The U.S. National Association of Realtors has agreed to pay $418 million US to end legal claims from home sellers that argued the group artificially inflated real estate commissions. (Reuters)


March 21, 2024

A recent settlement by the National Association of Realtors (NAR) in the United States has raised hopes among real estate experts in Canada. This settlement, amounting to $418 million USD, follows legal claims from home sellers who alleged that the NAR artificially increased real estate commissions.

The NAR, a prominent organization representing over one million Realtors in the U.S., has agreed to pay out the substantial settlement to resolve claims from home sellers regarding inflated real estate commissions. These sellers argued that the NAR's practices artificially raised commission rates, ultimately impacting the cost of buying and selling homes. Despite denying any wrongdoing, the NAR has opted to settle these claims and end the legal battle.

One of the significant changes resulting from this settlement is the elimination of the standard six per cent sales commission, a common practice in real estate transactions. Additionally, the NAR has committed to removing other commission rules that have been subject to criticism. These changes mark a significant shift in the real estate landscape, particularly in the U.S., where such practices have long been entrenched.

The impact of this landmark settlement extends beyond U.S. borders, with real estate experts in Canada closely monitoring the developments. A proposed national class action lawsuit in Canada, similar to the U.S. case, alleges similar commission-related issues and aims to address them through legal means. The lawyer behind the Canadian lawsuit believes that a successful outcome could lead to reduced costs for Canadian homebuyers and sellers.

Real estate professionals and academics in Canada see the U.S. settlement as a potential catalyst for change in their own country. They argue that similar adjustments to commission structures could make buying and selling homes more affordable for Canadians. Specifically, they hope that eliminating standard commission rates could lead to increased competition among real estate agents, ultimately benefitting consumers.

Tom Davidoff, an associate professor at the University of British Columbia's Sauder School of Business, believes that changes to commission rules could revolutionize the real estate industry. While acknowledging that they may not solve all affordability issues, Davidoff sees them as a step in the right direction. He emphasizes the potential for lower costs for homebuyers, which could help address some of the challenges associated with housing affordability.

The U.S. case against the NAR centered on long-standing commission practices within the real estate industry. For years, the NAR required brokers listing homes for sale to offer a commission to buyer's agents upfront, typically around six per cent of the sale price. Lawsuits argued that this practice forced home sellers into commission-sharing arrangements, ultimately inflating real estate costs.

As part of the settlement, the NAR has agreed to cease this practice and prevent agents' compensation from being included on listing portals. These changes represent a significant departure from traditional commission structures and aim to address concerns raised by home sellers.

In Canada, commission structures vary across the country, but real estate agents typically charge a percentage-based commission on the sale price of a home. While the specifics may differ, the underlying issues related to commission practices remain relevant in the Canadian context. The proposed class action lawsuit against the Canadian Real Estate Association (CREA) reflects similar concerns about commission rates and their impact on housing affordability.

While the outcome of the Canadian lawsuit remains uncertain, many are hopeful that it will lead to positive changes in the real estate industry. By addressing commission-related issues, such as transparency and affordability, these changes could benefit both homebuyers and sellers across Canada.

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