Real estate commission lawsuit expands across Canada

A legal battle over alleged inflated real estate commission fees is gaining momentum across Canada, with potential repercussions for the entire housing market. The class-action lawsuit, initially filed in federal court last month, now encompasses all regions of the country, targeting 72 regional real estate boards, 10 franchisors, and eight brokerages.

Walter Melanson, co-founder and market analyst at PropertyGuys.com, described the lawsuit as "substantial and huge." The legal action originated from a September filing on behalf of home-sellers in the Greater Toronto Area against the Toronto Regional Real Estate Board (TRREB). It's essential to note that none of the claims have been proven in court.

At the heart of the lawsuit is the "buyer brokerage commission rule," an informal agreement prevalent in residential real estate transactions. Typically, when a home sale concludes, the seller pays a broker commission fee, a percentage of the total sale amount. This fee is traditionally divided equally between the seller's and buyer's representatives.

Kevin McFall, a Milton resident and the lead plaintiff in the case, alleges that he paid a five percent commission on the sale of his home in May, with half going to the buyer brokerage. The lawsuit contends that this setup incentivizes buyer brokerages to steer clients away from sellers offering lower commission fees, leading to an artificial inflation of fees over time.

The Canadian lawsuit follows a notable case in the United States, where a Missouri court delivered a landmark verdict in October. The U.S. case involved major real estate players, including the National Association of Realtors and RE/MAX, resulting in $1.8 billion in damages for the plaintiffs.

Walter Melanson drew parallels between the allegations in the U.S. and Canada, emphasizing that both claim certain rules stifle competition in the buyer brokerage industry, leading to inflated real estate commissions.

The class-action suit further alleges that the Canadian Real Estate Association (CREA) played a role in facilitating the alleged price-fixing scheme. In response, CREA dismissed the claims as "without merit" and pledged to vigorously defend against them. The association maintained that its listing systems are efficient, effective, and promote a competitive and consumer-friendly market.

The potential impact of the lawsuit is far-reaching. Following the U.S. court decision, Melanson noted a surge in "copy cat" class-action suits across 11 states, potentially amounting to over $100 billion in damages. Anticipating a similar ripple effect in Canada, Melanson suggested that decisions in U.S. courts could influence the behavior of realtors north of the border. Many brokerages are already adjusting their commission rules to mitigate long-term risks.

Melanson expressed optimism about potential positive changes for consumers, citing analysts who estimate a possible 30 percent reduction in real estate commissions in Canada due to the legal actions. As the legal battle unfolds, its outcomes could reshape the real estate landscape, bringing transparency and fairness to commission structures across the country.