Hear Garth, Scarborough Chapters, 7 pm Feb 25

Is MLS outta control? Are realtors dinosaurs?

Most importantly, has the real estate industry itself played a pivotal role in creating the housing bubble everybody’s now talking about? You know, the one that’s eating the middle class?

Thursday I’m on Vancouver Island, speaking at a private event. Saturday I address the Money Expo in Nanaimo, and again in Victoria on Sunday. Friday morning I’m doing media and Friday afternoon I’ll be riding around in a real estate agent’s crossover, looking at properties.

Why would I do such a thing? Well, first, like you I’m a real estate junkie. There’s hardly a city I’ve been to that I haven’t seen a fetching hunk of dirt (with one exception). Second, this is how I get to be such a-know-it-all pain in the ass – aka, research. Third, there’s absolutely no substitute for scoping a market with a realtor. Not MLS.ca. Not Google earth. Not Kijiji or Craiglist. Nothing beats a white Acura with a warm agent.

But, as you know, this is a troubled biz. Individual agents are normally herded into subservient groups by brokers. The brokers are regimented by local real estate boards. And those board cartels (all 101 of them), make billions of dollars running the local MLS – Multiple Listing Service. Right now 90% of all the houses changing hands go through this system, which allows those cartels to impose rules designed to maintain a monopoly control over the listing/selling process.

This includes conditions that houses have to be inspected before being listed, for example, which pretty much knocks out companies who just want to handle online transactions. More critically, with 90% control over the marketplace, the cartels essentially force anyone selling their house to put it on MLS, because that’s the only game in town for widescale exposure. Without that, no guarantee all potential buyers will even see the house, or that the vendor will get the best price.

The rub is, to get on MLS, you have to engage an agent. And the agent comes with institutional baggage – like a standardized commission rate. Not that the agent is completely to blame for this, because back at the office the broker is expecting half the cut. Oh yeah, and the broker pays the real estate board mega-bucks to be part of the MLS, which makes him as trapped as the hapless seller.

Thus, even in a bubble market when houses sell themselves, carloads of young idiots are outside engaged in a bidding war and agents don’t even need to advertise, torrents of commission dollars flow. Economies of scale are wiped away. Laws of supply and demand no longer apply. It all smells a lot like Bell Telephone in 1972.

So has the MLS system, run nationally by the Canadian Real Estate Association, contributed to this bubble? Would you like to see Chandra Crawford without her mittens?

Anyway, the irony is the MLS/CREA Incredible Hulk of housing may be neutered just about the time the bubblicious Canadian market starts to unravel. Federal competition cops are now up the hulk’s rear end after the organization dragged its feet on previous demands to open up its system to more competition. A tribunal ruling in the coming months could force changes that dramatically reduce the price of selling (or buying) a home, and let even more gas out of the inflated market.

In fact, I am sure it will happen. In the future anybody with a home to sell should be able to pay a fee, and buy a listing on the system. In addition, competing online listing services will undoubtedly crop up as they have in the US. And with that will come lower commissions, legions of facilitators who will help close deals without ever setting foot in a basement, plus a new wave of Fisbos.

Much of that change will be good. Some of it will be dangerous. Lots of buyers and sellers will surely end up in court squabbling over chattels and fixtures, expired conditions, deposits and surveys. And it will all be done amid falling prices, slagging sales and a rising tide of anxiety among recent buyers who thought those days would never come.

But they’re now in sight, even from the back window of an Acura.

Update:

As I told you yesterday, F is now thinking once again about toughening up on mortgage rules to prick the bubble he and Mark (Teaser) Carney have wrought. March 4th. Circle it on the calendar. Olympics be damned, that’s when the downhill begins. – Garth