U.S. lawsuit over commissions could shake up Canada’s housing market

Daisy Ratnasari

A proposed class action lawsuit in Canada alleges a “conspiracy,” which inflates real estate commissions and costs homeowners tens of thousands of dollars

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B.C. analysts say a legal settlement in the U.S. that upends real estate agent commissions could have ripple effects across the Canadian housing market, potentially making it cheaper to buy or sell a home.

The National Association of Realtors, which represents more than a million agent in the U.S., has agreed to settle a lawsuit that accused the industry group of artificially inflating real estate commissions. The trade group agreed to pay US$418 million to compensate home sellers and will change commission rules, doing away with the standard six per cent sales commission.

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It represents a major shakeup of the U.S. housing market and the impacts could be felt in this country, where a proposed class-action lawsuit alleges a “conspiracy” that inflates real estate commissions and costs homeowners tens of thousands of dollars.

Garth Myers is a partner at Kalloghlian Myers LLP, the Toronto-based law firm that launched the lawsuit against the Canadian Real Estate Association and dozens of brokerages. It alleges the defendants, which represent more than 150,000 brokers and real estate agents in Canada, “conspired, agreed or arranged with each other to fix, maintain, increase or control the price for the supply of buyer brokerage services for residential real estate.”

If the class-action lawsuit is successful, Myers said, it would have a “profound effect not just on the real estate industry generally, but for Canadians at large. It would have the effect of reducing transaction costs of buying and selling residential real estate.”

The Federal Court has not yet certified the case as a class-action suit and none of the allegations have been proven in court.

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A spokesperson for the Canadian Real Estate Association said in a statement: “We believe the allegations to be without merit and will continue to defend against these claims.”

In a statement about the U.S. settlement, the association said it is “closely monitoring” the outcome and noted “there are different legal and factual circumstances between Canada’s litigation and the matter in the United States.”

At the heart of the Canadian case, Myers said, is a challenge to the real estate industry, which is opaque and anticompetitive.

“We’ve seen historically these (real estate) associations oppose any changes that would upset their business model,” he said. “It’s really hard to deviate from these controls that are imposed upon sellers.”

In B.C., the standard commission is seven per cent on the first $100,000 and three per cent on the balance. The seller pays the commission, which is split between the seller’s agent and the buyer’s agent. Sellers often increase the list price of the home to account for the commission they’ll have to pay.

But Trevor Koot, CEO of the B.C. Real Estate Board said there’s a misconception that commissions are set in stone and “that these class-action lawsuits are going to drive down commissions.”

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Consumers should understand that they can and should negotiate commissions, he said.

Koot said it’s important to ensure “everybody has professional representation when navigating the biggest purchase of their lives.”

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Canadians dreaming of homeownership are looking at alternatives, such as co-owning with family or friends, to make the purchase more affordable. Photo by Peter J. Thompson/National Post

Home sellers are told if they want to get top dollar for their home, they should go with the industry standard commission for the buyer’s agency, Myers said, otherwise the buying agent has less incentive to show the home, which could result in fewer bids.

Robert Price, one of the founders of Bōde, an online real estate marketplace that helps people buy and sell homes without the services of a real estate agent, said possible reform to the decades-old system of buying and selling homes “is a long time coming.”

Depending on the outcome of the Canadian lawsuit, Price said it could “have a huge impact on home affordability in Canada.”

“To me, the thing a functional market needs is either effective competition or effective regulation, or both. And right now, we don’t really have either,” he said. “Consumers need choice and transparency.”

Price said that on Bōde — which operates in Alberta, B.C. and the Greater Toronto Area — the seller pays a one per cent commission to the company when the home sells and negotiates the commission for the buyer agent. If the buyer does not have an agent, then there is no commission on the buyer side.

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Canada and the U.S. have some of the highest commission rates in the world, Price said, which creates “a very inefficient marketplace where a lot of your hard-earned equity … is going into (commissions).”

In the U.K. for example, the average estate agent fee in 2024 was less than 1.5 per cent and it’s common to deal with just the estate agent representing the seller.

Having a buying and selling agent involved in a home transaction inserts “two middlemen,” Price said, which doubles the cost.

Tom Davidoff, an associate professor at UBC’s Sauder School of Business, said given the parallels between the U.S. and Canadian real estate commission systems, the settlement by the National Association of Realtors could set the stage for a similar outcome in this country.

“I think for realtors it’s mostly bad news,” said Davidoff, who is also the director of UBC’s centre for urban economics and real estate. A shakeup to the real estate commission system could mean more competition, which is “good news for buyers,” he said.

However, “it’s certainly far from a panacea for our problems of affordability,” Davidoff said.

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Asked about the U.S. case and the proposed class action suit in Canada, Housing Minister Ravi Kahlon said he doesn’t have an opinion having just seen news about the settlement. “We’re certainly going to be monitoring that here in the British Columbia context.”

Kahlon said the B.C. NDP government is aware of how the hot real estate market is affecting buyers and sellers, which is why last year the government brought in a cooling-off period that allows buyers three days to back out of their sale contract after signing, guaranteeing them a full refund minus a rescission fee of 0.25 per cent of the purchase price.

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Minister of Housing Ravi Kahlon talks during a news conference in the rotunda at the legislature in Victoria on Monday, Oct. 16, 2023. Photo by CHAD HIPOLITO /THE CANADIAN PRESS

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