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Price fixing has sent Realtor commissions soaring in an already hot market, lawsuit alleges – CBC News

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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.”

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Quebec moving day could see record number of tenants without somewhere to live

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MONTREAL — A Quebec housing advocacy group says it’s worried there will be a record number of households left without somewhere to live on the province’s July 1 moving day.

“On the eve of July 1, in Quebec, we count 750 renter households that have not found housing,” said Véronique Laflamme, a spokeswoman for the Front d’action populaire en réaménagement urbain, in an interview.

That estimate is based on requests for aid received by municipal housing offices in the province, Laflamme said, and could change if families find housing in the meantime.

The number is much higher than the 420 renter households who were without housing at the same time last year, she said.

She said the number of households that called a housing assistance service this year also rose to 3,500, up from 2,000 the year before.

In Montreal on Friday, 107 households were being helped by city staff and had “still not found a permanent solution,” the city’s communication department said in an email. Among those “some have been able to negotiate a short-term lease extension, while others will be able to be housed by relatives.”

The city said it is able to temporarily house everyone in need.

According to Laflamme, “these numbers are the tip of the iceberg of the housing crisis” in Quebec. She said more families are living in substandard housing, housing that is too small for their needs or housing that is too expensive.

According to the most recent annual report by the Canada Mortgage and Housing Corporation, published last February, around 30 municipalities in Quebec have vacancy rates below one per cent.

In the Montreal region, the vacancy rate is higher, at 3 per cent.

On Wednesday, Quebec announced it will increase a financial assistance program for low-income households starting Oct. 1.

The government also said it would spend $2 million as part of “Operation July 1” to help people find housing, and to provide temporary housing and furniture storage for people who can’t find somewhere to live.

“There is absolutely no reason for people to sleep in the street tonight if those people call the emergency teams of our housing offices,” Municipal Affairs and Housing Minister Andrée Laforest said in an email, adding that the government has set aside a record amount of money to provide “immediate assistance for tenants in need.”

However, Laflamme said the government isn’t getting to the root of the problem. Her group would like to see the Quebec government take action against real estate speculation and evictions that take advantage of grey areas in the province’s housing laws.

According to the province’s housing department, more than 8,000 “social and affordable” housing units have been built, or are under construction, since 2018.

The City of Montreal said it’s waiting for Quebec and Ottawa to reach a funding agreement that will allow it to build or renovate 6,000 social housing units.

While the start date of residential leases has not been fixed by the Quebec government since the 1970s, the far majority start July 1. The practice began with a 1750 law that established May 1 as the start date of residential leases – a move by the government of what was then New France to protect tenant farmers from being evicted over the winter.

This report by The Canadian Press was first published July 1, 2022.

 

Clara Descurninges, The Canadian Press

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The ins and outs of real estate – Toronto Sun

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Reviews and recommendations are unbiased and products are independently selected. Postmedia may earn an affiliate commission from purchases made through links on this page.

Article content

For new homes buyers, specifically, three questions they should ask include:

– Is there an assignment?

– Are there development fees?

– Is it a reputable builder?

When it comes to selling, Padjan suggests the following:

– Get the right prices;
– Manage expectations of the market; and,
– Consider multiple offers or offers anytime.

Finally, the top three tips for investors include:

– Go physically see the property just in case something doesn’t jive.

– It is perfectly okay to do an inspection for mould, asbestos and other potential hazards.

– Investors should be aware of hidden fees such as maintenance bills.

When asked, why are you so proficient in this industry, Padjan states:, “I am honest, and have a very supportive, international brokerage and I always build relationships with other agents.”

For general real estate inquires, reach out to marianne.padjan@exprealty.com,

For more information, reach Nicole at Nicole@prospect2win.com or subscribe to her YouTube channel at www.youtube.com/NicoleAttias. 

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Canada’s fastest-growing region flexes real estate muscle – Business in Vancouver

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The 74-acre Greata Ranch and Butler lands near Summerland are listed for sale as one of the largest waterfront development parcels in the Okanagan | Photo: Colliers International

Kelowna, and with it the Central Okanagan, has the fastest-growing population in Canada, posting a 14 per cent increase from 2021 to 2026, according to Statistics Canada.

