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Choice Properties Real Estate Investment Trust Reports Results for the Year Ended December 31, 2020 – Canada NewsWire

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TORONTO, Feb. 10, 2021 /CNW/ – Choice Properties Real Estate Investment Trust (“Choice Properties” or the “Trust”) (TSX: CHP.UN) today announced its consolidated financial results for the year ended December 31, 2020. The 2020 Annual Report to Unitholders is available in the Investors section of the Trust’s website at www.choicereit.ca, and has been filed on SEDAR at www.sedar.com.

“We are pleased with our financial and operational results for the quarter and year ended December 31, 2020, as our portfolio of high-quality real estate assets continued to produce strong earnings and stable rent collections. In addition to posting strong results, we completed over $1 billion of real estate transactions this year through our capital recycling program, demonstrating our commitment and ability to improve the overall quality of our portfolio,” said Rael Diamond, President and Chief Executive Officer of the Trust.  “However, the strength of our results notwithstanding, we remain cautious due to the ongoing risks and uncertainties associated with the COVID-19 pandemic and the impact they may have on the economy and our business.”

Summary of GAAP Basis Financial Results

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Three Months


Year Ended

($ thousands except where otherwise indicated)
(unaudited)


December 31,
2020


December 31,
2019


Change


December 31,
2020


December 31,
2019


Change

Net income (loss)


$

116,570


$

293,261


$

(176,691)


$

450,685


$

(581,357)


$

1,032,042

Net income (loss) per unit diluted


0.162


0.419


(0.257)


0.637


(0.843)


1.480














Rental revenue


321,862


317,986


3,876


1,270,614


1,288,554


(17,940)

Fair value gain (loss) on













Exchangeable Units(1)


(86,370)


206,680


(293,050)


354,286


(932,009)


1,286,295

Fair value gains (losses) excluding













Exchangeable Units(2)


104,948


9,352


95,596


(217,808)


(11,543)


(206,265)














Cash flows from operating activities


255,960


207,460


48,500


621,184


580,556


40,628














Weighted average Units outstanding –













diluted


718,026,576


700,544,380


17,482,196


707,764,714


689,285,790


18,478,924



1.

Exchangeable Units are recorded at their fair value based on the market trading price of the Trust Units, which results in a negative impact to the financial results when the Trust Unit price rises and a positive impact when the Trust Unit price declines.

2.

Fair value gains (losses) excluding Exchangeable Units includes adjustments to fair value of investment properties and unit-based compensation.

Quarterly Results
Net income for the fourth quarter of 2020 was $116.6 million compared to $293.3 million in 2019. The decrease was mainly due to an unfavourable change of $293.1 million in the adjustment to the fair value on the Exchangeable Units, partially offset by a $109.8 million favourable change in the fair value of investment properties, including properties held within equity accounted joint ventures. For the quarter, bad debt expense was $2.7 million on a GAAP basis ($3.5 million on a proportionate share basis).

Annual Results
Net income for the year ended December 31, 2020 was $450.7 million, compared to a loss of $581.4 million in the prior year. The increase was mainly due to a favourable change of $1.3 billion in the adjustment to fair value on Exchangeable Units, reduced interest and financing charges, and a favourable change in other fair value adjustments, partially offset by an unfavourable change in the fair value of investment properties, including properties held within equity accounted joint ventures, increased bad debt expense, and non-recurring items recorded in the second quarter which included early redemption premiums paid on two senior unsecured debentures maturing in 2021 and an allowance for expected losses related to a specific mortgage receivable.

The Trust has continued to support its tenants that have been negatively impacted by the pandemic by providing rent relief through rent deferrals and other arrangements, including participating in the Canada Emergency Commercial Rent Assistance (“CECRA”) program for eligible tenants, which ended on September 30, 2020. During the year ended December 31, 2020, the Trust recorded a bad debt expense of $23.7 million on a proportionate share basis that reflects the support provided to tenants as well as the increased collectability risk for certain tenants with amounts past due.

Summary of Proportionate Share(1) Financial Results

As at or for the period ended


Three Months


Year Ended

($ thousands except where otherwise indicated)
(unaudited)


December 31,
2020


December 31,
2019


Change


December 31,
2020


December 31,
2019


Change

Rental revenue(1) 


$

337,907


$

333,744


$

4,163


$

1,332,657


$

1,354,383


$

(21,726)

Net Operating Income (“NOI”), cash basis(1)(3) 


230,353


234,949


(4,596)


908,081


941,320


(33,239)

Same-Asset NOI, cash basis(1)(3)


201,167


205,876


(4,709)


795,532


808,597


(13,065)

Adjustment to fair value of investment properties(1)


103,931


(5,891)


109,822


(256,837)


(15,250)


(241,587)

Occupancy (% of GLA)


97.1%


97.7%


(0.6)%


97.1%


97.7%


(0.6)%

Funds from operations (“FFO”)(2)


171,519


165,795


5,724


652,007


680,278


(28,271)

FFO(2) per unit diluted


0.239


0.237


0.002


0.921


0.987


(0.066)

Adjusted funds from operations (“AFFO”)(2)


136,054


129,187


6,867


566,469


587,695


(21,226)

AFFO(2) per unit diluted


0.189


0.184


0.005


0.800


0.853


(0.053)

AFFO(2) payout ratio – diluted


97.7%


100.3%


(2.6)%


92.6%


86.8%


5.8%

Cash distributions declared


162,411


151,267


11,144


554,157


532,054


22,103

Weighted average number of Units outstanding – diluted


718,026,576


700,544,380


17,482,196


707,764,714


689,285,790


18,478,924



1.

