Canadian Housing Update 10.5: Big Changes in US Real Estate Commissions

A major US Realtor group has agreed to implement a rule change to pay out $418 Million to homeowners ending a 4-year class action lawsuit. This is a result of the real estate group artificially inflating real estate commissions. This is concerning the 6% commission on buying and selling a home, in the US this rule could now be gone pending court approval.

This has been a long 4-year class action lawsuit but has gotten more attention with the cost of rising rates and unaffordable homes in the last year. While $418 million does seem like a lot this lawsuit started as $1.8 billion and the $418 was the ending settlement. This is set to dramatically change the current home-buying model in which brokers were taking a percentage which does not seem appropriate with home prices where they currently stand.  

Lower Home Prices

This new ruling, if put into law, should result in lower home prices due to lower real estate commissions. This may also potentially open the door for a flat fee model vs. a percentage fee model.  In comparison, countries like Singapore and the UK often charge behind 1 and 2% commission for the same service as agents in the United States and Canada. This could result in not only lower prices but better turnover in real estate. More turnover would create more supply and a more liquid real estate market, which could help normalize pricing. 

Coming to Canada?

There is a similar lawsuit in Canada currently, that started in April of 2021, and this strengthens the Canadian home seller’s case going forward. In the past, the United States and Canada have shared the same system with 5-6% real estate commissions but given the current environment of unaffordable housing and high rates, it would be very unlikely for Canada to not follow suit if put into law in the US.

Summary

This is likely coming to Canada and should help with real estate pricing and liquidity. This will not crash pricing by any means but create a better more efficient market. A more efficient market would be to the benefit of the buyers and the sellers so that they end up with more money in their pockets and value in their homes.

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Justin, Konrad, and Merriel

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Disclaimer: This newsletter is solely the work of Konrad Kopacz and Justin Lim for the private information of their clients. Although the author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and the author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and they have not been approved by, and are not necessarily those of, Echelon.

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