With 224,000 people, the city of Kelowna has twice the population of Nanaimo, Kamloops or Prince George as the second-largest B.C. city outside of the Lower Mainland.

The broader Thompson-Okanagan region is currently growing at about 1.6 per cent per year, hitting 620,000 in 2021 and adding roughly 10,000 new residents annually.

Judging by real estate development being launched this spring the regional population will continue to accelerate, providing the current residential downturn proves shallow and brief. It is housing, after all, that is driving the real estate market across the Okanagan, but residential sales have slowed recently.

In May, total Okanagan home sales were down 28.5 per cent from a year earlier, though the average price increased nearly 10 per cent, year-over-year to $785,600, according to the B.C. Real Estate Association (BCREA).

The BCREA is now forecasting that Okanagan home sales will drop 19 per cent this year, from 2021, and fall a further 14.8 per cent in 2023, with home prices eking out just 1.3 per cent increase that year compared to 2022.

May sales across the Okanagan slid down only 1.2 per cent compared to April, noted Lyndi Cruickshank, president of the Association of Interior Realtors, which she said reflects the market’s stability.

The mantra in the Okanagan real estate community is that a lack of supply has helped to stifle sales and keep prices rising. This year should test that theory, if all the current projects proceed.

One of the largest is Greata Ranch, a 46-acre lakefront parcel near Summerland between Kelowna and Penticton along Highway 97. On the development radar for more than a decade, the property has now been extended with the addition of 28 adjacent waterfront acres, the Butler family lands.

The entire 74 acres is now being marketed as a single parcel for mixed-use with a residential emphasis, according to Stephen Webber, associate vice-president of Colliers International.

The price will be decided by bids submitted by potential buyers on the vendor’s “form of offer.”

The City of Kelowna voted unanimously on May 31 to approve a 425-home development at the Tower Ranch area in east Kelowna. Also in Kelowna, a 1,000-home development was approved in late May that includes 16 buildings, up to 17 storeys high, on Lakeshore Road. North Kelowna is the focus of major mixed-use development plans on two former industrial sites, including 40 acres of lakefront that was once a sawmill.

In downtown Kelowna, the University of British Columbia Okanagan (UCBO) is pushing to build a 46-storey residential and administration tower. Nearby, the 26-storey Savant condo tower is now pre-selling at an average of $1,000 per square foot, according to Shane Styles, president of Epic Real Estate Solutions of Kelowna.

Styles, who was born and raised in the Okanagan, estimates that investors account for 60 per cent to 70 per cent of new condominiums buyers.

There are user investors, like parents buying an apartment for their children to use while attending UBCO or using it themselves as a vacation home and renting it out seasonally; and what he calls “pure investors” who count on rental income and appreciation.

The May benchmark price for condominiums in the Okanagan increased 31 per cent to $342,500, compared to a year earlier. The rental vacancy rate in Kelowna is 0.6 per cent, the lowest level in Canada.

At least a score of new developments are planned in West Kelowna, including the next phases of Kind Development’s Lakeview Village, where 120 homes in the first two phases sold out and a retail village is already complete.

In Penticton, the largest residential development in years was granted regulatory approval in May for a 219-unit market-housing project on a 6.6-acre site. The development is now awaiting provincial highways approval and a bylaw amendment. An even larger Penticton development, for nearly 700 new homes in the North Witse Block area received approval to proceed to public hearings on June 20.

On Shuswap Lake, the Old Town Bay development has been refreshed for 2022, with a trio of developments, including a 32-lot single-detached subdivision, new strata units, a hotel and a large recreational vehicle park where lots will be sold as strata.

A market to watch, according to Styles, is Vernon and the North Okanagan, which he sees hosting the next wave of real estate investment.

Styles believes the entire Okanagan economy will be booming this summer, the first in two years with no pandemic restrictions.

“It will be nuts,” Styles predicts, which could also prove an accurate forecast for the entire Thompson-Okanagan real estate market.

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