Self-regulated professions

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7. Real estate Agents

Overview

Role and function

Real estate agents help people buy and sell real estate. ¹ Agents may represent buyers, sellers or both in transactions and may also help clients evaluate property markets and advise on appropriate asking prices and purchase offers. ² In some provinces, real estate agents may also act as property managers. Some agents also purchase and sell properties as a sideline.

When representing buyers, real estate agents search for potential properties that will suit buyers' needs; when representing sellers, they search for potential buyers. ³ In addition, when acting for buyers, real estate agents typically provide information about neighbourhoods and communities, write offers and agreements to purchase, guide clients when they make offers and agreements to purchase, and arrange for home inspections. ⁴ When acting on behalf of sellers, real estate agents provide information on housing market conditions, suggest repairs to improve saleability, market homes to potential buyers, deal with potential buyers and follow through with the closing process. ⁵

In some cases, real estate agents may represent clients who are looking for property to rent rather than purchase. Some provincial legislation allows agents to be active in other areas, such as brokerage transactions related to loans secured by mortgages . ⁶

Real estate agents traditionally specialize in either commercial or residential real estate but are broadly qualified to help buy and sell any type of property. ⁷

In most cases, real estate agents receive a percentage of the sale prices of properties they sell. They may also receive flat fees for the services they provide. In either case, they then typically share their commissions with buyers' agents, based on the terms of listing agreements. With remuneration based on commission, an individual agent's salary is not proportionate to the time he or she spends trying to sell a property or searching for one; a property may sell very quickly or not at all, in which case, the agent does not receive remuneration for his or her work.

How the profession is regulated

Provincial real estate councils regulate the real estate industry in six of the ten provinces (Manitoba, Newfoundland and Labrador, Prince Edward Island and New Brunswick are the exceptions). Provincial law and regulation establish these councils to license real estate professionals and to create and administer the rules agents must follow. In the territories and the four provinces without real estate councils, the governments directly license agents and regulate the profession. ⁸

The primary role of the provincial real estate councils is to protect the public interest. For example, the Real Estate Council of Alberta, under that province's Real Estate Act , is responsible for regulating real estate professionals, protecting consumers and “setting and enforcing standards of conduct” for real estate agents. ⁹ The councils, which are composed of industry and public members, and sometimes government representatives, are required to meet established legislative objectives.

In every province, a registrar, or someone in a comparable position, determines the fitness of individuals to be licensed as real estate agents , according to the criteria set out in law and regulation. Licensees have to pay annual fees. The registrar performs these functions independently of the board of the provincial real estate council, which is responsible for the general oversight of council operations. ¹⁰

In contrast to provincial real estate councils or government regulators, which have as their prime focus the interests of the public, provincial real estate associations represent the interests of their members. Membership to the provincial association is not required in order to trade in real estate. In some cases, provincial associations are also regulators in some regards; for example, the Prince Edward Island Real Estate Association establishes and enforces a code of ethics. ¹¹ The associations also usually provide the pre-licensing courses aspiring real estate agents must take. ¹²

Real estate agents are also represented by local, industry-led real estate boards or associations and, at the national level, by the Canadian Real Estate Association (CREA). Membership in a local board or local association, which is not required in order to trade in real estate, gives agents access to the Multiple Listing Service® (MLS®), the various components of which local boards administer. The boards also implement regulations that support CREA's national policies. ¹³

Overlapping services

There are a number of other professionals who may participate in real estate transactions without real estate licences, including lawyers and auctioneers. For example, practising lawyers may represent buyers or sellers in real estate transactions when it is in the course of their practice. ¹⁴ Auctioneers may also represent parties to real estate transactions when these transactions are carried out as part of their auctioneering duties. ¹⁵ Any bank, credit union, or loan, trust or insurance company may trade real estate that defaults to it, without requiring the services of a real estate agent. ¹⁶Representatives acting on behalf of the Queen, agencies of the Crown, municipalities or local governments, and corporations having the power of expropriation may buy and sell real estate without the services of real estate agents. ¹⁷ Finally, buyers or sellers may represent themselves in real estate transactions.

Entering the profession

Individuals seeking to be licensed as real estate agents do not typically need a university degree but generally must complete one or more professional courses. Individuals must also pass a provincial qualifying examination or examinations. In some provinces, individuals must also meet age, reputation and residency requirements to become licensed (see Table 1).

There are additional educational requirements, including coursework, examinations or both, that agents must complete to become brokers or managing brokers. ¹⁸

Market

Demand

The demand for real estate agents depends on the demand for real estate transactions, which varies with economic factors such as the business cycle, unemployment, population growth and interest rates. The services of real estate agents are necessary only when buyers or sellers want to be represented in their real estate transactions, since they always have the option to represent themselves.

While neither buyers nor sellers are required to use agents, agents are the only people (besides lawyers, auctioneers and others noted above) that clients may hire to represent them throughout real estate transactions. ¹⁹

The geographic market for real estate agent services is typically limited, since buyers generally search for properties to purchase or rent in specific areas.

According to Statistics Canada, real estate agents and brokers across Canada had operating revenues in 2005 of more than $8.5 billion, up from $5.1 billion in 2001. ²⁰

Supply

In 2005, there were 98,813 people licensed to buy and sell real estate in Canada. Almost half of these, 47,431, were located in Ontario. ²¹

Depending on the province or territory, real estate agents may specialize in residential, commercial or farm properties, or property management.

Real estate agents are licensed for a whole province or territory; however, within a province or territory they tend to specialize in relatively narrow geographic areas so that they can develop a reputation and brand image, and better understand local property markets, to more effectively serve their clients. In urban areas, for example, agents may just work in particular neighbourhoods.

