A legal battle alleging price fixing in the real estate industry has been expanded to every Canadian province and territory.
In January, a second class-action lawsuit was filed in federal court alleging that real estate brokerages across the country conspired to inflate buyer brokerage commissions paid by sellers, and that various regional real estate boards and the Canadian Real Estate Association (CREA) “aided, abetted, and counselled” the illegal agreement.
The lawsuit claims the scheme has been ongoing since at least March 11, 2010. Along with CREA, 88 regional real estate boards, franchisors, and brokerages are named as defendants, including the Nova Scotia Association of Realtors, Quebec Professional Association of Real Estate Brokers, Brampton Real Estate Board, Mississauga Real Estate Board, Calgary Real Estate Board, Real Estate Board of Greater Vancouver, and Yukon Real Estate Board.
Brought forth by Milton resident Kevin McFall on January 18, the lawsuit follows an original class action claim against CREA, the Toronto Regional Real Estate Board (TRREB), and seven Greater Toronto Area brokerages filed by Toronto resident Mark Sunderland in 2023.
Both cases stem from rules brokerages agree to when they join their local real estate board and CREA, including that a seller on an MLS system must pay a commission fee to their own brokerage as well as the one used by the buyer, typically of 2.5% of the sale price to each firm.
Such a scenario is what befell McFall. According to a statement of claim, McFall sold a property that was listed on the Oakville, Milton, and District Real Estate Board MLS in May 2023.
He was represented by Royal LePage Meadowtowne Realty, as was the buyer of the home. For the sale of his property, McFall paid a total commission of 5%, 2.5% of which, plus HST, was to the buyer brokerage.
McFall’s lawsuit argues that with the seller on the hook financially, there is no incentive for buyers to negotiate on commission price, or to forgo using a brokerage altogether. As such, the arrangement “eliminates normal competitive market forces” that would otherwise dictate the price of a service, driving up the commission fees paid by sellers.
As court documents explain, the result is that an experienced buyer brokerage offering comprehensive services is paid the same as a competitor with “unremarkable service quality and ‘barebones' service.”
“In markets for other kinds of services, where competitive forces are not prevented from operating, such objective measures of value drive competition on price, service levels, and other dimensions of competition,” the documents read.
“In effect, the Arrangements reward and incentivize marketing efforts by Buyer Brokerages directed at procuring the highest volume of clients possible, over optimizing the service quality and the value proposition provided to their clients.”
Garth Myers, a Partner at Kalloghlian Myers LLP, one of the firms involved with both cases, told STOREYS the motivation for expanding the class action lawsuit Canada-wide was to seek justice and compensation for sellers who have been impacted by “illegal price fixing rules.”
“In 2023, the Chief Justice of the Federal Court concluded that it was at least arguable that the rules agreed to between all of these brokerages, imposed by TRREB and CREA, constitute an illegal form of control on the price for the supplier buyer broker services,” Myers told STOREYS.
“[The initial case] proposed a class action related to any seller within the geographic region of the GTA. Virtually the same rules are applied across Canada by CREA and other local real estate boards. If the Toronto rules are an illegal form of price control, then so too are the rules applicable to every other seller of residential real estate who listed on an MLS.”
Beyond obtaining compensation for those affected, Myers’s hope is that the lawsuit results in systemic change, with the rule being removed altogether.
“We think that would directly result in lower buyer brokerage commission fees and less expensive costs associated with the purchase and sale of residential real estate,” Myers said.
“That would have, I think, a really beneficial impact for everyday people who are struggling to afford the purchase of homes.”
