Canada's 6% controversy. Real estate fees prompt price-fixing inquiry
Fees set by real estate agents in Canada are almost always 6 percent, and the federal government is trying to decide whether that is price fixing. There is an inquiry going on under the Competition Act, which makes it illegal to fix prices or lessen competition in sales and services.
``There was cause to be suspicious,'' the minister of consumer affairs, Harvie Andr'e, told the House of Commons in Ottawa recently. ``What's being looked at are certain real estate requirements for a company or individual to participate in multiple listing services.'' He says the investigation will be completed quickly.
Real estate fees across Canada, whether for a bungalow in Moose Jaw, Saskatchewan, or a mansion in Toronto's Rosedale district, are set at 5 or 6 percent if the seller wants to use the multiple listing system. That allows the house to be listed in a book used by many real estate agents.
It isn't the size of the fee that bothers the government; it's that there appears to be no competition, because the fee is almost always the same. ``It is very hard to come up with the proper percentage figure, to say this is too high and this is too low,'' says Mr. Andr'e. ``If it's fixed by any artificial means, that's contrary to law, and action will be taken.''
The Consumers Association of Canada calls the flat-fee system for multiple listings ``scandalous'' and says the government should lower the fees. ``There's no way people in the real estate industry are going to voluntarily lower their rates,'' says Tom Delaney of the Consumers Association.
Real estate fees have been set at 5 or 6 percent for decades, but what has brought this matter to a head now are rising house prices, which have pushed up the cost of selling a house. The average price in Toronto is more than $200,000, so the commission on that is $12,000. The same house would have sold for about $150,000 a little more than year ago and carried a $9,000 commission. That's a 33 percent increase in commissions - as well as house prices - at a time when inflation in Canada is running at 4 percent. And in some parts of Toronto, house prices are up 50 percent so far this year, creating big commission increases for real estate brokers. ``Commissions of 5 and 6 percent are too high, especially with rising house prices,'' says Mr. Delaney.
Growing complaints from home buyers and sellers sparked the inquiry by government investigators, who will recommend whether changes should be made.
For their part, real estate agents defend the fees. ``Our view is that there is no price fixing,'' says Gordon Kaiser, a lawyer representing the Canadian Real Estate Association, which represents 77,000 real estate agents in Canada. ``There is all kinds of discounting that's going on.''
Mr. Kaiser said that most large firms do charge the same rates, but that that wasn't price fixing. And he said a seller could bargain to get lower rates.