In North America, the Internet is playing an expanding role in advertising real estate properties for both real estate agents and private sellers. ²² According to the National Association of Realtors, a U.S.-based trade organization, 61 percent of agents used the Internet in 2006 to attract buyers to their listings, second only to yard signs (75 percent). ²³It is reasonable to assume that the same trends are occurring in Canada. Furthermore, in 2003, a Canadian survey showed that 85 percent of those who had purchased a new home in the previous two years had used the Internet to look for information about houses for sale. ²⁴

In Canada, the tool agents use most often to list information about properties is MLS®. Only licensed agents that are members of CREA through membership in their local real estate boards may list properties on MLS® and access the complete listings; however, some boards have contracts with third parties—appraisers, for example—that allow those third parties to view listings. The listings that only members may view contain, among others, instructions to co-operating brokers and personal information. The public may visit www.mls.ca to look for properties, but the information on this website is not as complete as the listings to which CREA members have access. The website is an advertising vehicle, just like newspapers and agents' websites.

According to a 2006 CREA survey, 64 percent of buyers and 68 percent of sellers said the property involved in their transaction was listed on MLS®. ²⁵

Restrictions and recommendations

Market entry restrictions

Entering the profession

Table 1, below, lists some of the provincial and territorial licensing requirements. Exemptions from the requirement to obtain a real estate licence are set by provincial or territorial regulation. ²⁶

Table 1: Licensing requirements for real estate agents

	AB	BC	MB	NB	NL	NT / NU	NS	ON	PEI	QC	SK	YT
Minimum age (either 18 or 19)	X	X	X	X		X	X	X	X			X
Criminal record check	X	X	X				X		X	X	X
Fingerprints	X
Good reputation	X	X	X				X	X	X			X
Employed by a brokerage	X	X	X	X	X	X	X	X	X	X	X	X
Language proficiency	X	X										X
Permanent or business office in the province or territory				X	X	X			X	X	X	X
Resident of the province or territory for at least three months												X
Citizen or resident of Canada								X	X	X
Eligible to work in Canada	X		X	X			X	X	X
Business address in the province or territory			X				X	X	X

Sources

Alberta: Real Estate Council of Alberta, Rules ; Interpretations Manual , s. 5(1), 5(2), 13(1); “First-time Associates,” www.reca.ca/licences_forms/real_estate/first_time_agents.htm ; “Certified Criminal Record Checks,”
www.reca.ca/licences_forms/criminal_check.htm ; consultation submission, July 6, 2007; questionnaire response (question 4.13).

British Columbia: Real Estate Services Act , s. 10; Real Estate Council of British Columbia, “How do I become licensed to sell real estate in British Columbia?” www.recbc.ca/becoming_licensed/TradingServices.htm ; Sauder School of Business, “How to Satisfy the Language Proficiency Requirement,” www.sauder.ubc.ca/re_licensing/programs/licensing/lpi.cfm .

Manitoba: Real Estate Brokers Act , s. 3; Manitoba Real Estate Association, Real Estate Career Guide 2007 , www.realestatemanitoba.com/education/mrea_real_estate_career.pdf .

New Brunswick: New Brunswick Real Estate Association, “Salespeople,”
www.nbrea.ca/en/content.php?id=4 .

Newfoundland and Labrador: Real Estate Trading Act , s. 8, 9.

Northwest Territories and Nunavut: Real Estate Agents' Licensing Act , s. 5, 9.

Nova Scotia: Nova Scotia Real Estate Commission, Commission Bylaws , s. 315; “Program Information,”
www.nsrec.ns.ca/programinfo/licensinginfo.htm ; consultation submission, July 5, 2007.

Ontario: General , O.Reg. 567/05, s. 4, 5, 24; Real Estate Council of Ontario, consultation submission, July 5, 2007.

Prince Edward Island: Real Estate Trading Act , s. 7, 8; Info PEI, “Real Estate License: Real Estate Agent (or Broker),” www.gov.pe.ca/infopei/index.php3?number=14978 ; Prince Edward Island Real Estate Association, consultation submission, July 6, 2007.

Quebec: By-law of the Association des courtiers et agents immobiliers du Québec , s. 5, 8, 9, 11, 12, 13, 18, 19, 20, 21.

Saskatchewan: Real Estate Act , s. 19, 23, 23.1, 24; Saskatchewan Real Estate Commission, consultation submission, July 5, 2007; Bylaws , s. 307.

Yukon: Real Estate Agents' Licensing Regulations , s. 4, 5.

The necessity for a real estate agent to have a business address or a business office in the province where he or she is licensed is there to ensure that agents keep their business records in the province and that those records are easily accessible, as is required by provincial law.

For international applicants, the requirement to be Canadian citizens or residents will create a barrier to entry. The requirement to be eligible to work in Canada will have the same effect. However, those requirements will not have a significant impact on competition because there is currently a large supply of real estate agents. The condition imposed by Yukon requiring that applicants reside in the territory three months before applying for a real estate licence raises concerns, though, which are discussed under “Mobility,” below.

The criminal record check, fingerprints and good reputation requirements do not affect entry into the profession a great deal. Those requirements are there to protect the public, but regulators must be careful not to create artificial barriers to entry by unnecessary security requirements.

Regardless of the province or territory, all agents must complete pre-licensing professional courses and pass a qualifying exam. The courses last from about 90 hours (15 days) in Prince Edward Island and Nova Scotia to more than 200 hours in British Columbia, 240 in Quebec and 288 in Alberta (the Real Estate Council of Alberta is currently consulting members on a proposal to reduce the course length). ²⁷ Aspiring agents in some jurisdictions may take some of the existing courses by correspondence or via the Internet. ²⁸The length of the mandatory pre-licensing courses varies significantly between jurisdictions, which the Bureau questions, since the jurisdictions with the least requirements do not seem to have a significantly poorer quality of real estate service.

It is noteworthy that Quebec will be implementing a new program in July 2008 based on the competencies the provincial real estate council has determined individuals need to become agents. Furthermore, Quebec's council is considering introducing non-mandatory pre-licensing courses; anybody could then write the examinations without having to take the courses. ²⁹ This would effectively eliminate education as a barrier to entry.

In most provinces, individuals wishing to become brokers or managing brokers must first complete the licensing requirements at the agent level (agents are also known as salespeople, associates and trading services representatives) and then complete a few years of work experience, additional coursework or both to achieve the advanced designation. For example, Nova Scotia requires agents to take the Brokers/Managers course and examination and have three years of work experience as salespeople before becoming brokers. ³⁰ Associates in Alberta must have been registered in Alberta for at least two of the previous five years before being allowed to become a broker. ³¹ Once again, the Bureau found differences in the amount of work experience agents must accumulate before being allowed to apply for a broker's licence.