A non-GAAP measurement which includes amounts from directly held properties and equity accounted joint ventures.

2.

A non-GAAP measurement.

3.

Includes a provision for bad debts and rent abatements.

Quarterly Results
For the three months ended December 31, 2020, Funds from Operations (“FFO”, a non-GAAP measure) was $171.5 million or $0.239 per unit diluted compared to $165.8 million or $0.237 per unit diluted for the three months ended December 31, 2019. FFO increased in the current quarter primarily due to the reduction in net interest expense and other financing charges resulting from deleveraging activities, partially offset by higher bad debt expense. In addition, 2019 results included non-recurring charges relating to the reimbursement of revenue to Loblaw for incorrectly allocated solar rooftop leases and an allowance for expected credit losses on a mortgage receivable.

The increase on a per unit basis is due to the increase in FFO as described above, partially offset by the impact of the higher weighted average number of units outstanding as a result of the May 2019 equity offering where proceeds were used to lower debt levels, as well as the units issued as consideration of the acquisition of two assets from Wittington Properties Limited in July 2020, and the issuance of Exchangeable Units to Weston Foods (Canada) Inc., a wholly-owned subsidiary of George Weston Limited (“GWL”), as consideration for the acquisition of six assets in the fourth quarter of 2020.

Annual Results
For the year ended December 31, 2020, FFO was $652.0 million or $0.921 per unit diluted compared to $680.3 million or $0.987 per unit diluted for the year ended December 31, 2019.

FFO decreased on an annual basis primarily due to an increase in bad debt expense, partially offset by lower borrowing costs from deleveraging activities and capital recycling.

The decline in FFO on a per unit basis also reflects the higher weighted average number of units outstanding as discussed above.

Transaction Activity
Since the end of the prior quarter, the Trust completed or entered into agreements to complete $332.4 million of dispositions and $219.3 million of acquisitions on a proportionate share basis(1). Notable transactions include:

  • the previously announced disposition to an institutional partner of a 50% non-managing interest in a retail property portfolio for an aggregate sale price of $169.0 million, excluding transaction costs, comprised of eleven assets and 656,000 square feet;
  • the previously announced disposition of two retail property portfolios comprised of eight assets and 496,000 square feet for an aggregate sale price of $107.4 million;
  • the disposition of a retail property comprising 259,000 square feet for an aggregate sale price of $51.0 million;
  • the previously announced acquisition of an industrial portfolio for an aggregate purchase price of $85.9 million comprised of four assets. The portfolio is 100% leased to a national logistics company with long-term leases in place;
  • the acquisition of five retail assets from Loblaw Companies Limited for an aggregate purchase price of $45.7 million; and
  • the acquisition of six industrial properties from Weston Foods (Canada) Inc., a subsidiary of GWL, for an aggregate purchase price of $79.1 million.

The Trust has also made ongoing investments in its development program with $45.1 million of spending during the quarter on intensification, greenfield, mixed use and residential development projects on a proportionate share basis(1). During the quarter, the Trust also transferred $82.8 million of properties under development to income producing status, delivering 180,000 square feet of new GLA on a proportionate share basis(1).

OUTLOOK AND IMPACT OF COVID-19

While the duration and longer-term impact of the COVID-19 pandemic cannot be predicted at this time, Choice Properties remains confident that its business model and disciplined approach to financial management will enable it to weather the impact of the pandemic.

Our diversified portfolio of office, retail and industrial properties is 97.1% occupied and leased to high-quality tenants across Canada. Our retail portfolio is primarily leased to grocery stores, pharmacies or other necessity-based tenants, who continue to perform well in this environment and the diversification of income provided by our industrial and office assets provides stability to our overall portfolio This stability is evident by our rent collections, which were 98% for the fourth quarter of 2020.

Despite the ongoing impact of the COVID-19 pandemic, Choice Properties continues to advance our development initiatives, which will provide us with the best opportunity to add high-quality real estate to our portfolio at a reasonable cost. We have a mix of development projects ranging in size, scale and complexity, including retail intensification projects which provide incremental growth to our existing sites, to larger, more complex major mixed-use developments which will drive net asset value growth in the future.

We expect to complete construction on two of our rental residential projects underway in Toronto in 2021 and have commenced construction on two additional high-rise residential projects. We have invested approximately $182.7 million into residential developments to date, and will continue to invest in our development pipeline, with an additional $326.8 million of spending planned on six residential projects.

