Landmark U.S. settlement could impact Canadian housing market
National Association of Realtors agreed to change broker commission rules, pay out $418M US in settlement
A substantial settlement recently announced by a U.S. group representing more than one million Realtors has real estate experts hopeful Canadian home sellers could soon get a better deal.
Last week, the U.S.-based National Association of Realtors (NAR) agreed to pay $418 million US to end legal claims from home sellers that argued the group artificially 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 Canadian courts, with the lawyer behind the claim saying a win would reduce the cost of Canadian homes.
A University of British Columbia real estate professor says the settlement bolsters the argument for similar changes to happen in Canada, 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 associate 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 importantly, 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 because prices would fall if sellers have lower costs.
The U.S. case
For decades, the NAR has required brokers listing homes for sale to make a commission 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 enter into commission-sharing arrangements in order to market their homes on multiple listing services (MLS) and not lose out on potential buyers.
As part of the settlement, the NAR has agreed to stop that practice, and to prohibit agents' compensation from being included on listing portals.
In Canada, commission structures vary across the country, but typically real estate agents and their brokerage charge a percentage-based commission on the sale price of a home, split between the seller's and buyer'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 agents who spoke to CBC News.
Lawsuit alleges conspiracy
The Canadian Real Estate Association (CREA) is a defendant along with dozens of local brokerages in a proposed class-action lawsuit, filed in January of this year, which alleges "a conspiracy, agreement or arrangement" between brokerages leading to illegal increases in the price of residential real estate commissions.
The lawsuit filed in Federal Court has yet to be certified 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 Myers, 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.
None of the allegations have been proven in court. The CREA has said it considers the allegations "to be without merit and will continue to vigorously defend against them." It also says it's "closely monitoring" the settlement 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 argument that the Canadian Real Estate Association is going to make with respect to the necessity of these [commission] rules for the proper functioning of the system," he said.
"We think that the consequence of our lawsuit will mean more money in the pocket of home sellers and it'll reduce the cost of residential real estate across the country."
Tamara Stone, a real estate agent and co-founder of ReMax Kelowna Stone Sisters, says that if Canadian commission rules are changed similarly to the U.S., it could lead to more competition 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.
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With files from The Associated Press