Achi news desk-
Two North American court cases are taking the real estate industry to task over commissions paid to Realtors.
While the Canadian lawsuit has the potential to shake up BC’s housing market, experts don’t yet agree on what the outcome could mean.
“The basic issue … is that there is a belief that a buyer’s agent will steer their client to listings that have higher commissions being offered by the listing agent,” said Tom Davidoff, associate professor at UBC’s Center for Urban and Real Estate Economics.
“Someone that buyers trust should be looking out for the buyer’s benefit, not shopping offering commissions. So anything that can be done to avoid that, I think is helpful.”
A proposed class action lawsuit filed in January alleges that the Canadian Real Estate Association (CREA), along with dozens of provincial and local real estate groups “conspired, agreed or arranged together to fix, maintain, increase or control the price for the supply of buyer brokerage services for residential real estate.”
South of the border, the National Association of Realtors (NAR) agreed two weeks ago to a $ 418-million settlement, as well as changes to the standard sales commission of six percent. This brings an end to a lawsuit that accused the industry association of artificially inflating real estate agents’ commissions.
“This is about a level playing field between participants in the real estate industry and in the public, and these rules are not fair,” said lawyer Garth Myers, a partner at Toronto-based Kalloghlian Myers LLP, who filed the case proposed legal class action in Canada.
10 BC real estate boards are named in the Canadian suit and eight brokerages.
Myers said changes to the standard commission in the NAR case “exclude any defense Canadian defendants will have with respect to the necessity of these rules.”
“The fact that NAR has walked away from these rules in the United States, we think is very important,” he said.
“The main protection we expect in Canada … is that these rules are so important to the proper functioning of the system, the whole system would break down in their absence. And the fact that the NAR was able to walk away from these rules in an almost identical system is proof positive that this system can function properly without them.”
Trevor Koot, CEO of the Real Estate Association of British Columbia, said there’s no question the NAR case has captured the attention of the Canadian real estate industry and consumers.
“However, Canada is a different country with a different legal and business framework than the US. As the CREA has indicated, they consider the case in Canada to be without merit,” he said in an email to BIV.
In Canada, real estate commissions can range from three percent to seven percent of the sales price, however, there is no set commission or standard. However, because this is a percentage of what a home sells for, as house prices rise so does the price of commission, Myers said.
“People are queuing up to be upset about anything to do with the real estate market, mainly because housing is a human need and there are many people who see themselves at risk of not having the houses that are going to make them fairly happy,” said Davidoff.
“I don’t think this litigation is fundamentally about housing affordability.”
If successful, Myers said the case will put money in the pockets of sellers who have overpaid for commissions.
“I believe it will make it less expensive to buy and sell real estate in general. Will that have a downstream effect on the buyer? I do not know. But we try to represent sellers and that’s who we act on behalf of [of],” he said.
As for whether or not the CREA lawsuit will lead to lower home prices, Davidoff said that may not be the case.
“If there are more homes on the market, prices are lower, but the people who sell their homes are very likely to move to another owner-occupied unit. It is not common for people to transition from owning to renting. So the net increase in available housing is not great and with more transactions, usually prices are actually higher,” he said.
“Buyers may have to start compensating Realtors out of their own pocket. I don’t see this as a win for first time buyers. … This is not a silver bullet or magic carpet ride to affordability.”
This is not the first time the Canadian Real Estate Association or other real estate boards across the country have been challenged in terms of commissions.
A 1988 prohibition order from the federal government’s Competition Bureau states that the CREA and all member real estate boards of the association are prohibited “from setting, establishing, maintaining, suggesting or controlling in any way rates or commission fees for MLS.”
“The real estate industry has at different times in different forms, here and in the United States, faced various legal actions on that. And usually the end of these agreements [is] not to, but the world doesn’t seem to be changing much. Every now and then someone comes along with a new law, a new lawsuit, a new government action,” said Ron Usher, general counsel of the BC Association of Notaries Public
“It’s a front page story that’s been going on for 30 years.”
The Competition Bureau said it was aware of the proposed class action lawsuit.
“We remain focused on ensuring that consumers benefit from innovation and competition in the provision of real estate services and will take action whenever we find evidence of conduct prohibited by the Competition Act,” he said. the agency in an email to BIV.
Andrew Carros, managing broker of Engel and Völkers in Vancouver, said he is not worried about the case and nothing is changing for him.
“It does not worry me a bit, because I have always disclosed an agency, my clients know exactly what I am paid, they understand my value. … To be honest, it gives guys like me the ability to be able to explain this better and be able to get better documents out there,” he said.
Oakwyn Realty Ltd broker Steve Saretsky said while there was some uncertainty among real estate agents, it was too soon to tell what the effects would be.
“People are jumping to huge conclusions, but I don’t think we know enough yet,” he said.
“What’s going to happen is you’re probably going to see a bunch of different business models come out of it, lower fee structures, things of that nature.”
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Editor’s note: This story has been updated to include comments from Trevor Koot.
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