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A policy change by the Canadian Real Estate Association (CREA) will soon require participating brokerages to list almost all residential resale properties on the Multiple Listing Service (MLS), thereby preventing some realtors from marketing properties privately.
CREA believes the policy, which will come into effect on Jan. 1, 2023, is in the best interests of buyers and sellers, but its decision has raised some concerns that it is restricting realtors from providing customized services to their clients and that it also limits choices for realtors and consumers.
Economic theory and empirical evidence suggest open markets and exchanges, where buyers and sellers have access to all information, serve the interests of all due to transparency and market efficiencies.
Consumers’ interest is often compromised when listings are only circulated in closed circles, thereby denying prospective buyers the opportunity to bid. But it’s easy to imagine circumstances where a seller may prefer to not have a publicly available listing.
For example, celebrities and others with legitimate privacy concerns may choose to market a property in closed circles. The new policy accommodates such sellers as it recognizes two distinct marketing approaches.
An “office exclusive” listing is one that “is not publicly marketed at the written request of the seller.” Instead, realtors may use their private networks to market the property to those “directly affiliated with the listing brokerage/office in a business capacity” as per the “written instructions of the seller.”
The public-marketing approach is the business-as-usual model, where a listing is promoted to the public or realtors “not directly affiliated with the listing brokerage/office in a business capacity.”
If a realtor uses traditional means to promote an office exclusive listing, such as yard signs, flyers or digital marketing, the listing “will lose its exemption” and must be placed on the MLS system within three days of public marketing just like any other residential property. The policy exempts commercial properties, under-construction dwellings with multiple dwellings and rental listings.
But buyers and sellers have distinct preferences that might conflict at times. For example, blind bidding might be preferred by sellers, but not by buyers. How does the new policy serve the unique interests of both buyers and sellers?
Buyers are probably frustrated by those “coming soon to MLS” yard signs for properties that never end up on the MLS. As buyers diligently watch the MLS portals for the property, the for-sale sign is unceremoniously removed, leaving them guessing about whether the dwelling was sold or removed from consideration.
The selective marketing of a dwelling to distinct cohorts denies most potential buyers the opportunity to consider it, but may also discriminate against racial or other minorities. For instance, closed marketing of dwellings could be used to preserve the homogeneity of a neighbourhood, which constitutes a blatant violation of Canadian laws and norms.
Exclusive marketing is also unlikely to be in the interest of sellers. As an exchange, MLS affords the biggest exposure for any listing. Once available on MLS, buyers from across Canada, or even around the world, can find the listing, compare it against other offerings and decide whether to probe further. Economics 101 suggests that the higher the exposure, the greater the competition, which is likely to result in a quicker sale at a desirable price.
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A study published in the American Economic Review in 2009 compared MLS listings to those on a for-sale-by-owner (FSBO) platform and concluded that “FSBO is less effective in terms of time to sell and probability of a sale.” But the authors also recognized that more patient sellers sometimes opted for FSBO anyway.
Most academic literature on this subject predates internet-based real estate portals, such as MLS and virtual office websites. It assumes the buyers’ agents discover the prospects and bring them to their client’s attention. Current practice is more nuanced, because buyers actively search for properties using the internet and inform brokers of their preferred listings.
In a hyperconnected world of internet portals, social media, and ubiquitous availability and flow of information, networks and their sizes matter. For real estate marketing, MLS remains the largest network. Ignore it at your peril.
Murtaza Haider is a professor of real estate management and director of the Urban Analytics Institute at Toronto Metropolitan University. Stephen Moranis is a real estate industry veteran. They can be reached at the Haider-Moranis Bulletin website, www.hmbulletin.com.