In a development that could be a game-changer for the real estate industry in Toronto, a federal court has greenlit a class-action lawsuit that claims home sellers in the city have been saddled with unjustly high commission fees for many years.
This lawsuit puts the spotlight on Toronto’s leading brokers and real estate associations, accusing them of suppressing competition to maintain higher fees. But what is buyer brokerage, and why is it so central to this case?
Deciphering ‘Buyer Brokerage’
Unlike the past when brokers primarily acted on behalf of sellers, the modern-day real estate framework has shifted towards buyer representation. Originating in the ’90s in Canada, this setup allows buyers to have exclusive professional advice during their home buying journey.
Regulatory bodies like the Real Estate Council of Ontario (RECO) and the Canadian Real Estate Association (CREA) have set rules to manage this buyer-centric arrangement, defining roles, responsibilities, and ethical conduct.
The Intricacies of Commission Rates
Typically, commissions in Canadian real estate are percentage-based and vary by market conditions. In Toronto, it’s conventional for the seller to cover the commission, which is then split between the agents for the buyer and the seller. For example, for a home sold at $1 million with a 5% commission, the seller would pay $50,000. This fee would be equally divided between both agents unless otherwise agreed upon.
The Question of Fair Commission Splitting
CREA has no stringent guidelines on how commissions should be divided. However, the division of commission is viewed as an industry norm aimed at encouraging cooperation and ethical practices. The shared fee model also serves to keep conflicts of interest at bay, ensuring that buyers aren’t under undue pressure and have equal access to professional representation.
The Case At Hand
The lawsuit, spearheaded by plaintiff Mark Sunderland, alleges that an unofficial ‘buyer brokerage commission rule’ has inhibited free market competition since at least 2010. This rule supposedly coerces sellers into bearing costs they wouldn’t otherwise have to, and limits price negotiation and service quality. Experts believe that this lawsuit could have far-reaching implications.
What’s at Stake?
The case, brought forward by legal firm Kalloghlian Myers LLP, seeks damages for everyone who has sold a home through the Toronto Regional Real Estate Board (TRREB) since 2010. Given the billions that have changed hands in that time, the amount involved could be staggering.
Next Steps
Class-action lawsuits of this nature usually automatically include similarly affected parties, so there’s generally no need to opt into the lawsuit. Depending on the appeal and legal processes, the resolution could take years.
This lawsuit has already sparked a lot of discussions in the industry. At Remax Success Realty, we always advocate for transparency, professionalism, and fair market practices. This case will undoubtedly be one to watch closely as it could redefine how real estate commissions work in Toronto and potentially all of Canada.
