This headline seems to be everywhere in the past week, and if you haven’t seen it well, welcome to my world. The National Association of Realtors (NAR) in the US is known to be a big lobbying organization and it’s Canadian counterpart CREA is also quite good at lobbying. With real estate values being so high, and so much money flowing into the industry, these big organizations have a lot of sway.
The plaintiffs were a group of sellers in Missouri who brought forward a case stating that the seller in a real estate transaction has to pay for both the buyer and the seller agent fee. Effectively masking the cost of working with a realtor from the buyer which they were claiming was an anti-competitive practice. Another issue in the case was that the NAR controls the MLS (think Realtor.ca or HouseSigma), where most people go to find the home they plan to buy. Prior to this lawsuit, the NAR had a stipulation on the MLS system that in order for a seller to list a home they had to offer at least 1 cent to the buyers agent which played into the anti-competitive nature of the suit, basically the NAR positioned themselves at gatekeepers to the largest selling marketplace. I can think of a few other companies, cough cough Apple App Store, that acts as a gatekeeper to app developers who want to get their apps out there by restricting other app stores or the ability to “side load” apps.
The jury did find the NAR and Keller Williams Realty, one of the largest brokerages in the US, guilty of anti-competitive practices. Naturally, the defendants did say they are going to appeal the decision. Overall, I think it is a good thing anytime anti-trust lawsuits are successful as generally the outcome is more competition and the ruling in this court case could mean that sellers don’t have to front the commission for the buying and the selling agent which could increase competition. One of the main arguments of the NAR for the seller paying both fees is because buyers already have to come up with a down payment and other fees already associated with a purchase out of pocket. So this ruling could potentially make the barrier to purchasing a home even higher for buyers.
So, what does this mean for Canada? Will there be a similar lawsuit brought forward here, now that this case was successful in the US?
As of this very moment, I don’t see this being the case. There are many brokerages that do offer reduced commissions in Canada and some brokerages offer “mere listings” where someone can sell their own home on the MLS without using a realtor. Which are two of the bigger arguments that the plaintiffs used in the US case. We are also instructed in our education courses that as a buyer’s agent we are required to show a listing regardless of what a seller is offering if it is going to potentially be the right fit for the buyer. In practice this is a bit more complicated. In these cases the buyer will likely end up being asked to pay for part of the fee depending on the contract with the buyers agent. In a marketplace where all other homes don’t require that same buyer to pay the realtors fee, it can be a difficult, or even impossible pill for a buyer to swallow depending on how much they planned and saved for.
Update Dec 10, 2023: It has been brought to my attention that there is a similar attempted class action lawsuit that has been filed but is still many steps away from making it to trial in Canada. They have made some ground trying to name some Brokerage’s as a defendants who agreed to some allegedly anti-competitive rules set out by TRREB. We’ll see what ends up happening and if the class gets Certified. Note this lawsuit is focused in Toronto.
Historically in Canada there have been many times where flat rate brokerages or reduced commission brokerages come around and offer a reduced fee. But when times get difficult in a slower market like today, they can struggle to survive and often go out of business relatively quickly. When it is tough to sell your home people tend to get a certain level of comfort coming from someone who does this as their full time job rather than the 50% of agents who are part-timers. I find that as long as a realtor is doing a good job of explaining to a seller what they are getting for their services, most sellers tend to see the value in investing the money to make the home selling process smooth, easy and to get a good price for their home. The Greater Toronto Area has so many realtors the competition is very high and the level of service that an agent has to provide has to be very good in order to shine amongst the crowd of “everyone is an agent”.
Also depending on where you’re looking, ‘typical’ commission rates do vary around the province, for example in Kitchener/Waterloo, Hamilton, St. Catharines and other outer markets commissions can be lower, but so is the cost of doing business overall. As always, everything can be negotiated, you just have to ensure that the person you are hiring to sell your home is going to provide you with a service level that you can be happy with.
There is also new legislation coming into effect on Dec 1, 2023 called the Trust in Real Estate Services Act (TRESA) which will replace the old 2002 legislation in an aim to increase transparency and consumer choice in their real estate purchases or sales in the province of Ontario.
One of the biggest changes that will be put into place is the process of open bidding. Sellers will have the option to sell their homes in an open bidding process where they can instruct their agent to disclose the price of an offer and the conditions of an offer to all the other buyer’s agents who have shown interest in their home.
This is a positive change overall and some sellers will opt for this more transparent process and may see it as an advantage to disclose what other people are offering since it may allow buyers who do have the budget and the desire to purchase a home to outbid their competition. I suspect some sellers will decide to continue with the blind bidding process as they may see this to be more advantageous since buyers have to do a bit more guesswork as to where the final price will land. Depending on how the market is at any given time, your specific situation, and how much activity a house is getting, there will be advantages and disadvantages to each method.
It will be interesting to see how this open bidding rule will change the marketplace. I do think that new companies will be formed thanks to this legislation that puts houses up for sale in an “auction” style sale, whether this is an online auction or an in-person auction. The seller would set a reserve or minimum sale price publicly or they can set their price internally, which would be a “sale on approval” strategy. The latter would allow them to either accept or deny the highest price within a certain timeframe. The exact particulars of the legislation are still being worked out, and auction companies like this do already exist for selling homes, it’s just a matter of how well this will catch on with consumers.
In Australia, they do have this style of open bidding where everyone who wants to purchase the home will show up to the house on the day of the auction and then it proceeds as a typical in person auction would with an auctioneer. I remember watching this air on television years ago and at the time Australia was going through it’s own housing crisis and prices were still sky high even with the this transparent method of bidding so I don’t imagine this single thing will be the silver bullet that fixes our housing affordability problems.