The buying and selling of homes in the United States may undergo significant changes this year due to a US$418-million lawsuit settlement by the National Association of Realtors. This settlement could lead to the elimination of the standard six per cent commission for Realtors. In Canada, a Toronto law firm is pushing for similar changes, alleging that the current rules regarding commission payments to buyer brokers are anti-competitive and inflate prices. The firm has brought a proposed class-action lawsuit before the Federal Court in hopes of changing these rules in Canada.
While some argue that changes are not necessary in Canada, the U.S. settlement has eliminated policies that have historically set agent commissions, potentially leading to lower costs for home sellers. The new rule no longer requires a broker to offer upfront compensation to buyer’s agents on the Multiple Listing Service (MLS). This change allows for individual sellers to negotiate such offers with buyer’s agents outside of the MLS platforms. However, sellers must disclose any compensation arrangements made with the buyer’s agent.
Currently, real estate agents in Canada operate under unwritten rules where commission rates are decided, with variations across provinces. While there is no mandatory commission in Canada, sellers typically offer around 2.5 per cent to both the seller and buyer brokers. Deviating from this norm can result in consequences, as brokers may not show houses to clients if they are not receiving the standard 2.5 per cent commission. The lawsuit in Canada seeks compensation for sellers affected by these norms, which are alleged to amount to price-fixing under the federal Competition Act.
The Canadian Real Estate Association (CREA) and the Toronto Regional Real Estate Board (TRREB) are among the defendants in the lawsuit. TRREB CEO John DiMichele has stated that the organization is seeking dismissal of the case and will not comment further as the matter is still before the courts. The potential cultural shift in negotiating with Realtors following the lawsuit could lead to a reduction in the number of agents in the industry. In the U.S., the change in commission structure is expected to reduce the number of agents by 20 to 40 per cent, which could translate to a similar reduction in Canada.
In Canada, the competition bureau previously forced all MLS services to allow sellers to post their properties without using a Realtor, leading to negotiable commission rates. While commissions have been a significant source of income for Realtors in Canada, the lawsuit settlement in the U.S. could potentially lead to lower commissions through negotiations between buyers and sellers. There may be a shift in how Canadians negotiate with Realtors and a potential decrease in the number of agents working in the industry. The outcome of the lawsuit and its potential impact on the real estate market in Canada remains to be seen.
