Toronto real estate class-action could affect billions of dollars in commissions

financialpost.com:

A Federal Court judge on Sept. 25 allowed a class-action lawsuit alleging home sellers in the Toronto area have been forced to pay artificially inflated commissions for years. The lawsuit alleges major brokers and real estate organizations in Toronto implemented rules that essentially stifled competition for buyer brokerage services, leading to higher prices. But what exactly is buyer brokerage and what is its role in the potentially landmark lawsuit? The Financial Post’s Shantaé Campbell explains.

Buyer brokerage refers to a real estate agreement where a broker represents the buyer in a property transaction, in contrast to the traditional setup in which brokers primarily represented sellers. The shift toward buyer representation began in the 1990s in Canada, leading to the development of buyer agency agreements, allowing buyers to have exclusive representation in the homebuying process.

This transformation prompted the creation of specific legislations and regulations by provincial governments and real estate regulatory bodies in Canada, such as the Real Estate Council of Ontario (RECO), the Canadian Real Estate Association (CREA) and the Toronto Regional Real Estate Board (TRREB).

These rules and protocols serve to formalize and oversee buyer brokerage relationships by instituting a framework governing duties, responsibilities, disclosure, consent and confidentiality.

Nationwide, commission structures for real estate agents and brokerages typically involve a percentage-based commission derived from a home’s sale price, but the rates vary.

In Toronto, the prevalent rate is five per cent on the entire sale amount and it is customary for the seller to pay the commission on a property sale, which is subsequently divided