Real estate agents at all levels may also have to complete continuing education requirements. The type of continuing education courses and the frequency at which they must be taken varies across the country. For example, in Ontario, agents are required to complete additional educational courses within their first two years of practice to maintain their licence and must complete ongoing educational requirements thereafter. ³² In Saskatchewan, agents must complete any continuing professional courses approved by the Saskatchewan Real Estate Commission. ³³

Given the relatively short process individuals have to follow to become real estate agents, educational requirements are not a significant barrier to entry. However, the inconsistencies across provinces and territories in educational requirements do raise questions as to whether regulators have set the requirements at the minimum level necessary for real estate agents to be sufficiently qualified.

The proposal by Quebec's real estate council to introduce non-mandatory pre-licensing courses would have the effect of virtually eliminating barriers to entry in that province and, therefore, increasing efficiency and competition.

Recommendation

Regulators should look towards their counterparts in other provinces, territories and jurisdictions when deciding the level of education necessary to obtain a real estate agent licence, or maintain it, and the length of the work experience required to apply for a broker's licence. In particular, regulators should consider implementing non-mandatory pre-licensing courses similar to those the Quebec real estate council is currently considering.

Mobility

Interprovincial mobility

Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario and Saskatchewan have signed a mutual recognition agreement under which agents moving from one province to another or working in more than one province are evaluated only on knowledge specific to the province in which they wish to work, provided that their educational qualifications satisfy those of that province. ³⁴

Restrictions on the mobility of real estate agents create an unnecessary barrier to entry for those wishing to work in another province or territory. Since each province and territory has its own licensing process and people may easily move between jurisdictions, it is essential that agreements and legislation facilitate the movement of real estate agents.

Recommendation

Every province and territory should sign the current Mutual Recognition Agreement or any modified version of it to facilitate the movement of real estate agents between jurisdictions. Provinces and territories that do not wish to sign such an agreement should at least establish requirements to facilitate the movement of real estate agents between jurisdictions.

Each province and territory has also established in its laws mobility requirements for those seeking to practise within the jurisdiction, some presenting more difficulties for applicants from other jurisdictions than others. For example, in Newfoundland and Labrador, individuals who have been actively trading in real estate in another province for a total of two years during the three years immediately before applying to be licensed do not have to write the examination. ³⁵ In New Brunswick, individuals licensed in another province or territory as salespeople or managers/brokers are eligible to write the pre-licensing examination without having to take the prerequisite courses. ³⁶ In Prince Edward Island, individuals who hold real estate licences in other provinces are required to pass a pre-licensing course exam, which has a fee. ³⁷

Since July 1, 2007, Saskatchewan has allowed licensed agents from any jurisdiction (not just in Canada) to be licensed in the province. To be eligible, agents must take a course and examination on the provincial real estate laws and forms. The requirement was implemented because real estate law and the documents required for real estate transactions are not common to all jurisdictions. ³⁸

The Bureau applauds the initiatives taken by the industry regarding mobility . These allow real estate agents the flexibility to move in response to changing conditions in demand ; however, some provinces and territories still have requirements that limit agents' mobility. For example, as seen in Table 1, Yukon requires ap plicants to be residents for at least three months prior to application, which reduces agents' mobility. ³⁹ This requirement obliges individuals wishing to apply for a real estate licence to move to Yukon three months before doing so. This precludes agents from any other province or territories from also be licensed in Yukon and creates an unnecessary waiting period for someone moving to Yukon.

Recommendation

Yukon should consider removing the requirement contained in section 5(1)(c) of the Real Estate Agents' Licensing Regulations that individuals be residents for at least three months prior to applying for a real estate licence .

International mobility

Only a few provinces and territories have explicitly addressed international mobility. This is not a concern from a competition standpoint, because the requirements for becoming a real estate agent are not significant barriers to entry into the profession.

In Alberta, the real estate council may exempt agents from pre-licensing courses, the provincial qualifying examination, or both, when they are currently licensed or are eligible for licensing in Colorado, Georgia, Idaho, Montana, Oklahoma, Oregon, South Dakota, Utah or Wyoming. ⁴⁰ In Yukon, agents are exempt when they have experience and training equivalent to what they would have acquired by selling or managing real estate in a Commonwealth country or the United States for not less than two of the previous five years. ⁴¹ In British Columbia, brokers who have held active real estate licences in the United States for not less than one year during the three years prior to applying for a licence are exempt from the Real Estate Trading Services Licensing Course but not from the examination. ⁴²

Ontario's regulation does not list the countries or states from which applicants are exempt from some licensing requirements. It does mention that the registrar reserves the right to grant exemptions from the pre-licensing courses to applicants with an equivalent status to that of real estate or business broker, or salesperson in Ontario . ⁴³ As mentioned previously, Saskatchewan's policies on mobility include all jurisdictions. If the Quebec real estate council implements its proposed non-mandatory pre-licensing courses, agents from other jurisdictions would only need to pass the examinations to become licensed in that province . Furthermore, in Quebec agents may be exempted from the pre-licensing courses when their general or vocational college training is considered to be equivalent to what is required to be licensed in Quebec.

Even though the requirements for becoming a real estate agent are not significant barriers to entry, provinces and territories should strive to ensure there are no unnecessary barriers to entry and while still allowing the competencies of prospective agents to be evaluated.

Overlapping services and scope of practice

Six provinces (Alberta, British Columbia, Manitoba, New Brunswick, Ontario and Saskatchewan) and two territories (Northwest Territories and Nunavut) explicitly prohibit anyone but licensed real estate agents from collecting commission for real estate trading. Other provinces use terms such as salesperson and broker when referring to those who collect or pay a commission. ⁴⁴

In addition, most provinces and territories stipulate that individuals may not trade real estate or otherwise hold themselves out as real estate agents, salespersons, brokers, associate brokers or associates unless they are licensed and properly registered with a brokerage. ⁴⁵ Only members of CREA are permitted to use the term REALTOR® in their designation. ⁴⁶ The use of this private, trademarked term is not a substitute for fulfilling the regulatory requirements professionals must meet. ⁴⁷ Agents may use it in addition to a provincial or territorial designation (such as licensed associate or broker).

