The Rising Wave of Class Action Suits Against Real Estate Commission

The Rising Wave of Class Action Suits Against Real Estate Commission; What Canadian REALTORS® Should Know.

A judge allowed a class action suit against CREA (Canadian Real Estate Association), TRREB (Toronto Regional Real Estate Board) and several major brokerages in the Greater Toronto market to go ahead this week. The suit is not yet classified and that could take significant time.

While no resolution is imminent in this case, extensive media coverage is likely to make this a hot button in your conversations with consumers.      

I’ve tried to pull together what we know so far so that you are prepared to have meaningful and valuable conversations as this will inevitably come up. This suit is foundationally about buyer broker fees and how they are non-negotiable by the buyer and non-negotiable by the seller in an agreement of purchase and sale.

“ I consider it arguable that these aspects of the buyer broker commission rule are unambiguously harmful to competition and purchasers of co-operating brokerage services in the GTA.”

– Paul Crompton, Federal Court Chief Justice

There are two similar class action suits in the US making their way through the legal system. In the US cases, both Anytime Realty (formerly Realogy –  Caldwell Banker, Century 21 and Better Homes and Garden) and Re/Max have made settlements of $83.5m and $55m respectively.

We do not know the terms of the settlement until the plaintiff files a motion for approval. At that time, we will learn what these two mega companies have agreed to in terms of changing the model of buyer broker compensation. It is likely to be significant.

The US and the Ontario cases seem to be closely linked and Ontario is arguing the same issues as the US cases. Looking to the resolution in the US should give us a good idea of what to expect in the Ontario case.    

The Ontario case will affect real estate across the country as CREA is one of the named defendants in the case.  

It is likely that some systemic changes will come to real estate commissions in the future and we don’t know what those will look like yet.  

Your best practices around this are to be knowledgeable, non-defensive and open minded. With the settlement in the US, it is important to recognize that there seems to be credibility to these suits.  

You may have an instinct to dismiss these issues and this could hurt you in having meaningful conversations with prospective clients and earning their trust and respect. 

A personal example that shows the merit in this case.
Back in 2019, I purchased a pre-construction condominium from a builder in Sidney BC. I wasn’t shopping around for real estate or getting advice from an agent. I simply wanted to purchase a condominium in the town I live near to rent out for a decade or so and then move into when I am ready to retire. I went to the sales centre, chose a unit, and was prepared to sign an agreement.

The sales agent for the builder asked me who was my buyer’s agent. I didn’t have one.  His response, “You have to have one. You can’t go ahead with this purchase without naming a real estate agent” and said agent will receive the $7800 commission.

There was no option for me to negotiate that. Any random agent that I named would receive $7800 while that amount could have just been taken off the price. That money came directly out of my pocket, and I had no option to negotiate it. This may be considered price fixing by the courts.

I know that the idea of rejigging how real estate commissions are negotiated is worrisome and scary for many of you.

Change is coming and being prepared is essential.

No matter what happens, real estate agents who have high level professional skills will be an essential part of many real estate transactions. Professional skills include negotiation skills, emotional and social intelligence, market understanding, strategic and critical thinking, and communication.

These skills will allow you to bring real value to your clients. You have time to develop your skill stack.

I will continue to bring you accurate, non-bias information about both the US and the Ontario Class Action Suits.