A class action lawsuit filed at Toronto’s Federal Court of Canada alleges that several of the country’s top brokerages and real estate associations have been price fixing realtor commission rates.
Toronto resident Mark Sunderland filed the lawsuit after he paid a five per cent commission rate when he sold his home in August 2020, 2.5 per cent of which went to the brokerage representing the buyer. Sunderland claims that buyer brokerages have price fixed their commission rate at 2.5 per cent or higher by steering clients away from properties that offer lower commission rates. Sellers who offer a lower commission rate are allegedly put at a disadvantage because fewer potential buyers see the property.
Eleven brokerages are named in the lawsuit, including Royal LePage, Century 21, Sutton Group Realty, and Chestnut Park Real Estate, as well as the Toronto Regional Real Estate Board and The Canadian Real Estate Association. As a class action lawsuit, the claim is filed on behalf of anyone who sold residential real estate listed on the Toronto Regional Real Estate Board’s Multiple Listing Service (MLS) from March 11, 2010 onwards.
The defence, representing both brokerages and real estate associations, is seeking a dismissal, arguing that the claim is baseless.
The court has yet to deliver a ruling. In the meantime, here’s everything you need to know to understand the claim.
How did our real estate process develop?
Going back 50 years ago, brokerages only sold their own listings, says David Fleming, a Toronto broker. If you wanted to buy a house, you had to walk into a brokerage and see what they had for sale. This is now called multiple representation, where both the buyer and seller are represented by the same brokerage. It tends to result in a conflict of interest as the seller is trying to get the most for their home while the buyer is trying to pay as little as possible.
That’s one of the reasons Ontario moved away from this model, instead adopting a system of cooperation where one brokerage represents the seller and another the buyer, Fleming says.
This is where the splitting of commissions came from. “You have a six per cent commission signed with a seller, but the property’s not selling well. What if somebody at a different brokerage had a buyer and they could sell it for you?” Fleming says. “Would you be willing to cooperate? This idea of cooperation began a long time ago, way before MLS, and way before the internet.”
How does the commission process work?
Commission rates vary between sellers and their brokerage. In Toronto, where houses are going for around $1 million, Fleming says you’ll typically see commission rates range from four to six per cent of the total sale.
Once the seller and their brokerage have agreed on a commission rate, that brokerage may then turn around and offer a certain percentage of its commission to a buyer brokerage that has a client willing to buy. Typically the commission is split 50/50, but this can be negotiated. ““Outside of Toronto, you rarely see a 2.5 per cent buyer brokerage commission,” Fleming says. “Most of the commissions are two per cent.”
The catch with this system is that the seller ends up paying for the services of both their brokerage and the buyer’s brokerage.
Does the lawsuit have any merit?
The short answer, according to Fleming, is no, he doesn’t think so. “I think it’s very creative. And I think that it is one of many cases we’ll see going after the cash that is being held by different organized real estate boards, but I don’t think it has any merit whatsoever, because a quick survey of MLS will show you all kinds of buyer brokerage commissions that are not two and a half per cent.”
He admits that on the MLS, 2.5 per cent might statistically be most common, but it’s not a fixed commission. Over the last year, Fleming says he’s received two per cent commissions and 2.25 per cent commissions.
Frank Clayton, a professor at Toronto Metropolitan University’s Centre for Urban Research and Land Development, agrees with Fleming that it isn’t likely any price fixing is happening. “If rates get out of whack, somebody else can come in and set up a buyer brokerage and undercut other companies’ rates if they want to,” he says. “As long as the board isn’t reinforcing a certain rate, but I don’t think they are.”
If a seller is unhappy with the commission offered by their brokerage, Clayton points out that they can always sell the property themselves or use a discount brokerage that offers lower commission rates, such as one per cent or half a per cent.
“The selling realtor and buying realtor have to get paid for their efforts,” he says. “I don’t think splitting commissions is anything worth having a court case about.”
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