Each piece of provincial and territorial legislation governing real estate agents includes a list of people who are exempt from holding real estate licences. These may include, depending on the jurisdiction, lawyers, notaries, auctioneers and property managers. However, the legislation usually requires that the real estate services such people offer be provided in the course of their regular practice or business. Lawyers and Quebec notaries also provide complementary services to those offered by real estate agents. Typically, lawyers and notaries are involved in closing real estate transactions. For example, in Quebec, notaries make mortgage documents official by depositing and preserving them in their notarial records (called a notarial act en minute ). ⁴⁸

For sellers who choose not to use the services of real estate agents (since they are not mandatory), there are companies that offer tools to advertise their property. As discussed previously, only agents that are members of CREA and have mandates from sellers to act for them may list properties on MLS®. Property owners who choose not to be represented by real estate agents are not permitted to do so.

The word trade (as in agents being allowed to trade in real estate) is defined by each province and territory in the definitions or interpretation section of its real estate legislation. Those definitions usually describe trading as, among other things, disposing of, acquiring or transacting in real estate by sale, purchase, agreement for sale, exchange, option, lease, rental or otherwise. The legislation in some provinces and territories also includes the activity of listing or advertising real estate in the definition. ⁴⁹ However, these jurisdictions usually also have policies that state that they do not apply the definition of trade to businesses that advertise or list real estate but are not engaged in transactions. This means that “for sale by owner” companies, which only advertise properties, are exempt from licensing.

Since only real estate agents are allowed to trade in real estate, the scope and interpretation of the definition of trade are very important because they determine the limits of what real estate agents may do and, thus, affect all players in the industry. For example, firms that offer real estate advertising and marketing services would not be able to offer their services to customers to help them sell their properties if advertising were the exclusive right of real estate agents. This is an unnecessary limit on competition.

Recommendation

Legislators should consider legislative amendments to give force of law to the current policy of exempting from licensing requirements any “for sale by owner” companies and advertisers that are not involved in real estate transactions.

Market conduct restrictions

Advertising

Two advertising restrictions are common across all provinces and territories. First, advertising must not be false or misleading. Second, the name of the agent or broker and the associated brokerage must be displayed clearly, regardless of the type of advertisement. ⁵⁰ In addition, every jurisdiction, either specifically or implicitly, requires that agents have the consent of property owners to advertise. ⁵¹ These restrictions are there to protect the public and do not cause any competition concerns.

There are other restrictions that are not as widespread that also seem to be acceptable from a competition perspective. For example, in Saskatchewan agents must submit all advertising to brokers or branch managers for approval prior to publication. ⁵² Nova Scotia and Saskatchewan have additional rules requiring that advertising not be in bad taste, offensive or harmful to the public or the profession. ⁵³ In New Brunswick and Prince Edward Island, only listing brokers may place signs on properties for sale, rent or lease. ⁵⁴

Although the Bureau did not find significant cause for concern about advertising restrictions, it is mindful that consumers are generally best served by open and free competition, which restrictions can undermine. As a result, restrictions on advertising should be kept to a minimum to ensure that real estate agents have access to the full range of ways to advertise their services to the public, and hence maximize the incentives they have to offer the highest quality service and to innovate.

Recommendation

Restrictions regarding any form of advertising should not go beyond protecting consumers from false or misleading advertising.

Pricing and compensation

In all provinces and territories, agents may only trade real estate on behalf of the brokerage that employs them and may receive compensation only from that brokerage. Brokerages may pay a commission only to employees who are licensed to trade real estate. Although the type of remuneration is negotiable, within the limits permitted by law, there has been a strong tendency towards fees that are a fixed percentage of the selling price of the property. ⁵⁵

There have been no fixed or suggested prices in the real estate industry since the Competition Tribunal issued a prohibition order in 1988 prohibiting, among other things, collusion among agents to fix commission rates, fees or splits, or to boycott certain agents or advertising media. Even though the order ceased to apply in 1999, real estate regulators across the country continue to respect it and have incorporated many of its principles into their codes of conduct. ⁵⁶ It is important that the industry continues to let the market set the commission rates so that consumers have the opportunity to pay competitive prices for the services of real estate agents.

In 2003, the Competition Bureau reached a settlement with Re/Max Ontario-Atlantic Canada Inc., Re/Max of Western Canada (1988) and Re/Max International Inc. regarding commission rates. The consent order states that Re/Max may not prohibit its franchisees or sale associates in Canada from setting independent commission rates or advertising such rates. The settlement aimed at enhancing competition for real estate brokerage services and benefiting Canadian consumers by allowing Re/Max franchisees to advertise commission rates or fees to the public. ⁵⁷

All the provinces and Yukon prohibit commission based on the difference between the listed or asking price and the actual selling price. ⁵⁸ In Alberta, this prohibition was originally introduced to prevent real estate agents from suggesting inaccurate list prices in order to mislead clients and increase their commissions. ⁵⁹ Quebec's real estate council sees the prohibition as protecting the seller, who could otherwise be deprived of a significant portion of the sale price. ⁶⁰ Since the intention of this restriction is, in fact, to protect the public, the Bureau does not have a concern about it from a competition perspective.

The legislation in New Brunswick, and Newfoundland and Labrador states that if no prior agreement has been made about the amount of commission, the prevailing rate in the community of the sold or purchased real estate is to be used. ⁶¹ Yukon has a similar provision that limits the remuneration to five percent of the sale price when no prior agreement has been made. ⁶²This type of rule protects the customer and does not raise any competition issue.

