate boards. He added that he wouldn't speculate on whether the industry engages in anti-competitive behaviour by keeping its own members from using the data as they wish.
Lawyer Lawrence Dale, who represented realtysellers.com, said the judge's decision effectively established that the industry's rules are restrictive. “In the United States, the government found that these identical rules were anti-competitive and the Department of Justice had them removed,” he said following the decision.
In another new model distinct from the likes of realtysellers.com, Ottawa's Ziglu Real Estate Brokerage employs traditional real estate agents, but charges a flat fee to get someone's listing on MLS. The agents then take a barebones approach to the process, leaving the consumers to do the bulk of the legwork.
Ziglu charges half the commission of most realtors, and the company plans on dropping it altogether if the Competition Bureau gives consumers more access to MLS.
“We're obviously counting on the bureau to come through and allow people to order specific real estate services in the same way they'd order a pizza,” says Ziglu's founder, Gilles Ménard. “Right now we still have to represent the seller through the process, but we're expecting changes. Our whole business model is based on high volumes and low prices.”
A market too small?
There's a good reason the Canadian industry is fighting to keep its listings system exclusive, says Phil Soper, chief executive officer of Brookfield Real Estate Services, a subsidiary of Brookfield Asset Management Inc. that owns real estate brokerages Royal LePage Real Estate Services Ltd. in Canada and Real Living Real Estate LLP in the United States.
With a great database comes great responsibility, he says. An advantage of the traditional system is that anyone using MLS has an agent to help them through what can be a confusing process.
“Most of that information needs to be taken in the proper context and protected from mistakes,” he says. “With a central system, you are protecting the customer's listing – it is in the hands of people who constantly update their skills.
“Anyone who suggests that somehow organized real estate is protectionist, and created a model that others can't make a living at by charging lower fees, is saying something completely false,” he adds. “The problem is they can't attract high-performance salespeople and still make a buck – the best agents will make the best money and want to work where that is possible. The only reason someone would compete on price is because they can't compete on service.”
As well, there's a reason a high-traffic site such as Redfin has only just turned its first profit – there is little money to made offering cut-rate services. The model may not work in a market as small as Canada's, according to Mr. Soper.
“You look at something like Zillow and it can function with 0.2 per cent market share,” he says. “In Canada, you can't keep your doors open with numbers like that. It's like that in all our industries – we have a handful of real estate companies, a handful of banks. That's because just to exist, you need a pretty big chunk of market share.”
The upstarts disagree – and are anxiously watching the Competition Board for clarity on which services they can offer. Redfin considered entering Canada last year, Mr. Kelman says, but decided to wait until the regulatory issues were resolved. Meanwhile, Mr. McMullin wants to sell his tech services to the big brokerages, and Ziglu expects a crush of customers the minute it can start to hive off portions of a transaction.
Most people in the industry realize they are losing their monopoly on information. Royallepage.ca, long a leading real estate site in Canada, has fallen behind a site that only dabbles in listings – kijiji.ca, a free online classified service similar to Craigslist.
“Some in my industry feel that it will be a disaster if and when the rules change,” Mr. Soper says. “Yet as we debate, Kijiji grows in popularity. That doesn't mean the world doesn't need realtors – it means the world needs better agents who are trustworthy and knowledgeable and can walk them through what is usually one of the most financially significant transactions of their lives.”
Battle to Unlock Housing Market - RE Agents Watch Out
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