In addition to our ongoing residential development, we are evaluating opportunities within our portfolio to redevelop and transform some of our grocery anchored retail projects into large scale major mixed-use projects. We are in the early planning stages on four major mixed-use sites and we expect that these initiatives will be a significant part of our growth going forward.

Choice Properties has taken proactive steps to ensure its financial strength and stability during and after the pandemic. Choice Properties’ strong balance sheet provides the flexibility necessary to help insulate the Trust in the face of broader market volatility. During 2020, the Trust made significant progress in further strengthening its balance sheet, including refinancing unsecured debt maturities, increasing the weighted average term of debt and increasing available liquidity by issuing $1 billion of unsecured debentures, the proceeds of which were primarily used to fund all unsecured debt maturities until the third quarter of 2021 and repay amounts drawn on the Trust’s revolving credit facility. From a liquidity perspective, the Trust has approximately $1.7 billion available comprised of $1.5 billion as the unused portion of the Trust’s revolving credit facility and $223.7 million in cash and cash equivalents, in addition to approximately $12.2 billion in unencumbered assets.

While the impact of the COVID-19 pandemic persists, we are pleased with our financial results this past quarter, demonstrating that our business model, stable tenant base and disciplined approach to financial management continue to position us well.

Update on Rent Collection

As one of Canada’s largest landlords, the Trust continued to support its tenants who have been negatively impacted by the pandemic by providing rent relief through rent deferrals and other arrangements, including participating in the CECRA program. Rent collection for the fourth quarter was at the higher end of collections within the industry and was primarily due to the stability of the Trust’s necessity-based portfolio.

For the three months ended December 31, 2020, the Trust collected or expects to collect approximately 98% of contractual rents:


% Collected

Fourth Quarter 2020


Retail

98%


Industrial

100%


Office(1)

97%


Total

98%


(1) Uncollected portion primarily relates to retail tenants in office buildings

In determining the expected credit losses on rent receivables, the Trust takes into account the payment history and future expectations of likely default events (i.e. asking for rental concessions, applications for rental relief through government programs such as the CECRA program, or stating they will not be making rental payments on the due date) based on actual or expected insolvency filings or company voluntary arrangements and likely deferrals of payments due, and potential abatements to be granted by the landlord under CECRA. These assessments are made on a tenant-by-tenant basis.

The Trust’s assessment of expected credit losses is inherently subjective due to the forward-looking nature of the assessments. As a result, the value of the expected credit loss is subject to a degree of uncertainty and is made on the basis of assumptions which may not prove to be accurate given the uncertainty caused by COVID-19.  Based on its review, the Trust recorded bad debt expense of $3.5 million in property operating costs, on a proportionate share basis(1), during the three months ended December 31, 2020, with a corresponding amount recorded as an expected credit loss against its rent receivables. Of the $3.5 million bad debt expense recorded in the fourth quarter, approximately $1.6 million related to uncollected amounts from recurring billings in the period, while the balance pertains to past due amounts for a national retailer and smaller tenants that have declared bankruptcy.

($ thousands)

Nine months ended
December 31, 2020

As a %

Total recurring tenant billings

$

1,100,269

100.0

%

Less: CECRA collections

(10,467)

1.0

%

Less: Amounts received and deferrals repaid to date

(1,059,726)

96.3

%

Balance outstanding

30,076

2.7

%

Total rents expected to be collected pursuant to deferral arrangements

(5,194)

(0.4)

%

Total rents to be collected excluding collectible deferrals

24,882

2.3

%

Less: Provision recorded related to recurring tenant billings

(20,883)

(1.9)

%

Balance expected to be recovered in time

$

3,999

0.4

%

The Trust’s provision for recurring tenant billings for the nine months ended December 31, 2020, is comprised of the following:

($ thousands)

Nine months ended
December 31, 2020

Provisions for CECRA-eligible tenants (reflects 25% landlord share)

$

(5,371)

Provisions for tenants with negotiated rent abatements

(10,510)

Provisions for additional expected credit losses

(5,002)

Total provision recorded related to recurring tenant billings

$

(20,883)

Due to continued uncertainty surrounding the pandemic, it is not possible to reliably estimate the length and severity of COVID-19 related impacts on the financial results and operations of the Trust and its tenants, as well as on consumer behaviours and the economy in general. For more information on the risks presented to the Trust by the COVID-19 pandemic, please see Section 12, “Enterprise Risks and Risk Management” of the Trust’s MD&A for the year ended December 31, 2020 and its Annual Information Form for the year ended December 31, 2020.