Since commission rates are usually based on the selling price of the property, it is clear that agents have a financial interest in those prices. The commission that an agent receives is not in proportion to the time spent working to sell the house. In addition, since the impact of a price increase on the agent's earnings is low relative to the impact on the seller, the agent's incentives may not be aligned with those of the seller. For example, at a six percent commission rate, the agent receives $12,000 in commission when the property is sold for $200,000. For a $205,000 selling price, the agent receives $12,300. As a result, the agent does not have the financial incentive to wait for a better price for his or her clients. Data from a 2005 study seems to support this: it showed that homes owned by real estate agents sold for about 3.7 percent more than other houses and stayed on the market about 9.5 days longer. ⁶³

All provinces and territories, with the exception of Quebec, place restrictions on methods of remuneration and restrict remuneration to either a fixed amount or a percentage of the selling price. ⁶⁴ According to the Real Estate Council of Alberta, the restrictions on the method of remuneration ensure that consumers are aware of the exact or expected costs of hiring real estate agents. ⁶⁵

Ontario goes even further and uses the phrase but not both in its restriction, meaning that real estate agents may not, for example, ask for a fixed amount for their initial work and then a percentage of the selling price at closing. ⁶⁶ Such a restriction disallows two-part fees, a type of pricing arrangement one would expect to arise in a competitive real estate market in which some fixed level of work is generally required, but anything beyond that is uncertain. Lawrence J. White elaborates on this point:

Further to the extent that there are fixed costs that are associated with the agent's efforts (say, the initial consultation with the sellers) and also costs that vary with the expected selling price (say, more advertising for a more expensive house), a two-part fee, e.g., $2,000 plus 3% of the selling price would be expected in a competitive environment. The total amount of this two-part fee, when expressed in a percentage of the selling price, would exhibit the expected taper.

(…)

Further, …, a fixed percentage fee announced by most or all brokers in a metropolitan area prevents the inherent quality differences that surely exist among brokers from being rewarded . ⁶⁷

The Bureau finds it difficult to believe that, in the case of Alberta's rationale for its restrictions, consumers needing to be aware of exact or expected costs is inconsistent with permitting agents to charge a fixed amount and a percent of the sales price when pricing their services. With information on the markets being more accessible, consumers now have a better idea of the value of their properties and are able to make wiser and more informed decisions. This, along with more information about the options consumers have regarding the services the various players in real estate transactions offer, will also likely have an effect on consumer behaviour.

With regard to Ontario's approach, it prevents what would otherwise be a perfectly acceptable compensation arrangement that should spur competition among agents, since it maintains the incentive for them to work to get a higher selling price for their clients while ensuring that they will be fairly compensated for the preparatory work they do. At the same time, it is unlikely that consumers would suffer for not knowing the exact amount of commission they would pay, because, as is the case in the current system, the seller would know in advance the percentage of commission he or she would have to pay when the property sold. The only difference would be the fixed amount to be paid at the signing of the contract, an amount that would be known to the seller from the start.

Recommendation

The Ontario legislature should allow real estate agents to charge a combination of a percentage and a fixed amount when pricing their services under the Real Estate and Business Brokers Act, 2002, in order to better serve all customers. Other provincial legislators should also clearly allow such pricing by removing the or in the appropriate section of their laws.

Business structure

The restrictions on business structure for real estate agents are fairly general. For example, agents and brokers may only trade real estate for the brokerages that employ them (except in Alberta, where brokerages and agents may enter into contractual, non-employment relationships, and in Prince Edward Island, where independent contractors as well as employees are paid commissions). ⁶⁸ In addition, brokerages must be licensed.

However, some provinces have additional restrictions, such as requiring prospective brokers in British Columbia to have a minimum of cash hand as a condition of being licensed as a brokerage (applicants must have three months' operating expenses plus $5,000 cash in the bank), requiring receiving authorization from the Superintendent of Real Estate Agents and Salespersons before opening a branch office in Newfoundland and Labrador, and restricting the number of agents and brokers that a single manager may supervise in Quebec. ⁶⁹ When considering or reviewing restrictions of this type, regulators should always keep the protection of the public as the primary goal.

As noted, agents may trade real estate only on behalf of the brokerages that employ them and may receive compensation only from those brokerages. Consequently, only brokerage owners can really be self-employed and independent. However, in Alberta, brokerages and agents may enter into contractual and non-employment relationships that permit agents to be self-employed; however, agents must still operate in accordance with brokerage policies. ⁷⁰ A greater number of types of contracts would offer more possibilities for both agents and brokerages to have employment arrangements that meet their own needs and those of the businesses.

To become brokers, agents must have between two and three years of experience, depending on the province where they are licensed. In many provinces, they must also take at least one course and pass at least one examination. These requirements are barriers to new agents who would like to start their own businesses. They are also not typical of other professions. For example, lawyers may start their own businesses the day they are accepted to the bar after finishing a mandatory articling period, which varies from six months to one year; no additional courses are necessary. With some adjustments to the educational requirements for licensing, real estate agents could become brokers sooner. In addition, measures to protect real estate agents' customers from error, omissions and professional neglect, such as holding professional insurance, could easily be made mandatory. Such insurance is already mandatory in some provinces and in numerous other professions. ⁷¹ At the moment, brokerages are liable for their employees and, therefore, hold the appropriate type of insurance.

One change in how the real estate industry is organized could help address concerns about independence. In Quebec, when the Real Estate Brokerage Act is eventually reviewed, the real estate council plans to recommend that no distinction be made between agents and brokers. Only one type of licence would exist. Each person holding a licence would be professionally independent, but brokers could still work in real estate brokerages if they wished. ⁷² The council's recommendations would ensure that a greater number of agents are independent in the way they conduct their business. There is at least one precedent for this: there is no differentiation between brokers and agents in Ireland. Only the owner of the real estate practice must obtain a licence and a Client Bank Account for the practice to receive and hold all client monies. The practice may employ whomever it wishes and the employees do not require licences. ⁷³

Although the Bureau does not know the current cost of the lack of independence of agents in Canada, it is reasonable to believe that such a cost exists. Many real estate agents work for the major franchises in the country and must follow franchise policies on various aspects of their work. More independence for real estate agents, and with a shorter waiting period, would mean that they could offer a greater variety of products and offer it sooner than is currently possible, without having to follow the directives of an already established broker. Consumers would then have access to more dynamic real estate services offerings.

