Why a landmark U.S. settlement could impact the Canadian housing market

A substantial settlement recently announced by a U.S. group representing more than one million Realtors has real estate experts hopeful Canadian home sellers could soon get a better deal.

Last week, the U.S.-based National Association of Realtors (NAR) agreed to pay $418 million US to end legal claims from home sellers that argued the group artificially inflated real estate commissions.

The NAR, which denied any wrongdoing in the case, has also agreed to eliminate the standard six per cent sales commission and do away with other commission rules.

The landmark settlement in the U.S. is playing out at the same time as a proposed national class action lawsuit makes its way through Canadian courts, with the lawyer behind the claim saying a win would reduce the cost of Canadian homes.

A University of British Columbia real estate professor says the settlement bolsters the argument for similar changes to happen in Canada, which could make it cheaper for people to buy and sell homes. 

"It's going to revolutionize the practice of real estate," said Tom Davidoff, an associate professor at UBC's Sauder School of Business and the director of UBC's Centre for Urban Economics and Real Estate. 

"It may become more competitive, but more importantly, cheaper for people to sell their homes."

While they would not be a solution to the affordable housing crisis, Davidoff said, changes to commission rules would be a win for those looking to buy a home because prices would fall if sellers have lower costs.

For decades, the NAR has required brokers listing homes for sale to make a commission offer to a buyer's agent up front — typically about six per cent of the sale price, split between a seller's broker and a buyer's agent.

Lawsuits argued home sellers were compelled to enter into commission-sharing arrangements in order to market their homes on multiple listing services (MLS) and not lose out on potential buyers.

As part of the settlement, the NAR has agreed to stop that practice, and to prohibit agents' compensation from being included on listing portals.

In Canada, 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, split between the seller's and buyer's agents.

In B.C., it's seven per cent on the first $100,000 and three per cent on the balance in a real estate transaction, according to real estate agents who spoke to CBC News.

The Canadian Real Estate Association (CREA) is a defendant along with dozens of local brokerages in a proposed class-action lawsuit, filed in January of this year, which alleges "a conspiracy, agreement or arrangement" between brokerages leading to illegal increases in the price of residential real estate commissions.