The real estate industry in Canada may be set to undergo significant changes following a US$418 million lawsuit settlement by the National Association of Realtors in the United States. This settlement could potentially see an end to the standard six percent commission for Realtors in both countries. A Toronto law firm, Kalloghlian Myers, is leading the charge in Canada by bringing forth a proposed class-action lawsuit before the Federal Court to address what they believe are anti-competitive practices related to the payment of commissions to buyer brokers. The firm argues that these practices have inflated the cost of commissions and had a negative impact on sellers. However, not everyone agrees with the need for changes in Canada, as the handling of commissions in the country differs from that in the U.S.
The rule changes agreed upon in the U.S. settlement involve eliminating policies that have historically set agent commissions and forced people to pay artificially inflated costs to sell their homes. As part of the settlement, the National Association of Realtors in the U.S. will no longer require a broker advertising a home for sale on an MLS to offer upfront compensation to a buyer’s agent. While this change allows individual home sellers to negotiate such offers outside of MLS platforms, any compensation arrangements must be disclosed by the seller’s broker. These changes, set to take effect in mid-July, mark a significant departure from the practices that have been in place since the 1990s, potentially leading to lower agent commissions and a shift in how homebuyers and sellers negotiate in the future.
In Canada, the practice of setting commission rates varies across provinces, with different rules in place for British Columbia, Alberta, and Ontario. While commissions in Canada are negotiable and not mandatory, there is a general industry norm that most sellers adhere to. According to John Pasalis, a Realtor and broker at Realosophy Realty, sellers typically offer a standard commission of 2.5 percent to both seller and buyer brokers. Deviating from this norm can have consequences, as brokers may choose not to show houses to their clients if they are not receiving the standard commission. Despite the ability to negotiate commissions, few sellers choose to deviate from the industry standard.
The lawsuit in Canada brought forth by Kalloghlian Myers names several real estate groups, including the Canadian Real Estate Association and the Toronto Regional Real Estate Board. While the TRREB seeks dismissal of the case, the matter is still before the courts, and CREA has not responded to requests for comment. David Dale-Johnson, an executive professor of real estate at the University of Alberta, suggests that the potential changes in commission structures could lead to a cultural shift in how Canadians negotiate with Realtors and reduce the number of agents in the industry. Similar changes in the U.S. have resulted in a decrease in the number of agents by up to 40 percent, indicating a potential impact on the real estate market as a whole in Canada.
The impact of changes to the commission structure in Canada could have significant effects on the real estate industry, potentially leading to a decrease in the number of agents and a shift in how buyers and sellers negotiate with Realtors. The industry norm of offering a 2.5 percent commission to both seller and buyer brokers may be challenged as a result of the proposed class-action lawsuit and the changes taking place in the U.S. These changes could also result in a reduction in the overall commissions earned by Realtors, leading to a potential cultural shift in how real estate transactions are conducted in the country. As the lawsuit progresses through the courts, the outcome remains uncertain, but it has the potential to reshape the real estate landscape in Canada.