Recommendation

To promote more competition among real estate agents, regulators should reconsider the necessity of making a distinction between brokers, and agents and salespeople. Alternatively, regulators could explore options that would allow agents to become more independent.

Conclusion

Buying or selling real estate is often the most significant transaction of people's lives. While the main objective of real estate regulators is to protect the interests of the public, they must also allow consumers to have access to a variety of products and services at the best possible price.

Despite the fact that the Bureau did not find major restrictions in the real estate industry, a few points of interest arose in the course of this study.

The barriers to entering the real estate profession are quite low. Therefore, the supply of real estate agents is large, compared with the supply of other professionals. This opens the door to a particularly competitive market for consumers; however, the restrictions that do exist are not uniform between provinces in some regards.

The unnecessary barrier to entry created by some existing restrictions on mobility is an issue that provinces and territories should address in the near future. Real estate agents in Canada should be able to easily become licensed in another province or territory. The Bureau understands that there might be legislative differences among the provinces and territories, but the competencies necessary to become an agent are uniform throughout the country.

The two initiatives that the Quebec's real estate council is proposing are very encouraging. More specifically, the abolition of the distinction between agents and brokers would enhance competitiveness in the industry, which the Bureau believes would have a positive effect on the prices consumers pay for real estate services.

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¹ In this report, the term real estate agents comprises salespeople, agents and brokers, unless otherwise specified. For general information on real estate in Canada, see Canadian Real Estate Association (CREA) www.realtor.ca and www.crea.ca .

² CREA, “Information for Buyers,” www.realtor.ca/info_buyers.htm ; “Information for Sellers,” www.realtor.ca/info_sellers.htm . In Quebec, the Court of Appeal described the relationship between an agent and a seller or buyer as being a service provider relationship in a service contract. “However it must be noted that the real estate broker commonly does not have a mandate to sell or purchase but merely a mandate to seek out and find prospective purchasers or sellers. It is further well established that his mandate is fulfilled and a broker is entitled to his commission if he has brought the seller and purchaser in relation with each other and a broker is entitled to his commission if he has brought the seller and purchaser in relation with each other and therefore is the effective cause of the sale” ( Montreal Agencies Limited v. Kimpton 1927 S.C.R. p. 598 at p. 601; Gagnon v. Richardson 1963 R.L. p. 156 at p. 158, cited in Compagnie de fiducie MRS c. ACAIQ , C.A. 500-09-010474-005, May 21, 2003; Association des courtiers et agents immobiliers du Québec, consultation submission, July 9, 2007.)

³ CREA, “Glossary,” entries for Buyer's Agent and Seller's Agent, www.realtor.ca/glossary.htm .

⁴ Canada Mortgage and Housing Corporation, “What Professionals Should You Call On?” www.cmhc-schl.gc.ca/en/co/buho/hostst/hostst_005.cfm .

⁵ CREA, “Information for Sellers,” note 2, above.

⁶ As noted in Quebec, Real Estate Brokerage Act, R.S.Q. c. C-73.1, s. 1 . The term in Quebec for mortgages in this case is immovable hypothec .

⁷ CREA, “Career Possibilities,” www.crea.ca/public/careers/possibilities.htm .

⁸ In this chapter, regulators refers to both these councils and government regulatory bodies. Unlike in other professions, there are a number of restrictions on real estate agents that do not fall under the regulators' scope and therefore have not been addressed in this study. Local, provincial and federal trade associations play a big role in the real estate industry. These associations create restrictions that can have an impact on the competitive dynamic of the market.

⁹ Real Estate Council of Alberta, “RECA Overview,” www.reca.ca/about_reca/reca_overview.htm .

¹⁰ Real Estate Council of Ontario, consultation submission, July 5, 2007.

¹¹ Prince Edward Island Real Estate Association, “Code of Ethics,” www.peirea.com/code_of_ethics.html .

¹² For example, the Alberta Real Estate Association, www.abrea.ab.ca/education/index.htm .

¹³ CREA, “Organized Real Estate in Canada,” www.crea.ca/public/crea/organised_real_estate.htm .

¹⁴ See, for example, Alberta, Real Estate Act , R.S.A. 2000, c. R-5, s. 2(3)(d), and Quebec Real Estate Brokerage Act , R.S.Q. c. C-73.1, s. 3

¹⁵ See, for example, British Columbia, Real Estate Services Regulation, B.C. Reg. 506/2004, s. 2.9.

¹⁶ See, for example, Manitoba, Real Estate Brokers Act , C.C.S.M. c. R20, s. 41(1)(d) .

¹⁷ Ibid, s. 41(1)(e) .

¹⁸ See CREA, “Glossary,” note 3, above , for the distinction between broker and sales representative. It is important to note that salespeople have to work under a broker's supervision. The definition of managing broker varies across the country but a representative definition is Quebec's ( Real Estate Brokerage Act , R.S.Q. c. C-73.1, s. 13) : “ Every establishment must be managed by a natural person having the qualifications required of a person to hold a broker's certificate. That person must, in the cases prescribed in the by-laws of the Association, devote himself exclusively to his managerial duties.”

¹⁹ See “Overlapping services,” above.

²⁰ Statistics Canada, CANSIM Table 352-0005 , “Summary statistics for real estate agents, brokers, appraisers and other real estate activities (all establishments), by North American Industry Classification System (NAICS), annual, 1998 to 2005,” and Catalogue no. 63-018-X , “Offices of Real Estate Agents and Brokers, by Province.”

²¹ Real Estate Institute of Canada, “ARELLO News,” January–February 2006, www.reic.ca/arellonews.html .

²² See, for example, Internet Property Listings, “Real Estate for Sale Throughout Canada and Internationally,” www.canadian-real-estate-for-sale.com .

²³ Coldwell Banker, “Where do buyers come from?” www.coldwellbanker.ca/Learn/Articles/wherebuyers.asp .