Non-GAAP Financial Measures and Additional Financial Information
In addition to using performance measures determined in accordance with International Financial Reporting Standards (“IFRS” or “GAAP”), Choice Properties also measures its performance using certain non-GAAP measures, and provides these measures in this news release so that investors may do the same. Such measures and related per-unit amounts are not defined by IFRS and therefore should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS. Furthermore, the supplemental measures used by management may not be comparable to similar measures presented by other real estate investment trusts or enterprises. These terms, which include the proportionate share basis of accounting as it relates to “equity accounted joint ventures”, net operating income (“NOI”), funds from operations (“FFO”) and adjusted funds from operations (“AFFO”), are defined in Section 14, “Non-GAAP Financial Measures”, of the Choice Properties MD&A for the year ended December 31, 2020, and are reconciled to the most comparable GAAP measure.

Choice Properties’ consolidated financial statements and MD&A for the year ended December 31, 2020 are available on Choice Properties’ website at www.choicereit.ca and on SEDAR at www.sedar.com. Readers are directed to these documents for financial details and a fulsome discussion on Choice Properties’ results.

Management’s Discussion and Analysis and Consolidated Financial Statements and Notes
Information appearing in this news release is a select summary of results. This news release should be read in conjunction with the Choice Properties 2020 Annual Report to Unitholders, which includes the consolidated financial statements and MD&A for the Trust, and is available at www.choicereit.ca and on SEDAR at www.sedar.com.

Conference Call and Webcast
Management will host a conference call on Thursday, February 11, 2021 at 10:30AM (ET) with a simultaneous audio webcast. To access via teleconference, please dial (647) 427-7450 or (888) 231-8191. A playback will be made available two hours after the event at (416) 849-0833 or (855) 859-2056, access code: 9790288. The link to the audio webcast will be available on www.choicereit.ca in the “Investors” section under “Events & Webcasts”.

About Choice Properties Real Estate Investment Trust
Choice Properties is a leading Real Estate Investment Trust that creates enduring value through the ownership, operation and development of high-quality commercial and residential properties.

We believe that value comes from creating spaces that improve how our tenants and communities come together to live, work, and connect. We strive to understand the needs of our tenants and manage our properties to the highest standard. We aspire to develop healthy, resilient communities through our dedication to social, economic, and environmental sustainability. In everything we do, we are guided by a shared set of values grounded in Care, Ownership, Respect and Excellence. For more information, visit Choice Properties’ website at www.choicereit.ca and Choice Properties’ issuer profile at www.sedar.com.

Cautionary Statements Regarding Forward-looking Statements
This news release contains forward-looking statements relating to Choice Properties’ operations and the environment in which the Trust operates, which are based on management’s expectations, estimates, forecasts and projections. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. Therefore, actual outcomes and results may differ materially from those expressed in these forward-looking statements. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, a forward-looking statement speaks only as of the date on which such statement is made. Management undertakes no obligation to publicly update any such statement, to reflect new information or the occurrence of future events or circumstances, except as required by law.

Numerous risks and uncertainties could cause the Trust’s actual results to differ materially from those expressed, implied or projected in the forward-looking statements, including those described in Section 12, “Enterprise Risks and Risk Management” of the Trust’s MD&A for the year ended December 31, 2020, which includes detailed risks and disclosure regarding COVID-19 and its impact on the Trust, and those described in the Trust’s Annual Information Form for the year ended December 31, 2020.

For further information, please contact [email protected]

SOURCE Choice Properties Real Estate Investment Trust

For further information: Mario Barrafato, Chief Financial Officer, t: (416) 628-7872 e: [email protected]

Related Links

http://www.choicereit.ca/

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NAR settlement explained: Why Realtors like me are scrambling

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One of my favorite “Modern Family” episodes depicts the hilarity and nonsense of a real estate agent’s daily life as Phil Dunphy rattles off deed restrictions and the proper pronunciation of the word “Realtor” (real-TOR).

A registered trademark of its originator, Realtor is a title only real estate agents who pay membership to the National Association of Realtors (NAR) are allowed to boast.

Today, after more than 10 years as one myself, the “Realtor” prestige has lost its allure.

Just when it felt like NAR was bouncing back after a sexual harassment scandal in 2023, we real estate agents and brokers now find ourselves in the aftermath of this month’s multimillion dollar NAR settlement.

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While I am nervous about what these NAR settlement changes mean for my residential real estate business and community, I am pleased that we’re all turning our eyes and ears to a company whose pockets have gotten too big and too dark for too long.

But enough about NAR.

Brokers, their agents and our local associations are scrambling to decide how to restructure serving residential buyers fairly without undervaluing our work. It feels a bit like a bomb just went off, and we’re running up to each other screaming, “Can you hear me talking? Are you talking? What are we going to do about this?!”

We have only until mid-July to figure it out.

Here’s what we know now: Buyer broker compensation is no longer allowed to be included on the Multiple Listing Service (MLS). And buyers are now required to sign a Buyer Representation Agreement, which includes the buyer broker’s compensation.

Real estate agents are worth it. So how do we get paid?

Buyer services are harder and more unpredictable, I think, than seller services (even in a buyer’s market!). Some buyer clients take years to find a property, while others take only a few weeks.

The stories we agents could tell would make anyone roll with laughter or cry – probably both. Being a real estate agent is like a reality TV show. How will we divide our whole job into billable hours? Billable tasks?

