Re/Max Canada has reached a “substantial agreement” in two class action lawsuits challenging real estate commission structures.
According to the company’s fourth-quarter earnings report, the agreement includes a $5.5-million (U.S.) settlement — $7.8 million Cdn. — to address allegations in the Sunderland and McFall class-action cases, which claim that rules mandating home sellers to pay buyer agents’ commissions inflates costs and limits competition.
The lawsuits are ongoing against Toronto Regional Real Estate Board (TRREB), the Canadian Real Estate Association (CREA) and numerous local brokerages and franchisors. In the Sunderland class-action, the federal court dismissed proceedings against franchisors in September 2023, but the decision is under appeal.
In Canada, different jurisdictions have their own fee structures.
In Ontario, the standard commission is five per cent of a home’s sale price split between the buyer’s and seller’s agents — paid for by the seller.
In Toronto, the average price of a home was $1.14 million in January, resulting in a commission of around $57,000.
The lawsuits allege that the fee paid to the buyer’s agent is baked into the price of the home, while a seller can negotiate a better fee.
The plaintiffs argue it is mandated that sellers pay the buyers’ agent’s commission — and this combined with a lack of transparency of amounts other sellers pay to co-operating brokers, among other allegations — means they are denied an opportunity to negotiate how much the buyers’ agent will be paid.
They argue this ultimately leads to a “conspiracy” between the defendants, which inflates the sale price of houses.
While the five per cent commission is often used, some buyers are able to negotiate that down, and discount listing brokerages can offer lower commissions, said Matt Mulholland, founding partner of Gill and Mulholland LLP, a law firm based in Toronto, who is not involved in the case and has no direct knowledge of the reasons for settlement.
Re/Max Canada denies any wrongdoing, but said in a statement, “this decision was made in the best interest of the Re/Max brand in Canada, including its franchisees and their sales associates, after carefully considering the significant risks and costs associated with continued litigation,” adding that the settlement would remove the uncertainty of ongoing litigation related to the cases.
Re/Max declined to comment further given “confidentiality agreements and ongoing proceedings,” the spokesperson said.
Settlement is subject to court approval
CREA said it is aware Re/Max has entered into some form of settlement with the plaintiffs in the Sunderland and McFall litigations, and acknowledged that Re/Max noted the settlement is a business decision to end the uncertainty associated with the litigation and not an admission of guilt, denying the allegations set out in the lawsuits.
The settlement is subject to resolving a written settlement agreement and court approval.
“This news doesn’t change CREA’s own ongoing position and defence against these claims,” Janice Myers, CREA’s CEO, said in a statement. “We continue to believe they are without merit and remain committed to standing in support of our realtor members.”
Currently, Canada’s Competition Bureau is investigating potential anti-competitive practices by CREA regarding commissions rules and policy changes with the Multiple Listing Service (MLS) system.
In litigation, experts say plaintiffs will often sue as many defendants as possible to look for a defector who will co-operate with the plaintiffs. In this case, Re/Max may end commission splitting or push the real estate boards’ to change its commission rules, experts say.
“The plaintiffs want more transparency in the commission process and in the case of buyers being able to negotiate what they pay their agent,” said Mulholland, “instead of having standardized commission across the board or having the listing agent decide.”
At this time, experts note it’s difficult to say if the Re/Max settlement will have a significant impact on the industry. The two class-action lawsuits could be years away from any resolution, said David Dunbar, senior counsel with Caravel Law.
“These cases typically settle, and it’s too early to say whether there will be any policy change,” Dunbar said.
Last year, a $418-million (U.S.) settlement in the U.S. was reached when a real estate group agreed to drop the six per cent sales commission paid to agents. Given the results of the case, that could be why Re/Max wants to settle the lawsuits in Canada, Dunbar added.
While the U.S. settlement can provide insight into what could happen Canada, it hasn’t had a profound impact on commissions south of the border, said Mulholland.
“Though the cases have differences, the common element of transparency and lack of control the plaintiffs are alleging are similar and I suspect the same will happen here (in Canada), because it’s been industry standard for so long,” Mulholland said.
“I thought it would have a bigger impact in the U.S., given the significant findings and the publicity, so that could tell us what it will be like in Canada as well.”
