Here in Canada, a class action suit was filed in federal court on January 19, 2023, and 72 Regional Boards, 10 Franchisors, and 8 Brokerages Are on the Hot Seat!

In recent years, the real estate industry in both the United States and Canada has seen significant legal challenges concerning traditional commission structures. These lawsuits have sparked conversations about transparency, fairness, and the overall cost of selling a home. As a full-service real estate brokerage in Nova Scotia, Assist 2 Sell HomeWorks Realty is at the forefront of offering a fair, open, and transparent flat fee program that addresses many of the concerns raised in these legal battles.

The US Lawsuits Against NAR

In the United States, the National Association of Realtors (NAR) has faced multiple lawsuits alleging anti-competitive practices related to commission structures. One of the main concerns is the "buyer broker commission rule," which requires all brokers to make a blanket, non-negotiable offer of buyer broker compensation when listing a property on a Multiple Listing Service (MLS). Critics argue that this rule inflates commission rates and limits competition.

The National Association of Realtors, which represents more than a million agents in the U.S., has agreed to settle a lawsuit that accused the industry group of artificially inflating real estate commissions. The trade group agreed to pay US$418 million to compensate home sellers and will change commission rules, eliminating the standard six-percent sales commission. The trade group has also agreed to abolish the “Participation Rule” that required sell-side agents to make an offer of compensation to buyer brokers.

In late October 2023, a Missouri jury in the Sitzer/Burnett suit found Keller Williams, NAR, and HomeServices of America liable for collusion. Prior to the trial, Anywhere and RE/MAX settled the Sitzer/Burnett, as well as Moehrl and Nosalek suits. Keller Williams reached a settlement agreement in these and other lawsuits in early February 2024. Anywhere has agreed to pay $83.5 million, while RE/MAX settled for $55 million. On March 15, the day the $418-million US settlement was announced, the National Association of Realtors said fees have always been set by the market, not by collusion among agents. Besides, the group said, those fees have always been negotiable.

"Offers of compensation help make professional representation more accessible, decrease costs for home buyers to secure these services, increase fair housing opportunities, and increase the potential buyer pool for sellers," the association said in a statement outlining the broad points of the agreement.

In Canada, similar concerns have been raised about the Canadian Real Estate Association (CREA)'s commission structures. A notable lawsuit challenges the traditional percentage-based commission model, arguing that it does not reflect the actual effort and cost involved in selling a property. The plaintiffs seek more transparency and the option for sellers to negotiate commission rates directly with their agents.

Garth Myers is a partner at Kalloghlian Myers LLP, the Toronto-based law firm that launched the lawsuit against the Canadian Real Estate Association and dozens of brokerages. It alleges the defendants, representing more than 150,000 brokers and real estate agents in Canada, “conspired, agreed or arranged with each other to fix, maintain, increase or control the price for the supply of buyer brokerage services for residential real estate.” If the class-action lawsuit is successful, Myers said, it would have a “profound effect not just on the real estate industry generally, but for Canadians at large. It would have the effect of reducing transaction costs of buying and selling residential real estate.”

This lawsuit alleges that the real estate brokerage industry inflates commission fees, and has been expanded to include all of Canada. The class action suit, filed in federal court January 19, 2023, names 72 different regional real estate boards, 10 real estate franchisors and eight real estate brokerages as defendants.The Federal Court has not yet certified the case as a class-action suit, and none of the allegations have been proven in court.

Assist 2 Sell was not named in these lawsuits.

Essentially, this price-fixing suit alleges that an unwritten arrangement known as the “buyer brokerage commission rule,” which has become the norm for many residential real estate transactions, violates competition laws.When a home sale closes, the seller typically pays a broker commission fee, which is a percentage of the entire sale amount. The fee is normally then split between the representatives of the seller and the buyer, and is customarily shared evenly.

This was the case with Milton resident Kevin McFall, the named plaintiff in the class action suit. In the court documents, McFall alleges he sold his home in May and paid a five per cent commission on the sale, half of which went to the buyer brokerage. The suit claims that this system incentivizes buyer brokerages to direct their clients away from sellers offering lower commission fees, artificially inflating them over time.

CREA says these allegations are without merit.