As an agent, I’m not only giving advice about market data and negotiating terms for sale. I’m also an on-call therapist, a babysitter, an interior designer, a cleaner, an exterminator … agents gladly do an endless list of tasks for our clients. Just ask your favorite agent what she keeps in her car for emergencies!

One thing I can predict with much certainty: Buyers will have to do more work to buy a property in the future. Private tours will be less common and replaced by 3D tours, video tours and open houses. Buyers might also have to meet with their inspectors, contractors and others without their agent.

Maybe buyers really will do it all themselves without losing money.

Buying a house?Don’t go it alone. A real estate agent can make all the difference.

If you’re hoping to buy in the next three months, my recommendation would be to close by July 1. Most first-time homebuyers have no idea what has happened or how it will affect their ability to negotiate.

In the past week, I’ve had to explain the NAR settlement to every friend, neighbor and client outside the industry. I can only tell you that we’re all racing to get it figured out by the time it does affect everyone.

NAR settlement explained: How will this impact home sellers and real estate prices?

Seller-paid buyer broker commissions were created with equitable rights to good representation in mind. Specifically, so that first-time buyers could afford to have a fair negotiation, instead of being swept under the rug by a seller’s agent signed to protect the seller (a law in most states).

My heart breaks for those sellers who were swindled into commissions. As much as I’d like to blame NAR, this error is also on agents, brokers and local boards who clearly violated our ethical code. It’s maddening to watch agents and brokers feed right into the stereotype that real estate agents are lazy and just in it for the biggest paychecks.

So, who will pay the buyer’s agent now, and how will this affect home prices?

Real estate prices:Will home prices fall after Realtor lawsuit settlement? You shouldn’t count on it.

It’s commonly acknowledged that the 5-6% sales commission was “baked into” the sales price. Investor agents and builders have been using low-to-zero percent buyer broker commissions as leverage for years.

While I do think that 5-6% sales commissions will be a thing of the past, there is a chance that sellers will find a way to simply advertise buyer broker commissions through a different medium. This compromise walks a fine line with the new restriction.

Seller-paid “buyer credits” is my favorite idea bumping around. Buyer credits would be offered on the listing, and could be distributed as the buyer sees fit at the closing table. The buyer could use the funds for themselves, their broker or both.

If buyers are responsible for the buyer broker commission on top of other purchasing costs, the sales prices will have to come down. Lower sales prices should not affect the sellers’ net proceeds in this instance, since the sales price deficit should roughly mirror the now absent buyer broker’s commission.

In short, even though most sellers think they should be celebrating now, these new rules probably won’t affect sellers much, if at all, once the dust settles.

What does the NAR settlement mean for buyers?

Gone are the “Let’s go tour this house for fun!” days.

A signed Buyer Representation Agreement is now required before a property showing. This has always been best practice. For some states this will be a big change.

For example, I usually complete a buyer consultation and one or two property tours before requiring a buyer’s agreement. I do this to be sure we’re a good match for each other. A successful client-agent squad requires a lot of trust and a common communication style.

Take the tours off the table, and I think things will get awkward. Now I spend one hour with a potential buyer and then prompt, “So do you trust me to guide you through your biggest life purchase? Sign here.” I’m sure thankful many of my clients are referrals.

How will the commission change impact real estate agents in 2024?

The part-time agents and small brokerages will likely diminish over time, which will either be great or horrible for the industry. Agents will have to do more with less, and our 60 to 70 hour work week will feel impossible without high sales volume.

Once in escrow, the brunt of the work usually lands on the buyer’s agent, too. If there are more transactions without buyer’s agents, then the seller’s agent will have to pick up the slack.

Emily Ross

I often joke that as a 1099 real estate agent, I’m either overpaid or underpaid on each property. Still, my annual income mashes up into a worthwhile sum despite the work-life balance.

Without that 2-3% buyer’s commission propping up half my income, I am not sure the 11:30 p.m. phone calls, 6 a.m. texts, missing my daughter’s basketball game for an impromptu showing, and never having paid time off or maternity leave will be worth it.

Maybe I ought to go back to copywriting.

It feels like most brokers and Realtor associations are strategizing how to make the buyer agent obsolete with new technologies. I think they’re focusing on the wrong solution, but that’s a story for another day.

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A settlement in a U.S. lawsuit could upend the cornerstone of real estate industry: commissions

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The cost of selling a home in the United States may be about to change dramatically.

A real estate trade group has agreed to a landmark deal to drop what was once a cornerstone of the industry: the six per cent sales commission paid to agents.

In Canada, two lawsuits filed against various real estate bodies want the courts to come to the same conclusion and force wholesale change in the way Realtors charge their fees when a home is sold.

“We got here by a cartel of brokerages and real estate associations that control the rules, and they’ve done it for a very long time,” said Garth Myers, a litigator with Toronto law firm Kalloghlian Myers.

