The Canadian real estate market has experienced a skyrocketing increase in housing prices, but one aspect that often goes unnoticed is the parallel rise in real estate commissions. According to a recent lawsuit, Canadian homebuyers are now paying significantly more in real estate commissions compared to previous years. The lawsuit alleges that several major brokerages, including ReMax, Century 21, and IproRealty Ltd., as well as industry associations such as the Canadian Real Estate Association and the Toronto Regional Real Estate Board, have engaged in price-fixing and anticompetitive behavior.
In 2005, a brokerage representing a buyer in the Greater Toronto Area would have received an average commission of around $8,795 for a single-family home. Fast forward to December 2021, and that commission has soared to approximately $36,230 - almost four times higher for the same property. Meanwhile, the median household income in Canada increased by only 14% during the same period, adjusted for inflation. This drastic discrepancy has sparked concerns and led to the filing of the class-action lawsuit.
The lawsuit argues that the buyer brokerage commission rule, established by the Toronto Residential Real Estate Board and the Canadian Real Estate Association, forces sellers to pay the commission of the buyer's real estate brokerage. This practice, according to the lawsuit, restricts competition in the market, eliminates the possibility of negotiating prices or service quality, and puts pressure on sellers to offer the standard commission rate.
The impact of this alleged price-fixing can be felt even by those who don't conform to the standard commission rate. Buyers may be "steered" away from properties where sellers offer lower than the normal buyer brokerage commissions, creating an unfair advantage for seller-brokerages. The fear of losing potential buyers due to lower commissions forces sellers to adhere to the standard rate.
Similar allegations are being made in the United States, where a class-action lawsuit has been filed against the National Association of Realtors and major real estate brokerages. The U.S. case claims that anticompetitive conduct within the industry has resulted in inflated commissions for home sellers, with billions of dollars potentially at stake. This issue, it seems, is not limited to Canada alone.
To determine the impact of steering by real estate agents, a 2021 investigation by Marketplace revealed that buyers' concerns were justified. Undercover agents posed as homebuyers looking for a property in Vaughan, Ontario, and found that some real estate agents steered them away from a low-commission home. This unethical behavior undermines consumer protection and damages the reputation of the real estate profession.
In order to increase competition and address these concerns, some experts suggest decoupling commissions, as is the practice in the United Kingdom and Australia. In these countries, buyers and sellers are responsible for their own representation, resulting in lower commission rates and increased competition. This alternative approach could lead to more competitively priced services and empower sellers to negotiate more effectively.
While the Canadian Real Estate Association and the Toronto Regional Real Estate Board have refused to comment on the ongoing lawsuit, it is clear that the issue of inflated real estate commissions warrants attention and scrutiny. With potentially billions of dollars at stake, it is crucial to ensure a fair and transparent real estate market that benefits all parties involved.
