Is Canadian Real Estate at a Crossroads?

Re/Max Canada’s decision to settle the Sunderland and McFall class-action lawsuits represents a significant development in the Canadian real estate industry. The lawsuits challenged traditional commission structures, claiming that sellers were unfairly required to compensate buyer brokers, leading to increased costs and reduced competition. With Re/Max agreeing to a $7.8-million CAD settlement, the industry is now pondering what lies ahead and whether more settlements or legal challenges will ensue.

Looking at the Sitzer/Burnett case in the U.S., it provides a glimpse of what could unfold in Canada. This landmark antitrust case resulted in over $1 billion in settlements, policy changes, and enhanced consumer awareness regarding agent commissions.

Could Canada witness a similar transformation?

The U.S. experience: A precedent for Canada?

A wave of lawsuits and settlements

Following the Sitzer/Burnett verdict that found the defendants guilty of commission inflation conspiracy, numerous similar lawsuits emerged across the U.S., resulting in widespread settlements. This wave of litigation has also reached Canada, with copycat lawsuits emerging, intensifying scrutiny on commission structures and industry practices.

The National Association of Realtors (NAR) alone paid $418 million and agreed to significant practice changes, including eliminating the requirement for listing brokers to offer compensation to buyer brokers through the MLS, mandating written buyer representation agreements, and increasing transparency regarding agent compensation.

The verdict also sparked notable industry shake-ups, including leadership changes at NAR and heightened focus on agent compensation. The increased media attention on commissions led to greater consumer awareness, with more sellers negotiating agent fees than ever before. Moreover, the wave of litigation prompted additional settlements by other brokerage defendants, further reshaping the industry landscape and reinforcing the momentum towards commission structure changes.

Policy changes and a shift in consumer behavior

One of the most notable changes in the U.S. has been the introduction of mandatory buyer representation agreements. However, in Canada, these agreements are already mandatory in most provinces before an offer can be submitted on behalf of a buyer. Consequently, this shift in the U.S. is unlikely to have the same disruptive impact in Canada.

While some sellers in the U.S. are opting out of offering compensation to buyer agents, Canadian regulations already support a structured approach to buyer representation, making such a transition less dramatic.

Early data suggests that commissions are starting to decrease in the U.S., though not as significantly as some anticipated. Redfin has reported a gradual decline in commission rates, while Zillow’s 2024 report revealed that over half of sellers now negotiate fees, compared to just 19% a year earlier. However, in Canada, commission structures have historically been more flexible, with tiered commissions, flat fees, and other alternative payment models widely available. As a result, the impact of legal and policy changes on commission rates may be less pronounced in the Canadian market.

The role of MLSs and regulatory oversight

MLSs in the U.S. have had to undergo significant changes, including removing commission offers from listings. This shift has led to increased competition and new business models as agents adapt to a marketplace where compensation is no longer standardized.

Moreover, large national brokerages like Compass have responded by establishing their private MLSs to control exclusive inventory and attract both agents and clients. This trend could be replicated in Canada, where brokerages may consider creating their listing platforms to offer unique value, justify commission rates, and maintain a competitive edge. Additionally, regulatory bodies like the Department of Justice are closely monitoring these changes, ensuring compliance and further influencing industry practices.

What does this mean for Canada?

Will more defendants settle?

With RE/MAX Canada’s settlement, attention now shifts to other defendants, such as the Canadian Real Estate Association (CREA) and major brokerages. While CREA has pledged to contest the allegations, if more settlements follow, we could witness industry-wide shifts akin to those in the U.S. Notably, in the U.S., brokerages that settled early often secured better deals than those who went to trial. While Canadian cases are not heard before a jury, Re/Max Canada may have looked to the U.S. and realized that a more predictable and controlled outcome through settlement could be preferable to protracted litigation.

If litigation persists, brokerages and real estate boards may opt to settle to avoid the uncertainty and financial burden of prolonged court battles. This could lead to changes in commission structures…