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The original lawsuit involves brokerage firms in the Greater Toronto Area
Published on February 2, 2024 • 3 minutes reading time
At the center of a new lawsuit against the real estate industry is a regulation that requires home sellers who use the Multiple Listing Service to offer a commission to the buyer's real estate agent. Photo by Jim Wells/Postmedia
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Thanks to a second class action lawsuit filed last month, the scope of a legal challenge over alleged price-fixing in the residential real estate industry has been expanded to include all regions of Canada.
According to Kalloghlian Myers Limited Liability Partnership (LLP), the law firm prosecuting the lawsuit, the new statement of claim was formally filed in federal court on January 19.
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The new lawsuit alleges that real estate agents across the country – excluding the Greater Toronto Area – engaged in illegal practices that resulted in unjustified increases in residential real estate commissions. Additionally, it is alleged that the Canadian Real Estate Association (CREA) and local real estate boards across the country helped facilitate these alleged violations.
The following is an original class action lawsuit against brokerage firms in the Greater Toronto Area (GTA).
At the heart of the case is a regulation that requires home sellers who use the Multiple Listing Service (MLS) to offer a commission to the buyer's real estate agent. The lawsuit alleges that this rule, in which sellers foot the bill for buyer brokerage services, stifles competition on the buyer brokerage side of the market, leading to higher commissions in an already highly competitive market.
In the statement of claim, the plaintiff, Kevin McFall of Milton, Ontario, says he retained the representation of Royal LePage Meadowtowne Realty, which simultaneously acted on behalf of the buyer in the transaction.
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“For the sale of his residential property, Mr. McFall paid a total commission of five percent, including a commission of 2.5 percent plus HST to the buyer's agent,” court documents state.
“For Canadians, these commission costs represent a very significant cost of selling a home and erode people’s savings,” said Paul Bates of Bates Barristers PC, a lawyer involved in the lawsuit against CREA.
“In both cases, including the recently filed case for all regions outside the GTA, the issue is that the buyer-broker commission should not necessarily be deducted from the seller's sales proceeds and that the commission should be negotiated by the buyer-broker with the buyer should . And in that case the commission would be far less than it is now,” Bates said.
John Syme of John Syme Law, another lawyer working on the case, said a positive outcome could lead to compensation and changes to rules monitoring commission payments.
In both cases, the legal teams are seeking compensation, not only for their clients but also for individuals who have purchased residential properties since 2010.
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“If the lawsuit is successful, it would result in real estate sellers who were forced to pay agent commissions to buyers being compensated,” Syme said. “In addition, it is likely that there will be changes to the rules for paying commissions in the future.”
Syme said a change to the rules could include a change to the current mandate, which requires property sellers to cover the cost of services used by buyers.
Bates said the GTA case is expected to be resolved within the next two to three years, but “salary planning is an ongoing endeavor.”
“The external GTA case should be completed a few years later,” Bates said.
When the Federal Court gave the green light to the class action lawsuit against the GTA real estate industry in September, the Canadian Real Estate Association issued a statement.
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“We continue to believe that the claims against CREA and other defendants are without merit, and we will continue to defend our members in this case,” it said at the time.
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