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He filed the proposed class-action lawsuits in Federal Court on behalf of plaintiffs who allege that the Canadian Real Estate Association, the Toronto Regional Real Estate Board and several local brokerages and franchisors conspired to set fees and illegally drive up the price of real estate commissions.

At the heart of both the U.S. and Canadian cases is the opaque way in which real estate agents charge their fees.

Lawsuits revolve around Competition Act

In Canada, there are different fee structures in different jurisdictions. In Ontario, for example, a commission of five per cent of a home’s sale price is split between the buyer’s and seller’s agents.

With the average price of a Toronto home at $1,225,000 last month, Realtor fees would amount to $61,250.

In Vancouver, Realtors charge seven per cent on the first $100,000 of the sale price, and between 2.5 and three per cent on the balance. So agents would split between $29,500 and $34,000 in fees on a $1-million home.

A real estate 'For Sale' sign outside a single-family home.
In Canada, there are different fee structures for real estate agents in different jurisdictions. In Vancouver, Realtors charge seven per cent on the first $100,000 of the sale price, and between 2.5 and three per cent on the balance. (Ben Nelms/CBC)

In the U.S., agents generally charge a commission of five or six per cent.

But what is common among those different jurisdictions is that the fee paid to the buyer’s agent is baked into the price of the home, while a seller can negotiate with their agent and get a better fee.

A potential buyer can look up the details of a home on something called the Multiple Listing Service (MLS). The listing includes everything they would want to know about a property — from size and taxes to upgrades and amenities — but it doesn’t disclose the amount a buyer will pay in Realtor fees.

Myers said the existing system enables agents to steer clients away from homes that aren’t paying the full commission.

“It’s clear to us that consumers are being ripped off, it’s clear to us that the rules elevate the cost of buyer brokerage commissions,” he said. “Now the open question that the court is going to have to resolve is whether this is criminal conduct under the Competition Act. And that’s what we’re fighting about in court.”

It will likely take years before the cases are resolved.

WATCH | How sweeping U.S. real estate changes could impact Canada:

How sweeping U.S real estate changes could impact Canada

15 hours ago

Duration 6:22

A landmark legal settlement is upending the U.S. real estate market. CBC’s Peter Armstrong breaks down the possible ripple effects for home buyers and sellers in Canada.

U.S. industry pushes back

In the U.S., there is already fierce disagreement over what the court settlement — which ends legal claims from home sellers over real estate commissions — actually means.

On March 15, the day the $418-million US settlement was announced, the National Association of Realtors said fees have always been set by the market, not by collusion among agents. Besides, the group said, those fees have always been negotiable.

“Offers of compensation help make professional representation more accessible, decrease costs for home buyers to secure these services, increase fair housing opportunities, and increase the potential buyer pool for sellers,” the association said in a statement outlining the broad points of the agreement.

Rows of houses are shown in a subdivision.
A housing subdivision is shown in Middlesex Township, Pa., in April 2023. In the U.S., there is disagreement over what the $418-million US court settlement — which ends legal claims from home sellers over real estate commissions — actually means. (Gene J. Puskar/The Associated Press)

Since then, high-profile brokerages have pushed back against the notion that the industry will be forced to change as a result.

“Since the settlement announcement, there have been numerous articles and stories in the media on what this means for buyers and sellers,” Budge Huskey, president and CEO of Premier Sotheby’s International Realty in Naples, Fla., said in a statement released on Tuesday.

“Regrettably, most reflect a profound lack of understanding of the real estate business as well as mistaken claims.”

Huskey said the notion that sellers will no longer pay a fee to the buyer’s agent is simply false.

“There has never been any obligation for a seller to pay buyer agent compensation at any time, yet it has been a historical practice that’s worked exceedingly well since the advent of modern residential real estate,” he said.

Realtors in Canada, such as ReMax, aren’t saying much publicly while the cases work their way through the courts. A spokesperson for the organization would only say that “we do not comment on ongoing litigation.”

U.S. reaction watched closely here

“It’s important to note the litigations in Canada and the U.S. occur in different legal and factual contexts, and the litigations are at a much earlier stage here in Canada,” the Canadian Real Estate Association said in a statement to CBC News, adding that “we’ll continue to review U.S. developments.”

The statement goes on to say that buyers and sellers in Canada “have always been able to negotiate commissions with their agent…. On the buyer side, buyer representation agreements are required in at least seven provinces in Canada. These agreements set out terms like services and fees between an agent and their buyer. This represents more than 80 per cent of homes sold in Canada.”

Real estate experts on this side of the border have been watching the U.S. reaction very closely.

A man with grey hair and a grey beard, wearing a blue overcoat and tie, stands outside a building.
Murtaza Haider, a professor of real estate management at Toronto Metropolitan University, says he thinks the lawsuits in Canada will lead to the same outcome as those in the U.S. because the two real estate systems are so similar. (Pelin Sidiki/CBC)

Murtaza Haider, a professor of real estate management at Toronto Metropolitan University, said the two systems are so similar that he believes the court cases here will lead to the same outcome as those in the U.S.

