Real estate broker weighs in on class-action lawsuit against Realtor commissions

A proposed class-action lawsuit alleges that some of Canada’s largest brokerages and real-estate associations are engaged in price-fixing to inflate Realtor commissions.

Brokerages named in the lawsuit include ReMax, Century 21, and IproRealtyLtd., as well as the Canadian Real Estate Association and the Toronto Regional Real Estate Board.

The lawsuit claims that there is an agreement, among brokerages in the Greater Toronto Area, which applies to any individual listing on the Toronto Multiple Listing Service (MLS).

“When it comes to listing your home for sale, you typically sign an agreement with a listing brokerage,” broker and real estate commentator David Fleming told CTV’s Your Morning on Monday Morning. “You pay a fee and then usually half or some of that fee is offered as an inducement to a buyer agent. So this suit is alleging that there is a fix of two and a half per cent, which is what the suit said, that basically forces people to offer that.”

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Fleming explained that, on MLS, “you’ll see a lot of two per cent commissions, a lot of half a per cent to one per cent through discount brokerages. There’s a lot that offer one dollar, which is effectively a for-sale-by-owner, where you as a buyer or agent have to negotiate directly with the seller.”

“So we’ll see ultimately where the case goes and I think there’s more to this than what meets the eye.”

Currently, a seller has to make an offer of commission to the buyer’s brokerage. The buyer’s brokerage-commission-rule essentially forces a seller to offer the industry standard commission to the buyer brokerages. If they don’t, then fewer brokerages will show that home to interested buyers.

“If you go back, say, sixty or seventy or eighty years, if you as a buyer wanted to purchase a property you would physically walk into a brokerage and say, ‘What do you have for sale?’ If they had something that you liked you would buy it through them – through the seller’s agent,” Fleming said.

“That was multiple representation, it was a conflict of interest, but that was the standard. Now, if you wanted, let’s say, to have representation and you hired an agent, they would still only show you their listings under contract. So that’s anti-competitive, as we would know it today. Eventually someone had the bright idea to say, ‘why don’t we co-operate? Why don’t we offer a brokerage commission, say half of our listing fee, to a buyer agent for bringing us a buyer?’ And that’s the system that we have today where everybody co-operates and you have the MLS system.”

Fleming maintains that the system works in Canada. “People just need to understand it,” he added.

“I’ll be honest, I don’t think there’s a lot of merit [to the case] just from what I see,” he said.

“There have been a lot of lawsuits at the industry level over the years, but nothing has really been successful. But I’ll be interested to see what happens.”

CTV’s Your Morning reached out to both Toronto Regional Real Estate Board and the Canadian Real Estate Association. Both of them declined to comment as this issue is before the courts.