Much of the discussion about Canada’s real estate market has been dominated by the meteoric rise in the cost of housing.
But what’s often missing from that conversation is the parallel increase in what Canadians pay in real estate commissions nearly every time a home is bought or sold.
For example, a brokerage representing a buyer in 2005 in the Greater Toronto Area would have earned a commission of about $8,795 on the average single-family home — while in December 2021, the buyer’s brokerage would earn about $36,230, or four times more on that same home, according to Dr. Panle Jia Barwick, a leading economist on the real estate industries commission structure.
To put that jump in perspective, the median household income increased by just 14 per cent between 2005 and 2019, after adjusting for inflation.
That discrepancy is just one of the points laid out in a recent lawsuit, alleging price-fixing and anticompetitive behaviour in Canada’s real estate market.
In the Greater Toronto Area, the average real estate commission exceeds $62,000 before tax. (Patrick Morrell/CBC)
The class-action case launched on behalf of Toronto resident Mark Sunderland on April 9, 2021, claims that some of the country’s largest brokerages, including ReMax, Century 21, and IproRealty Ltd. among others, as well as the Canadian Real Estate Association and the Toronto Regional Real Estate Board, have “conspired, agreed or arranged with each other to fix, maintain, increase or control the price … for buyer brokerage services in the GTA.”
Commission structures vary across the country, but typically real estate agents and their brokerage charge a percentage-based commission on the sale price of a home. In Alberta and B.C., it’s seven per cent on the first $100,000 and three per cent on the balance. In other parts of the country, commissions range between four and five percent.
The allegations
While the seller pays the full commission, it’s split between the brokerage representing them and the one representing the buyer.
Sunderland’s lawsuit argues that the agreement known as the buyer brokerage commission rule, created by the Toronto Residential Real Estate Board and Canadian Real Estate Association, effectively forces sellers of residential real estate listed on the Multiple Listing Service (MLS) to pay the commission of the buyer’s real estate brokerage.
Similar practices exist within many other real estate boards across the country.
This arrangement has thwarted competition in the market by pushing sellers to pay for something they would not pay for in the absence of this agreement, the lawsuit argues — and it negates the ability to negotiate the price or quality of the service.
Stephen Brobeck is a fellow with the Consumer Federation of America. He says with respect to commissions, the real estate industry functions as a cartel. (CBC)
“It’s not a typical smoky room conspiracy; it’s out in the open,” said Garth Myers, a partner in Kalloghlian Myers LLP, the law firm that filed the case on behalf of Sunderland and anyone who has sold a home in the GTA since 2010.
The effect of this alleged price-fixing can be felt by those who don’t offer the standard commission rate, said Barwick, the economist focusing on the real estate industry’s commission structure.
The buyer brokerage commission rule “creates the incentive and ability for buyer brokerages to ‘steer’ buyers away from residential real estate properties where sellers offer lower than the norm buyer brokerage commissions,” she wrote as part of research commissioned by Kalloghlian Myers LLP for the case.
Merely the fear that this could happen is enough to pressure sellers into offering the standard commission, she writes.
The practice of steering is further enabled by Realtor.ca, which allows real estate agents and brokers to see the amount of commission on offer but hides the information from public view.
Similar lawsuit certified in the U.S.
Sutherland’s lawsuit is similar to a class-action case underway in the U.S against the National Association of Realtors and America’s largest real estate brokerages.
The U.S class action, which was certified last month, also alleges that anticompetitive conduct has taken place within the real estate industry, causing U.S. home sellers to pay inflated commissions.
Using hidden cameras, Marketplace producers found some real estate agents steering potential buyers away from low-commission homes, a practice that breaches the law. (CBC)
“Tens of billions of dollars are at stake,” said Stephen Brobeck, a senior fellow and former executive director of the Consumer Federation of America, a non-profit organization based in Washington, D.C., whose research has helped inform the U.S. case.
“In terms of commissions, the industry is striving to maintain a pricing cartel,” said Brobeck, noting it’s something that’s happening in the U.S. and in Canada.
On the sale of the average Canadian home, which is now $746,000, the full commission — what’s split between the buyer and seller’s brokerages — amounts to between $26,330 and $37,300 before tax. In a market such as Toronto, the average commission exceeds $62,000 before tax.
When Sunderland sold his home, he paid “the standard 2.5 per cent” commission to the buyer’s agent and their brokerage, his lawyer said.
“His view, and the view advanced in the case is, the reason he had to pay [the 2.5 per cent] was because of this price-fixing conspiracy among the various brokerages in the GTA,” Myers said.