But, he said, people should temper their expectations.

“We won’t have a system blow up. It’s basically giving the buyer the rights to negotiate with the agent, a commission for the services they may or may not use,” Haider said.

Down the road, he imagines a system where some buyers pay an agent a full commission to help them find a home, figure out a price and close the sale, while others will simply need someone to help them file the paperwork.

Haider warned that there may be some unintended consequences to changing the system. Currently, he said, the fee paid to both the buyer’s and seller’s agents is essentially included in the price of the home. Fees are not an extra closing cost outside the home price.

“Right now it’s baked into the mortgage amount, so you don’t have an out-of-pocket policy. But [if you] have the flexibility and freedom to negotiate, that amount [may be] coming out of your own pocket right away,” Haider said.

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The Homeowners Who Beat the National Association of Realtors

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When Rhonda Burnett went to sell a home in 2016, she knew she would have to pay a commission to her real estate agent.

The house was a second home — she and her husband, Scott Burnett, had purchased the three-bedroom house in Kansas City’s Hyde Park neighborhood as a place for their oldest son to live after he was accepted to law school in Kansas City in 2008.

Her real estate agent presented her with a form that detailed how much commission they would pay, with choices in four boxes: 6 percent, 7 percent, 8 percent or 9 percent.

Ms. Burnett was instructed to select one, and she picked 6 percent.

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The rest of the form, which stipulated that the commission would be evenly split among the buyer and seller agents, was already filled out; Ms. Burnett asked if she could lower the commission paid to the buyer’s agent, but her agent told her doing so would discourage agents from showing her home. “I shop sales,” Ms. Burnett, 70, said with a laugh. She spent three decades as a stay-at-home mother while her husband, Scott Burnett, 72, worked for a waste management company and spent 20 years working as a local legislator. “I’m always looking for a break. But when I asked her if I could negotiate, she said, ‘No, you really can’t.’”

Three years later in 2019, Ms. Burnett became the lead plaintiff in a landmark legal case about home sale commissions against the National Association of Realtors that led to a settlement earlier this month that real estate experts say will rewrite the housing industry in the United States.

The settlement followed a federal jury verdict in October in favor of the Burnetts and four other plaintiffs, on behalf of 500,000 Missouri home sellers, that ordered N.A.R. to pay $1.8 billion in damages. Under the agreement, sellers’ agents will no longer be able to make offers of commission to buyers’ agents on most of the databases where homes are listed for sale, a shift that will, experts say, lower commissions across the board. For decades, most agents in the United States have charged an industry standard of between 5 and 6 percent, which is higher than in nearly any other developed country.

The plaintiffs argued that N.A.R. and several large real estate brokerages had conspired to inflate real estate commissions, pointing to several N.A.R. rules that required a seller’s agent make an offer of commission to a buyer’s agent. Those commissions, the home sellers argued, were negotiable in name only, and unnecessarily high, forcing home sellers to pay unnecessary fees to close a sale.

Ms. Burnett spoke for both herself and her husband. She told the jury how she felt that the rules of the real estate industry had seemed fixed, and she believed she was forced to pay a commission that was never truly negotiable.

In an interview, Ms. Burnett stressed that she didn’t blame her real estate agent, whom she believes was just doing her job. Ms. Burnett spent several years as an advocate for the Kansas City public schools, meeting with educators and parents that helped her district. Her real estate agent was also a school advocate, and they often saw each other at district meetings. She blamed the industry, and the powerful National Association of Realtors, which had set the rules.

“It’s not the Realtors. But the Realtors are controlled by a huge spider web,” she said. “After I joined the lawsuit, I learned so much about how the industry is run. It goes all the way to the brokerages and up to N.A.R.”

Despite the settlement, which is pending a federal judge’s approval, N.A.R. continues to deny any wrongdoing in terms of its rules for agent compensation.

“N.A.R. does not set commissions, and commissions were negotiable long before this settlement. They are and will remain entirely negotiable between brokers and their clients,” the organization said in a recent statement.

Before the lawsuit went to court, N.A.R. — a powerful trade organization with 1.5 million members, more than $1 billion in assets and a cash-flush lobbying arm — seemed impregnable. It had fended off a Justice Department inquiry into anticompetitive behavior for more than a decade, and successfully sued upstart real estate companies that challenged its stance. The Justice Department inquiry is ongoing.

But in U.S. District Court for the Western District of Missouri, the home sellers were speaking directly to a jury of their peers. It offered them an opening.

Michael Ketchmark, 58, a plain-spoken personal injury lawyer who became lead lawyer on the case, sensed his advantage on the first day of the trial.

Stepping to the front of the courtroom on Oct. 17, he gestured to his mother and father, who are in their 80s and attend all of his trials. On that day, Margaret and Eugene Ketchmark were seated in the front row.

“I told the jury that everything I needed to know about this lawsuit, I learned from my mom and dad when I was in kindergarten,” Mr. Ketchmark said in an interview. “If you take something that doesn’t belong to you, you have to give it back. And that’s what this case was. It was a refund case. It was about giving the money back.”

