A lawsuit alleging that the real estate brokerage industry inflates commission fees has been expanded to include all of Canada and an expert says it could bring big changes to the housing market.
The class action suit, filed in federal court last month, names 72 different regional real estate boards, 10 real estate franchisors and eight real estate brokerages as defendants.
“The class action is quite substantial and it’s pretty huge,” Walter Melanson, co-founder and market analyst at PropertyGuys.com, told BNN Bloomberg in a Monday interview.
The lawsuit comes after an original suit was filed in federal court in September on behalf of home-sellers in the Greater Toronto Area against the Toronto Regional Real Estate Board (TRREB).
None of the allegations have been proven in court.
The latest price-fixing suit alleges that an unwritten arrangement known as the “buyer brokerage commission rule,” which has become the norm for many residential real estate transactions, violates competition laws.
When a home sale closes, the seller typically pays a broker commission fee, which is a percentage of the entire sale amount. The fee is normally then split between the representatives of the seller and the buyer, and is customarily shared evenly.
This was the case with Milton resident Kevin McFall, the named plaintiff in the class action suit. In the court documents, McFall alleges he sold his home in May and paid a five per cent commission on the sale, half of which went to the buyer brokerage.
The suit claims that this system incentivizes buyer brokerages to direct their clients away from sellers offering lower commission fees, artificially inflating them over time.
“We’re talking about rules that drive policies and policies that drive behaviours and behaviours that drive outcomes,” Melanson explained.
Case follows Missouri court decision
The Canadian class action comes on the heels of a similar case in the U.S.
In a precedent-setting October decision, a Missouri court handed down a guilty verdict in a price-fixing lawsuit brought against major U.S. real estate players including the National Association of Realtors and RE/MAX.
The plaintiffs in that case were awarded US$1.8 billion in damages.
“When it comes to Canada, it’s the same types of allegations,” Melanson said.
“The lawyers behind this class action are saying that certain rules prevent competition in the buyer brokerage industry, which lead to falsely inflating real estate commissions, so that’s really what the focus is.”
Allegations ‘without merit’: CREA
The Canada-wide class action suit claims that the Canadian Real Estate Association (CREA) helped brokerages facilitate the alleged price-fixing scheme.
The organization says the allegations are “without merit.”
“(CREA) will continue to vigorously defend against these claims,” CREA said in a statement to BNN Bloomberg.
The association claims its listing system are “efficient and effective cooperative marketplaces that bring together realtors acting on behalf of Canadian home sellers and buyers, and are both pro-competitive and pro-consumer.”
Potential impacts
After the Missouri court decision, Melanson said “copy cat” class action suits have been filed across 11 U.S. states, with the potential to exceed US$100 billion in damages.
Decisions in U.S. courts will likely influence the behaviour of realtors in Canada, Melanson said, noting that many brokerages are already changing their commission rules to de-risk their businesses in the long term.
“It really depends what the folks that are involved in the American suits want to do here in Canada, but we hope that any change is good for consumers,” Melanson said.
He noted that some analysts have estimated that real estate commissions in Canada could come down as much as 30 per cent as a result of the legal action.
“Those are the types of things we’d love to see in the market,” Melanson said.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