“It’s the market that sets the rate, not MLS rules or collusion between brokerages.”– Rui Alves, CEO iPro Realty Ltd.
In March 2022, the Canadian Real Estate Association and the Toronto Regional Real Estate Board brought a motion to dismiss the entire action as having “no reasonable cause of action.” That motion will be heard in the fall.
Another defendant in the lawsuit said he feels the case is without merit.
“Our business is very competitive,” said Rui Alves, chairman and CEO of iPro Realty in a statement to CBC News. “It’s the market that sets the rate, not MLS rules or collusion between brokerages.”
iPro Realty does encourage sellers to offer the prevailing rate for the area — or may suggest offering a higher commission rate to the buyer’s brokerage in a slower market, he said.
“This proves that in no way are our fees fixed but simply reactive to competitor fees in the area, just like any other competitive business would do.”
CBC News contacted ReMax and Century 21; while Century 21 Canada said it doesn’t believe there is merit to the claim, it would not comment further.
ReMax said it wouldn’t comment, given the ongoing litigation.
Steering and real estate commissions
A 2021 Marketplace investigation into the issue of steering by real estate agents found that consumers’ fears around the issue are not unfounded.
To test if real estate agents would indeed steer buyers away from a low-commission home, Marketplace producers went undercover, posing as homebuyers looking for a home in Vaughan, Ont. As would-be buyers, the team asked three local real estate agents to book viewings at three properties on the market, including one offering only one per cent commission to buying agents instead of the 2.5 per cent considered standard for the area.
While one agent was upfront about the low commission and offered to negotiate the purchase anyway, the other two agents did not tell the buyers about the commission — and discouraged or thwarted them from seeing the home.
WATCH | Marketplace investigation into real estate ‘steering’:
Real Estate Secrets
7 months ago
Duration 22:30
Investigation catches real estate agents breaking the law to keep commissions high, hamper competition and block private sellers.
One of the agents steered the buyers by telling them the house was overpriced by $200,000 and said the owners would not budge on the price, which was not the case. The other agent told the buyers she was unable to book a showing and suggested the property might have tenants, a turnoff for many people wanting to move in themselves. The owners of the property told Marketplace they did not receive a showing request from this agent.
Further to that test, producers called 25 real estate agents across the country while posing as sellers interested in listing a home. When the agents were asked about lowering the commission rate for the buyer’s brokerage, 88 per cent of the agents warned against doing so.
“Although they’re not supposed to do it, some agents may be very cognizant of what they’re getting paid and push their buyer to another home,” said an agent in Halifax.
“I have had agents say to me, ‘You know we’re looking at two houses and they’re both a good fit, but I’m definitely sort of massaging them towards yours because there’s more in it for the Realtor,’ ” said another agent in Winnipeg.
The Canadian Real Estate Association (CREA) and Ontario’s regulator, the Real Estate Council of Ontario (RECO) would not talk to Marketplace about the investigation. However, shortly after learning about the findings, RECO issued a notice about steering to the more than 93,000 real estate agents, brokers and brokerages then under its purview, noting that such behaviour breaches its code of ethics.
“In addition to being illegal, the conduct undermines consumer protection, consumer confidence and the reputation of the real estate profession as a whole,” the notice said.
Still, it’s rare to see sellers offering rates lower than the standard buyer’s commission. According to Toronto real estate agent Alan Spivak, sellers offering commissions of less than 2.5 per cent to buyer brokerages in the Toronto area represented less than one per cent of total listings at the time of his review.
“This is consistent with my experience for all residential real estate in the GTA since at least 2010,” he wrote in an affidavit included in Sunderland’s statement of claim.
How to increase competition
If there were no buyer broker commission rules in place, Barwick writes, services would become more competitively priced — buyers would pay for their own representation and could negotiate pricing or forgo the service altogether.
This is already the case in the U.K. and Australia. There, buyers and sellers pay for their own representation and commission rates are lower.
In Australia and the United Kingdom, buyers and sellers pay for their own representation in real estate transaction and there’s more competition as a result. (Norm Arnold/CBC)
“That would also encourage sellers to negotiate more vigorously with their listing agents and those commission rates would most likely come down too,” Brobeck said.
Brobeck’s own research has determined that “decoupling” real estate commissions in this way could drop standard rates by one to two per cent over a couple of years.
The Canadian Real Estate Association told CBC News it would not comment on the Sunderland case as it’s before the courts.
The Toronto Regional Real Estate Board, another plaintiff in the case, said it “has no involvement with and does not consider or discuss REALTOR® commissions.”
Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.
Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.
Average residential home price in B.C.: $938,500
Average price in greater Vancouver (2024 year to date): $1,304,438
Average price in greater Victoria (2024 year to date): $979,103
Average price in the Okanagan (2024 year to date): $748,015
Average two-bedroom purpose-built rental in Vancouver: $2,181
Average two-bedroom purpose-built rental in Victoria: $1,839
Average two-bedroom purpose-built rental in Canada: $1,359
Rental vacancy rate in Vancouver: 0.9 per cent
How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent
This report by The Canadian Press was first published Oct. 17, 2024.
VANCOUVER – Voters along the south coast of British Columbia who have not cast their ballots yet will have to contend with heavy rain and high winds from an incoming atmospheric river weather system on election day.
Environment Canada says the weather system will bring prolonged heavy rain to Metro Vancouver, the Sunshine Coast, Fraser Valley, Howe Sound, Whistler and Vancouver Island starting Friday.
The agency says strong winds with gusts up to 80 kilometres an hour will also develop on Saturday — the day thousands are expected to go to the polls across B.C. — in parts of Vancouver Island and Metro Vancouver.
Wednesday was the last day for advance voting, which started on Oct. 10.
More than 180,000 voters cast their votes Wednesday — the most ever on an advance voting day in B.C., beating the record set just days earlier on Oct. 10 of more than 170,000 votes.
Environment Canada says voters in the area of the atmospheric river can expect around 70 millimetres of precipitation generally and up to 100 millimetres along the coastal mountains, while parts of Vancouver Island could see as much as 200 millimetres of rainfall for the weekend.
An atmospheric river system in November 2021 created severe flooding and landslides that at one point severed most rail links between Vancouver’s port and the rest of Canada while inundating communities in the Fraser Valley and B.C. Interior.
This report by The Canadian Press was first published Oct. 17, 2024.
British Columbia voters face no shortage of policies when it comes to tackling the province’s housing woes in the run-up to Saturday’s election, with a clear choice for the next government’s approach.
David Eby’s New Democrats say the housing market on its own will not deliver the homes people need, while B.C. Conservative Leader John Rustad saysgovernment is part of the problem and B.C. needs to “unleash” the potential of the private sector.
But Andy Yan, director of the City Program at Simon Fraser University, said the “punchline” was that neither would have a hand in regulating interest rates, the “giant X-factor” in housing affordability.
“The one policy that controls it all just happens to be a policy that the province, whoever wins, has absolutely no control over,” said Yan, who made a name for himself scrutinizing B.C.’s chronic affordability problems.
Some metrics have shown those problems easing, with Eby pointing to what he said was a seven per cent drop in rent prices in Vancouver.
But Statistics Canada says 2021 census data shows that 25.5 per cent of B.C. households were paying at least 30 per cent of their income on shelter costs, the worst for any province or territory.
Yan said government had “access to a few levers” aimed at boosting housing affordability, and Eby has been pulling several.
Yet a host of other factors are at play, rates in particular, Yan said.
“This is what makes housing so frustrating, right? It takes time. It takes decades through which solutions and policies play out,” Yan said.
Rustad, meanwhile, is running on a “deregulation” platform.
He has pledged to scrap key NDP housing initiatives, including the speculation and vacancy tax, restrictions on short-term rentals,and legislation aimed at boosting small-scale density in single-family neighbourhoods.
Green Leader Sonia Furstenau, meanwhile, says “commodification” of housing by large investors is a major factor driving up costs, and her party would prioritize people most vulnerable in the housing market.
Yan said it was too soon to fully assess the impact of the NDP government’s housing measures, but there was a risk housing challenges could get worse if certain safeguards were removed, such as policies that preserve existing rental homes.
If interest rates were to drop, spurring a surge of redevelopment, Yan said the new homes with higher rents could wipe the older, cheaper units off the map.
“There is this element of change and redevelopment that needs to occur as a city grows, yet the loss of that stock is part of really, the ongoing challenges,” Yan said.
Given the external forces buffeting the housing market, Yan said the question before voters this month was more about “narrative” than numbers.
“Who do you believe will deliver a better tomorrow?”
Yan said the market has limits, and governments play an important role in providing safeguards for those most vulnerable.
The market “won’t by itself deal with their housing needs,” Yan said, especially given what he described as B.C.’s “30-year deficit of non-market housing.”
IS HOUSING THE ‘GOVERNMENT’S JOB’?
Craig Jones, associate director of the Housing Research Collaborative at the University of British Columbia, echoed Yan, saying people are in “housing distress” and in urgent need of help in the form of social or non-market housing.