Mr. Ketchmark was referred to the case by a friend and fellow attorney who knew the Burnetts. He then began looking for other plaintiffs across Missouri who might have similar grievances.

Mr. Ketchmark had never tried a housing case before, but he was no stranger to big wins — in 2002, he won a $2.2 billion civil judgment against Eli Lilly and other drugmakers, claiming that they failed to uncover the scheme of a Kansas City pharmacist who was diluting chemotherapy drugs. The drugmakers, who never admitted any wrongdoing, later settled for $72.1 million.

Mr. Ketchmark had a similar upbringing to the plaintiffs in the case against N.A.R., with parents who didn’t make a lot of money and who saw a house as their biggest investment. He grew up in West Des Moines, Iowa, as one of four children, and his father worked at a bank. His mother didn’t finish college until he himself was in law school — she put herself through night school.

He had a strategy: Talk to as many average Americans as he could about the case, and find out what resonated. His team began running and filming mock trials.

“We would watch the tape, and start developing out the themes of the case,” he said. By the time they got to trial, Mr. Ketchmark estimates he had watched 2,000 hours of video of mock jurors discussing the case.

“I intuitively knew when the trial started that if we could win this, that if the jury followed the law and reached the right result, that it would change the industry. And it has,” he said.

He pressed Ms. Burnett, who grew up in Georgia and met her husband when they were both working in President Jimmy Carter’s White House — Scott did field organization, Rhonda worked as an administrative aide — to describe her childhood with a stay-at-home mother who sold Tupperware and a father who worked at the federal penitentiary and took on shifts selling sporting goods at the local Sears for extra cash.

Ms. Burnett’s agent listed the house for $275,000 but it sold for $250,000. Ms. Burnett paid $15,298 in commission.

Mr. Ketchmark guided Jerod Breit, 42, another plaintiff in the case, to share stories of working as a police officer in St. Louis before saving up enough to buy his first home in South St. Louis. And he encouraged Hollee Ellis, 53, to tell the jury about her mother, who worked as a real estate agent.

Ms. Ellis, a former high school English teacher who now works in nonprofits, talked about joining her mother at real estate showings as a child, and later even working as an assistant at her brokerage at one point. She joined the lawsuit, she told the jury, not in spite of her mother but because of her.

If real estate agents were actually able to negotiate commissions, she said, she believed her mother could have made more money, rather than less.

“She operated under that assumption and that practice and that standard for so many years,” Ms. Ellis said of the split 6 percent commission. She shared with the jury that her mother is now suffering from Alzheimer’s and has advanced dementia. “Whereas I know she worked very, very hard for some of her buyers and possibly could have negotiated a different rate.”

Ms. Ellis described selling a modest three-bedroom, single-level brick house in 2016 and feeling that she could not negotiate the 6 percent commission she paid that was split between her agent and her buyer’s agent. “It’s not about money at all,” she said of the case. “It’s about reversing a practice that I feel is unfair.”

Ms. Ellis and her husband, Jerry Ellis, a forklift driver, were looking to sell their house in Ash Grove, Mo., because Ms. Ellis had a new job opportunity at a nonprofit in South Carolina.

They owed $107,000 on their mortgage. They hired a real estate agent who sold the house for $126,000, netting them just over $18,000. Forty percent of that ended up going to real estate commissions for both their agent and the buyer’s agent.

“It was a hard pill to swallow that we were walking away with so little,” she said.

Mr. Breit, 42, also said he felt he had money taken from him.

He spent more than a decade as a police officer. He bought his first home, a two-bedroom brick Tudor in south St. Louis he described as a “gingerbread house,” with the help of a fellow officer’s father — a retired paramedic who worked as a real estate agent on the side.

When it came time to sell that home, Mr. Breit said, that same retired paramedic offered to help again, he said, and promised he would only take the “law enforcement special” of 5.5 percent commission.

Mr. Breit took issue with the commission to his buyer’s agent, and had already joined the class-action lawsuit when lawyers began reviewing the contracts of his home sale. It was only then, one day before he was scheduled to take the stand, that he learned he hadn’t been offered a law enforcement special anyway.

He sold the home for $149,900 in 2017. He was charged $4,946.70 in commission to his seller, and $4,047.30 in commission to his buyer, totaling $8,994. When the numbers were brought to his attention, he did the math in his head several times, disbelieving. His agent, using forms that were preprinted, had gone ahead and charged him the full 6 percent.

“I know people say it’s negotiable,” he said. “But it’s really hard for me to believe that it’s negotiable when the documents are pre-filled and we don’t question it.”

Mr. Breit left the police force in 2017 and now serves as a regional executive director for Mothers Against Drunk Driving, or MADD.

“I’m just a person who sold a house,” he said. “I don’t go to Jiffy Lube to pay for an oil change next week, and I don’t pay for someone else’s Hulu account because we live on the same block. People should only have to pay for what they use.”

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