The Canada-wide class action suit claims that the Canadian Real Estate Association (CREA) helped brokerages facilitate the alleged price-fixing scheme. CREA says the allegations are “without merit.” and goes on to say that they will vigorously defend against these claims. The association claims that its listing systems are efficient and effective cooperative marketplaces that bring together realtors acting on behalf of Canadian home sellers and buyers and are both pro-competitive and pro-consumer.

The statement goes on to say that buyers and sellers in Canada have always been able to negotiate commissions with their agents.... On the buyer side, buyer representation agreements are required in at least seven provinces in Canada. These agreements establish terms like services and fees between an agent and their buyer.This represents more than 80 percent of homes sold in Canada.

In Canada, there are different fee structures in different jurisdictions. In NS, although commissions are negotiable and not set by law, it is common to see commissions in the range of five percent of a home's sale price split between the buyer's and seller's agents. However, what is common among those different jurisdictions is that the fee paid to the buyer's agent is baked into the price of the home, while a seller can negotiate with their agent and get a better fee. What is needed, perhaps, is a system that gives buyers the right to negotiate with the agent and a commission for the services they may or may not use. What may be better is a system where some buyers pay an agent a full commission to help them find a home, figure out a price and close the sale, while others will simply need someone to help them file the paperwork. Currently, the fee paid to both the buyer's and seller's agents is essentially included in the price of the home. Fees are not an extra closing cost outside the home price. These fees are included in the mortgage amount, so buyers don’t have to pay these fees out-of-pocket policy. Mortgage rules may need to change if buyers want the flexibility and freedom to negotiate an amount outside the transaction.

How Assist 2 Sell, HomeWorks Realty Stands Apart

Assist 2 Sell, HomeWorks Realty. has been a pioneer in offering a flat fee commission model since 2001. Our franchisor, Assist 2 Sell Inc. of Reno, Nevada has been providing a Flat Fee Business Model since 1987. Our approach directly addresses the issues raised in these lawsuits by providing a transparent, fair, and cost-effective alternative to traditional commission structures. Here's how our program aligns with the concerns highlighted in the legal battles:

Transparency: Our flat fee model is clear and upfront. Home sellers know exactly what they are paying for without any hidden costs or surprises.

Fairness: We believe in charging for services, not a percentage of the home's selling price. This ensures that all sellers, regardless of their home's value, receive the same high-quality service at a fair price.

Cost-Effectiveness: Our clients save thousands of dollars in real estate commissions on average. This puts more money back in the pockets of home sellers, making the selling process more affordable.

Comprehensive Services: Despite our lower fees, we offer a full suite of professional services, including extensive marketing campaigns, virtual and physical open houses, and a strong online presence, ensuring that our clients' properties get maximum exposure.

You can read our franchisor's statement on the lawsuits here.

Conclusion

The ongoing lawsuits against NAR and CREA have highlighted the need for change in the real estate industry. As these legal battles unfold, consumers are clearly seeking more transparent, fair, and cost-effective options for selling their homes.

Assist 2 Sell HomeWorks Realty is proud to be at the forefront of this shift, offering a proven flat fee program that aligns with the needs of today's home sellers in Nova Scotia. If you're considering selling your home, we invite you to explore how our services can provide exceptional value while saving you thousands in commissions.

Contact us today to learn more about how we're doing great things for home sellers in Nova Scotia.

Sources:

https://www.housingwire.com/articles/nar-settles-commission-lawsuits-for-418-million/

https://www.inman.com/2024/03/08/sitzer-burnett-plaintiffs-attorneys-ask-for-a-third-of-settlement-payout/

https://vancouversun.com/news/local-news/us-lawsuit-realtor-commissions-shake-up-canada-housing-market

https://casetext.com/case/moehrl-v-the-natl-assn-of-realtors

https://www.cbsnews.com/news/realtors-liable-for-1-8-billion-for-high-commissions-jury-finds/

https://www.cnbc.com/2021/03/08/several-class-action-lawsuits-could-change-real-estate-commissions.html.

https://www.inman.com/2021/04/29/the-doj-is-investigating-nar-rules-in-probe-of-real-estate-commissions/.

https://financialpost.com/real-estate/canadian-real-estate-class-action-lawsuit-seeks-to-end-predatory-agent-double-ending.