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

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.

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. 

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 buyer brokerage agreement, rules created by the Toronto Residential Real Estate Board and Canadian Real Estate Association, effectively force sellers of residential real estate listed on the Multiple Listing Service (MLS) to pay the commission of the buyer's real estate brokerage. Similar rules also 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.

"It's not a typical smoking gun 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.