Real estate access: denied - Business - Real estate access: denied

TREB defends denying listings to rogue realtor, while realtor claims it did so out of fear

July 04, 2009

Tony Wong
Business Reporter

When Fraser Beach received a call from a Bell Canada subsidiary about starting a new real estate company three years ago, he had no idea the unlikely partnership would land him in a high-stakes court case that could dramatically change the landscape of Toronto's real estate market.

The drama playing out on the seventh-floor courtroom at the Ontario Superior Court of Justice this week has pitted the realtor against Canada's largest real estate board in a landmark battle that some say could open the doors to further competition between realtors in the future and result in lower prices for consumers.

Beach, 65, a long-time Toronto-area broker, has taken the Toronto Real Estate Board to court after the organization cut off his Multiple Listing Service access in May of 2007, three days after helaunched his website. The MLS database is a list of properties for sale. The realtor argues that the board shut him down when they learned his website would offer lower prices and that his partner was BNV Real Estate, a subsidiary of telecom giant Bell.

"Instead of embracing change, the Toronto Real Estate Board decided to shut it down," Beach's lawyer Randy Pepper charged this week. "They cut off access to Mr. Beach's MLS system, which is the lifeblood of any realtor."

TREB lawyer Bill Sasso called the new venture "a dramatic event. A significant change in the way business was being conducted," which left the organization with no choice but to shut down the access of a member for the first time in their history. The board is arguing that they didn't block Beach and Bell for competitive reasons, but simply because the realtor did not follow membership rules and, they say, downloaded listings without permission.

"TREB viewed this as a serious breach of security and a singular and unprecedented threat to TREB's most valuable asset," Sasso said in his closing submission. "The decision to suspend Beach's access to the TREB system was a significant decision which TREB took very seriously."

The case wrapped up this week, but both sides are awaiting a decision by Justice David Brown. That decision, expected before the end of summer, is bound to have repercussions on the board and its 28,000 members in the future.

If Beach wins, it might open the doors to other companies who use technology to lower real estate fees. This is already happening in the United States, where realtor associations have been under fire by government authorities for having anti-competitive rules.

In the U.S., Internet-based brokers have historically been blocked from accessing MLS databases associated with the National Association of Realtors. In a September 2005 lawsuit by the Justice Department, government lawyers said the association "adopted policies that restrain competition from innovative real estate brokers."

Sites such as BNV's now-defunct (which has since been sold to a division of Torstar Corp., owners of the Toronto Star) allow consumers to peruse listings from home while typically charging discount fees. A settlement south of the border was reached last year as a result of the suit, with a copy of the U.S. District Court decision submitted as evidence by Beach's lawyers.

"Like TREB, the National Association of Realtors did not adopt an enlightened response either, which led to the decision to open up the MLS system," Pepper said to Justice Brown.

Real estate insiders say that it is only a matter of time before technological change forces realtor associations to open their databases, with Canada typically a few years behind the U.S. The fact that the Canadian federal Competition Bureau was monitoring the case over the last two weeks suggests that they are keeping a close eye on developments in Toronto.

The competition bureau already has an ongoing investigation into the Ottawa-based Canadian Real Estate Association for enacting new rules in 2007 that some say are anti-competitive and could hurt consumers.

Certainly, the presence of discounters in the marketplace has been a thorny issue with real estate boards across Canada.

Internet-based realtors are already making inroads into the Canadian market, many offering a low commission structure or a flat fee for services. Beach's lawyers allege their client's website was no different than other realtor websites that allow consumers to request information.

But this is the first time a discount broker has had access blocked. Beach's lawyers say the real reason TREB cut their client off was because they were "frightened" of his partner - a technologically savvy heavyweight intent on lowering commissions.

"Bell posed a huge competitive threat to the status quo," Pepper argued.

TREB president Maureen O'Neill says that's not true. She testified that BNV was in blatant violation of user agreements by having uploaded data without permission.

"There was a concern of a potential liability for TREB and our members because our clients did not give permission for the use of their listings other than on the TREB website and the Multiple Listing Service," O'Neill said.

When Bell first contacted Beach more than three years ago the Ajax realtor was operating an obscure Internet-based discount brokerage that offered total commissions as low as 0.5 per cent, compared with the standard 2.5 per cent for a listing broker. The buyer's agent would typically get their piece of the cut, or 2.5 per cent, meaning the total commissions through Beach's operations would be about 3 per cent, compared with an industry standard of 5 per cent.

The lowball pricing on the website attracted the attention of Bell, who wanted in on the real estate sector, seeing opportunity in a business that could potentially be worth more than a billion dollars in revenue annually.

According to BNV's business plan, the telecom company intended to invest $29 million in start-up costs with a "lower cost offering" service that would charge consumers 25 per cent less than the standard commission rate currently offered by realtors.

Bell saw synergies in real estate, and hoped to partner content and traffic from its Sympatico/MSN real estate website while using mapping technology from partner Microsoft and editorial from their Bell Globemedia division to create a major enterprise to compete against traditional brokerages.

BNV saw an opportunity to make money because the realtor's "service remained essentially the same, but the prices paid for them by Canadians have soared," according to the company's business plan, entered as evidence in the lawsuit. In its plan, BNV said standard real estate company operating profits were as high as 35 per cent, with annual fees and commissions in Canada nearing $8 billion annually because of the "anti-competitive policies of a cartel."

However, TREB's Sasso noted that BNV may already have known it was crossing the line with an "aggressive" business plan that anticipated the possibility that regulatory agencies may try to block Bell from becoming licensed due to a "perceived" violation of MLS rules.

"TREB takes no position or interest in the business models of its members, provided that members abide by various TREB agreements," Sasso said. "TREB does not set the amount of commissions or the manner in which they are charged. TREB's policy is that this should be left entirely up to the market."

Key to TREB's argument is that, under the membership agreement, "members shall not question or dispute any of TREB's right, title, ownership, licence, intellectual property and or other interests in the MLS database," something that Justice Brown will have to consider in his final deliberation.

The telecom company is not a plaintiff in the suit and declined to comment. A spokesperson said the company decided to divest itself of BNV because it "didn't fit with the core business."

Beach isn't asking for monetary damages, but simply wants his access to the MLS system reinstated and a declaration that TREB was not entitled to terminate his access.

The case has an interesting back story - one of the lawyers representing Beach, Lawrence Dale, was also a principal in discount brokerage Realtysellers Ltd. Realtysellers closed its doors in 2006 after arguing that the TREB was being anti-competitive by keeping their ads out of a board-owned newspaper. The board settled out of court for an undisclosed sum believed to be in the millions.


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