²⁴ Ipsos Canada, “The Internet is a Key Tool in Looking for a New House,” survey, October 7, 2003, www.ipsos-na.com/news/pressrelease.cfm?id=1931 .

²⁵ CREA, consultation submission, July 6, 2007.

²⁶ See, for example, Alberta, Exemption Regulation (Real Estate Act), Alta. Reg. 111/1996 ; British Columbia, Real Estate Services Regulation, B.C. Reg. 506/2004, s. 2.1 to 2.19; Newfoundland and Labrador, Real Estate Trading Act, R.S.N.L 1990, c. R-2, s. 4.

 

²⁷ Prince Edward Island: Prince Edward Island Real Estate Association, “Real Estate Career,” www.peirea.com/real_estate_career.html ; Nova Scotia: Nova Scotia Real Estate Commission, “Program Information,” www.nsrec.ns.ca/programinfo/licensinginfo.htm ; British Columbia: Real Estate Council of British Columbia, “How do I become licensed to sell real estate in British Columbia,” www.recbc.ca/becoming_licensed/TradingServices.htm ; Quebec: Association des courtiers et agents immobiliers du Québec, consultation submission, July 9, 2007; Alberta: Real Estate Council of Alberta, consultation submission, July 6, 2007.

²⁸ See, for example, Ontario Real Estate Association College, “Learning Options,” www.oreacollege.com/index.cfm/ci_id/228.htm .

²⁹ Association des courtiers et agents immobiliers du Québec, consultation submission, July 9, 2007.

³⁰ Nova Scotia Real Estate Commission, “Program Information,” note 27, above.

³¹ Real Estate Council of Alberta, “Licence Upgrading,” www.reca.ca/licences_forms/real_estate/
licence_upgrade.htm .

³² Ontario Real Estate College, “Welcome to a Rewarding Career in Real Estate,” www.oreacollege.com/index.cfm/ci_id/224.htm ; Real Estate Council of Ontario, consultation submission, July 5, 2007.

³³ Saskatchewan Real Estate Commission , Bylaws , s. 329 .

³⁴ Human Resources and Social Development Canada, Report on Implementation of the Labour Mobility Chapter of the Agreement on Internal Trade—July 2001 , www.hrsdc.gc.ca/en/cs/sp/hrsdc/lmp/mobility/
2001-000049/page06.shtml ; Nova Scotia Real Estate Commission, consultation submission, July 5, 2007.

 

³⁵Real Estate Licensing Regulations, C.N.L.R. 994/96, s. 5 .

³⁶ New Brunswick Real Estate Association, “Challenging the Exam,” www.nbrea.ca/en/content/6 .

³⁷ This is due, in part, to certain provisions of the Real Estate Trading Act and particular restrictions of the Island Regulatory and Appeals Commission. Prince Edward Island Real Estate Association, consultation submission, July 6, 2007.

³⁸ Saskatchewan Real Estate Commission, consultation submission, July 5, 2007, and Bylaws , s. 313 .

³⁹Real Estate Agents' Licensing Regulations , Y.C.O 1977/158, s. 5(1)(c) .

⁴⁰ Real Estate Council of Alberta, “Licence Reciprocity,” www.reca.ca/licences_forms/real_estate/reciprocity_licences.htm .

⁴¹Real Estate Agents' Licensing Regulations, Y.C.O 1977/158, s. 4(3) .

⁴² Real Estate Council of British Columbia, “How do I become licensed in BC if I am already licensed in another jurisdiction in North America?” www.recbc.ca/becoming_licensed/jurisdiction.htm .

⁴³Educational Requirements, Insurance, Records and Other Matters , O. Reg. 579/05, s. 7 .

⁴⁴ Alberta, Real Estate Act , R.S.A. 2000, c. R-5, s. 17, 18, 21 ; British Columbia, Real Estate Services Act [SBC 2004] c. 42, s. 4; Manitoba, Real Estate Brokers Act , C.C.S.M. c. R20, s. 24; New Brunswick, Real Estate Agents Act , R.S.N.B. 1973, c. R-1 , s. 21.1; Northwest Territories and Nunavut, Real Estate Agents' Licensing Act , R.S.N.W.T. 1988, c. 48 (Supp . ), s. 57; Ontario, Real Estate and Business Brokers Act, 2002 , S.O. 2002, c. 30, Sch. C, s. 30(c); Saskatchewan Real Estate Act, S.S. 1995, c. R-1.3, s. 67 .

⁴⁵See, for example, Alberta, Real Estate Act , R.S.A. 2000, c. R-5, s. 17.

⁴⁶ CREA, “REALTOR® Services,” www.crea.ca/public/use_a_realtor/use_a_realtor.htm .

⁴⁷ Real Estate Council of Ontario, consultation submission, July 5, 2007.

⁴⁸Civil Code of Québec , C.c.Q, s. 2693.

⁴⁹ See, for example, Alberta, Real Estate Act , R.S.A. 2000, c. R-5 , s. 1(x)(ii); New Brunswick, Real Estate Agents Act , R.S.N.B. 1973, c. R-1, s. 1 ; Newfoundland and Labrador, Real Estate Trading Act , R.S.N.L. 1990, c. R-2, s. 2(k)(ii) ; Northwest Territories and Nunavut, Real Estate Agents' Licensing Act , R.S.N.W.T. 1988, c. 48 (Supp.), s. 1 ; Nova Scotia, Real Estate Trading Act , S.N.S. 1996, c. 28, s. 2(y) ; Ontario, Real Estate and Business Brokers Act ,

2002 , S.O. 2002, c. 30, Sch. C, s. 1; Prince Edward Island, Real Estate Trading Act , R.S.P.E.I. 1988, c. R-2, s. 1(s)(iii); Yukon, Real Estate Agents Act , R.S.Y. 2002, c. 188, s. 1.

⁵⁰ See, for example, British Columbia, Real Estate Services Act Rules (Ministerial Order: M417), s. 4-6,

4-7, 4-8.

