Why a landmark U.S. settlement could impact the Canadian housing market
A substantial settlement recently announced by a U.S. group representing more than one million Re‐ altors has real estate ex‐ perts hopeful Canadian home sellers could soon get a better deal.
Last week, the U.S.-based National Association of Real‐ tors (NAR) agreed to pay $418 million US to end legal claims from home sellers that argued the group artifi‐ cially inflated real estate commissions.
The NAR, which denied any wrongdoing in the case, has also agreed to eliminate the standard six per cent sales commission and do away with other commission rules.
The landmark settlement in the U.S. is playing out at the same time as a proposed national class action lawsuit makes its way through Cana‐ dian courts, with the lawyer behind the claim saying a win would reduce the cost of Canadian homes.
A University of British Co‐ lumbia real estate professor says the settlement bolsters the argument for similar changes to happen in Cana‐ da, which could make it cheaper for people to buy and sell homes.
"It's going to revolutionize the practice of real estate," said Tom Davidoff, an asso‐ ciate professor at UBC's Sauder School of Business and the director of UBC's Centre for Urban Economics and Real Estate.
"It may become more competitive, but more impor‐ tantly, cheaper for people to sell their homes."
While they would not be a solution to the affordable housing crisis, Davidoff said, changes to commission rules would be a win for those looking to buy a home be‐ cause prices would fall if sell‐ ers have lower costs.
The U.S. case
For decades, the NAR has re‐ quired brokers listing homes for sale to make a commis‐ sion offer to a buyer's agent up front - typically about six per cent of the sale price, split between a seller's broker and a buyer's agent.
Lawsuits argued home sellers were compelled to en‐ ter into commission-sharing arrangements in order to market their homes on multi‐ ple listing services (MLS) and not lose out on potential buy‐ ers.
As part of the settlement, the NAR has agreed to stop that practice, and to prohibit agents' compensation from being included on listing por‐ tals.
In Canada, commission structures vary across the country, but typically real es‐ tate agents and their broker‐ age charge a percentagebased commission on the sale price of a home, split be‐ tween the seller's and buy‐ er's agents.
In B.C., it's seven per cent on the first $100,000 and three per cent on the balance in a real estate transaction, according to real estate agen‐ ts who spoke to CBC News.
Lawsuit alleges conspir‐ acy
The Canadian Real Estate As‐ sociation (CREA) is a defen‐ dant along with dozens of lo‐ cal brokerages in a proposed class-action lawsuit, filed in January of this year, which al‐ leges "a conspiracy, agreement or arrangement" between brokerages leading to illegal increases in the price of residential real es‐ tate commissions.
The lawsuit filed in Feder‐ al Court has yet to be certi‐ fied as a class proceeding.
"In a universe in which housing prices have grown astronomically … and the buyer brokerage is being paid based on a commission, are they doing any more work today than they did 15 years ago? The answer is probably not," said Garth My‐ ers, a partner at Kalloghlian Myers LLP, the firm that has filed the lawsuit.
The CREA represents more than 160,000 brokers, agents and salespeople through over 65 boards and associations in the country.
WATCH | Realtor says changes to commission rules could be 'challenging' for agents:
None of the allegations have been proven in court. The CREA has said it consid‐ ers the allegations "to be without merit and will contin‐ ue to vigorously defend against them." It also says it's "closely monitoring" the set‐ tlement agreement in the U.S.
Myers says he's hopeful the U.S. developments strengthen the Canadian case.
"[The U.S. settlement] puts a major dent in any ar‐ gument that the Canadian
Real Estate Association is going to make with respect to the necessity of these [com‐ mission] rules for the proper functioning of the system," he said.
"We think that the conse‐ quence of our lawsuit will mean more money in the pocket of home sellers and it'll reduce the cost of resi‐ dential real estate across the country."
Tamara Stone, a real es‐ tate agent and co-founder of ReMax Kelowna Stone Sis‐ ters, says that if Canadian commission rules are changed similarly to the U.S., it could lead to more compe‐ tition among agents. ReMax is named as a defendant in the Canadian lawsuit.
"If [a Realtor] isn't really showing value ... negotiating and marketing for a seller and negotiating and working hard for a buyer, I think that will bring fees down," Stone said.