“The amount of housing that it’s going to take through straight-up supply to arrive at affordability, it’s more than the system can actually produce,” he said.
Among the three leaders, Yan said it was Furstenau who had focused on the role of the “financialization” of housing, or large investors using housing for profit.
“It really squeezes renters,” he said of the trend. “It captures those units that would ordinarily become affordable and moves (them) into an investment product.”
The Greens’ platform includes a pledge to advocate for federal legislation banning the sale of residential units toreal estate investment trusts, known as REITs.
The party has also proposed a two per cent tax on homes valued at $3 million or higher, while committing $1.5 billion to build 26,000 non-market units each year.
Eby’s NDP government has enacted a suite of policies aimed at speeding up the development and availability of middle-income housing and affordable rentals.
They include the Rental Protection Fund, which Jones described as a “cutting-edge” policy. The $500-million fund enables non-profit organizations to purchase and manage existing rental buildings with the goal of preserving their affordability.
Another flagship NDP housing initiative, dubbed BC Builds, uses $2 billion in government financingto offer low-interest loans for the development of rental buildings on low-cost, underutilized land. Under the program, operators must offer at least 20 per cent of their units at 20 per cent below the market value.
Ravi Kahlon, the NDP candidate for Delta North who serves as Eby’s housing minister,said BC Builds was designed to navigate “huge headwinds” in housing development, including high interest rates, global inflation and the cost of land.
Boosting supply is one piece of the larger housing puzzle, Kahlon said in an interview before the start of the election campaign.
“We also need governments to invest and … come up with innovative programs to be able to get more affordability than the market can deliver,” he said.
The NDP is also pledging to help more middle-class, first-time buyers into the housing market with a plan to finance 40 per cent of the price on certain projects, with the money repayable as a loan and carrying an interest rate of 1.5 per cent. The government’s contribution would have to be repaid upon resale, plus 40 per cent of any increase in value.
The Canadian Press reached out several times requesting a housing-focused interview with Rustad or another Conservative representative, but received no followup.
At a press conference officially launching the Conservatives’ campaign, Rustad said Eby “seems to think that (housing) is government’s job.”
A key element of the Conservatives’ housing plans is a provincial tax exemption dubbed the “Rustad Rebate.” It would start in 2026 with residents able to deduct up to $1,500 per month for rent and mortgage costs, increasing to $3,000 in 2029.
Rustad also wants Ottawa to reintroduce a 1970s federal program that offered tax incentives to spur multi-unit residential building construction.
“It’s critical to bring that back and get the rental stock that we need built,” Rustad said of the so-called MURB program during the recent televised leaders’ debate.
Rustad also wants to axe B.C.’s speculation and vacancy tax, which Eby says has added 20,000 units to the long-term rental market, and repeal rules restricting short-term rentals on platforms such as Airbnb and Vrbo to an operator’s principal residence or one secondary suite.
“(First) of all it was foreigners, and then it was speculators, and then it was vacant properties, and then it was Airbnbs, instead of pointing at the real problem, which is government, and government is getting in the way,” Rustad said during the televised leaders’ debate.
Rustad has also promised to speed up approvals for rezoning and development applications, and to step in if a city fails to meet the six-month target.
Eby’s approach to clearing zoning and regulatory hurdles includes legislation passed last fall that requires municipalities with more than 5,000 residents to allow small-scale, multi-unit housing on lots previously zoned for single family homes.
The New Democrats have also recently announced a series of free, standardized building designs and a plan to fast-track prefabricated homes in the province.
A statement from B.C.’s Housing Ministry said more than 90 per cent of 188 local governments had adopted the New Democrats’ small-scale, multi-unit housing legislation as of last month, while 21 had received extensions allowing more time.
Rustad has pledged to repeal that law too, describing Eby’s approach as “authoritarian.”
The Greens are meanwhile pledging to spend $650 million in annual infrastructure funding for communities, increase subsidies for elderly renters, and bring in vacancy control measures to prevent landlords from drastically raising rents for new tenants.
Yan likened the Oct. 19 election to a “referendum about the course that David Eby has set” for housing, with Rustad “offering a completely different direction.”
Regardless of which party and leader emerges victorious, Yan said B.C.’s next government will be working against the clock, as well as cost pressures.
Yan said failing to deliver affordable homes for everyone, particularly people living on B.C. streets and young, working families, came at a cost to the whole province.
“It diminishes us as a society, but then also as an economy.”
This report by The Canadian Press was first published Oct. 17, 2024.