⁵¹ For example, British Columbia, Real Estate Services Act Rules, ibid, s. 4-8, New Brunswick Real Estate Association, Standards of Business Practice , art. 16, and Quebec, By-law of the Association des courtiers et agents immobiliers du Québec , R.Q. c. C-73.1, r. 2, s. 102, set this out explicitly. Real Estate Council of Alberta, consultation submission, July 6, 2007, and Nova Scotia Real Estate Commission, consultation submission, July 5, 2007, remark on the implicit requirement.

⁵²Real Estate Act, S.S. 1995, c. R-1.3, s. 55; Saskatchewan Real Estate Commission , Bylaws , s. 729 .

⁵³ Nova Scotia: Real Estate Trading Act, S.N.S. 1996, c. 28, s. 28, and Nova Scotia Real Estate Commission , Commission By-Law , s. 708 ; Saskatchewan: Saskatchewan Real Estate Commission, ibid, s. 726.

⁵⁴ New Brunswick: New Brunswick Real Estate Association, note 51, above, art. 25 ; Prince Edward Island: Prince Edward Island Real Estate Association, consultation submission, July 6, 2007.

⁵⁵ White, Lawrence J., The Residential Real Estate Brokerage Industry: What Would More Vigorous Competition Look Like? p. 8, www.stern.nyu.edu/eco/wkpapers/Residential.pdf .

⁵⁶ Competition Bureau, “Closing the Deal: Ten Years After the Real Estate Prohibition Order,” speaking notes, www.competitionbureau.gc.ca/internet/index.cfm?itemID=914&lg=e .

⁵⁷ Competition Bureau, “ Competition Bureau Settles Real Estate Case Involving Canadian Re/Max Franchisees ,” news release, February 17, 2003, www.competitionbureau.gc.ca/internet/index.cfm?itemID=297&lg=e .

⁵⁸ Alberta: Real Estate Act, R.S.A. 2000, c. R-5, s. 24 ; British Columbia: Real Estate Services Act Rules (Ministerial Order: M417), s. 5-14 ; Manitoba: Real Estate Brokers Act , C.C.S.M. c. R20, s. 32(2) ; New Brunswick: Real Estate Agents Act , R.S.N.B. 1973, c. R-1, s. 22(3) ; Newfoundland and Labrador: Real Estate Trading Act , R.S.N.L. 1990, c. R-2, s. 44(1) ; Nova Scotia: Nova Scotia Real Estate Commission, consultation submission, July 5, 2007; Ontario: Real Estate and Business Brokers Act, 2002, S.O. 2002, c. 30, Sch. C, s. 36(3) ; Prince Edward Island: Real Estate Trading Act , R.S.P.E.I. 1988, c. R-2, s. 42(2); Quebec: Rules of professional ethics of the Association des courtiers et agents immobiliers du Québec, R.Q. c. C-73.1, r. 5, s. 36 ; Saskatchewan: Real Estate Act, S.S. 1995, c. R-1.3, s. 66(1)(a) ; Yukon: Real Estate Agents Act, R.S.Y. 2002, c. 188, s. 33(1) .

⁵⁹ Real Estate Council of Alberta, consultation submission, July 6, 2007.

⁶⁰ Association des courtiers et agents immobiliers du Québec, consultation submission , July 9, 2007.

⁶¹ New Brunswick: Real Estate Agents Act, R.S.N.B. 1973, c. R-1, s. 22(2); Newfoundland and Labrador: Real Estate Trading Act, R.S.N.L. 1990, c. R-2 , s. 44(2).

⁶²Real Estate Agents Act , R.S.Y. 2002, c. 188, s. 33(3).

⁶³ Steven D. Levitt and Chad Syverson, Market Distortions When Agents are Better Informed: The Value of Information in Real Estate , Working Paper 11053, www.nber.org/papers/w11053 .

⁶⁴ In Proprio Direct Inc c. Pigeon [2006] J.Q. no 7477, the Association des courtiers et agents immobiliers du Québec contested a fee charged by Proprio Direct. The contract between the seller and Proprio Direct required that the seller pay a non-refundable lump sum for services, regardless of whether the property sold. Because there is no specific section of the contract on how brokerages are to be remunerated, and since both parties agreed to this contract, the Court of Appeal accepted this form of payment. However, on March 8, 2007, the Supreme Court of Canada granted leave for appeal and will now hear the case.

⁶⁵ Real Estate Council of Alberta, consultation submission, July 6, 2007.

⁶⁶Real Estate and Business Brokers Act , 2002, S.O. 2002, c. 30, Sch. C, s. 36 .

⁶⁷ White, note 55, above.

⁶⁸ See, for example, Saskatchewan, Real Estate Act , S.S., 1995, c. R-1.3, s. 53(2). Alberta: Real Estate Council of Alberta, consultation submission, July 6, 2007; Prince Edward Island Real Estate Association, consultation submission, July 6, 2007.

⁶⁹British Columbia: Real Estate Council of British Columbia, questionnaire response, October 2006, question 4.17; Newfoundland and Labrador: Real Estate Trading Ac t, R.S.N.L. 1990, c. R-2 , s. 10; Quebec: Real Estate Brokerage Act , R.S.Q. c. C-73.1 , s. 13, 14, and By-law of the Association des courtiers et agents immobiliers du Québec, R.Q. c. C-73.1, r. 2, s. 80 .

⁷⁰ Real Estate Council of Alberta, consultation submission, July 6, 2007.

⁷¹ See, for example, Ontario, Educational Requirements, Insurance, Records and Other Matters , O. Reg. 579/05, s. 11 , and General , O. Reg. 567/05, s. 4 ; British Columbia, Real Estate Services Act, [SBC 2004] c. 42, s. 104(2); Real Estate Council of British Columbia, questionnaire response, October 2006, questions 3.5 and 4.18; and Saskatchewan, Real Estate Regulations , R.R.S. c. R-1.3, Reg. 1, s. 18.1 .

⁷² Association des courtiers et agents immobiliers du Québec, consultation submission , July 9, 2007.

⁷³ Ireland Residential Real Estate Business Practices, “ Relationship of Buyer/Seller to Practitioner,” www.worldproperties.com/CountryBusPractice.aspx?
countryID=11&BusinessPracticeID=-1&TypeID=1 .