How could the US’s seismic real estate settlement impact Canada?

Multimillion-dollar agreement could have ripple effects north of the border

How could the US’s seismic real estate settlement impact Canada?

A recent settlement announced by a trade body in the US could have ripple effects on Canada’s real estate sector and allow home sellers to make more on their deals, according to a CBC News report.

The National Association of Realtors (NAR) has agreed to settle a lawsuit filed by American home sellers claiming that the group artificially inflated commissions.

The NAR used to require listing brokers to offer a commission to the buyer’s agent upfront. The commission was around 6% of the home’s sale price, to be divided between both the seller’s and the buyer’s agents.

US home sellers said in their lawsuit that this forced them to enter into commission-sharing agreements to market their properties on multiple listing services (MLS) without missing out on potential buyers.

As part of the settlement, the NAR agreed to pay US$418 million and abolish the practice.  

Tom Davidoff, a University of British Columbia associate professor specializing in real estate economics, said the NAR settlement strengthens the possibility that the same thing could happen in Canada, especially as a similar suit has made its way to the Federal Court.

What does this settlement mean for Canada’s real estate sector?

The Canadian Real Estate Association (CREA) and several brokerages were recently named defendants in a proposed class action alleging that there is “conspiracy, agreement or arrangement” to illegally inflate residential commission prices.

Canada largely mirrors the broker commission model seen in the US, with real estate brokerages charging commissions based on the sale price of a home to be split between buyer’s and seller’s agents.

Garth Myers, a partner at the law firm Kalloghlian Myers LLP, which is handling the Canadian lawsuit, believes the US settlement undermines any justification the CREA might have for maintaining current commission rules.

“We think that the consequence of our lawsuit will mean more money in the pocket of home sellers and it'll reduce the cost of residential real estate across the country,” he said.

The lawsuit against CREA was filed in January and has yet to be certified as a class proceeding, according to CBC.

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