Realtor commission review

There is renewed focus on realtor commissions amid a rebound in market activity in B.C. and a class action lawsuit against major Canadian real estate entities.

Although realtor commissions are generally lower in Western Canada compared to the rest of North America, experts say the framework for commissions in B.C. is commonly misunderstood, with many transactions lacking transparency or ending up more costly.

Greater clarity could result from a class action proceeding in the federal judiciary, where more than a dozen real estate entities are being sued for alleged anti-competitive practices. A similar lawsuit occurred in the U.S. and was recently settled by that country’s national real estate association.

Homebuyer demand continues to strengthen, prompting a fresh look at commission structures. In B.C.’s reinvigorated real estate market, there may be more attention paid to commissions, with flexibility, autonomy and simplicity desired by realtors and clients alike. 

“I really felt that the practice by some of the people in the industry, where they mandated what [realtors] charge, I think that’s coming home to roost both in the U.S. and in Canada, and I think it’s a good thing for consumers,” said Ross McCredie, owner of Sutton Group Realty Services Ltd.

“It’s good for the industry and good for homeowners that they have that conversation. They should know that they can negotiate the commission rate, and they should fully understand what they get for that commission. I think the industry has done a pretty dismal job of explaining this to people.”

No mandatory commission structure in B.C.

In B.C., there are generally two realtors involved in a real estate transaction, one representing the buyer and one representing the seller. Several years ago, dual agency was largely prohibited to ensure that realtors fulfil their fiduciary duties and avoid conflicts of interest.

There is no mandatory commission structure, and commission is negotiable. Commission is paid from the sale price, and is split between the buyer’s and seller’s agents pursuant to a multiple listing contract signed between the seller and their listing agent, specifying how much commission will be charged and how it will be split with the “co-operating” buyer’s agent. Buyers don’t pay their realtors directly. 

Realtors are licensed by the B.C. Financial Services Authority and are required to join a brokerage, to which they pay “desk” fees as independent contractors. Most brokerages will charge a monthly fee to “hang” one’s license there, which covers administrative costs and services for realtors.

Realtors also pay fees to their local real estate board, giving them access to the Multiple Listing Service (MLS)—a robust, data-driven system that tracks all information regarding listings past and present, enabling realtors to aggregate data on market trends and use enhanced digital tools.

Realtors’ commissions vary market to market, but B.C. realtors get a relatively small slice of the pie.

“Western Canada has the lowest commission rates as a standard, like in terms of just where they sit, of pretty much any jurisdiction in North America,” Sutton’s McCredie said. “They’re generally around 3.5 or 3.75 all-in for both buy and sell. In the U.S. it’s usually five, or in Eastern Canada it’s usually five-plus, and in places like California it can be as much as 10 per cent.”

Market conditions can influence commission rates

The market is rebounding in B.C. after several successive cuts to the key interest rate. 

There were 2,181 homes sold in November, a 28.1-per-cent increase from the same month a year earlier, according to the Real Estate Board of Greater Vancouver. This comes on the heels of the 30-per-cent year-over-year increase seen in October.

When markets heat up, properties can sell quickly and less work is required from agents, which has led to some realtors offering discounts on their commission. In addition to discounts, cash back incentives for buyers are also becoming more common. 

One realtor in Vancouver who is taking a creative approach is Mike Dirks of Royal LePage Real Estate Services Ltd. The Kitsilano-based realtor, who received his license in 2015, will be offering a flat-fee service in 2025 for comprehensive listing services. His commission structure will be $10,000 for single-family homes, $7,500 for townhouses and $6,000 for condos.

Dirks’ model could attract clients by saving sellers tens of thousands of dollars compared to traditional commission rates.

“This isn’t about cutting corners,” he said. “We maintain the same level of service and buyer attraction as a traditional model, but at a fraction of the cost. It’s the best of both worlds—strong market appeal and significant savings for sellers.”

Parallel lawsuits highlight competition issues

A class action lawsuit was commenced in 2022 in Federal Court, where a plaintiff is claiming unspecified damages on behalf of all people who sold residential real estate listed on the MLS owned and operated by defendant Toronto Regional Real Estate Board dating back to 2010.

In support of his claims, the plaintiff alleged anti-competitive conduct by various defendant brokerages, franchisors and other entities, saying prevailing practices “severely limit and impair the negotiation or alteration of the price for the supply of buyer brokerage services (i.e., the commission) which has been offered by a seller to buyer brokerages.”

The court has not yet ruled on the plaintiff’s certification motion, though a September 25, 2023 ruling struck the claims against some defendants, including Sutton, as having no reasonable prospect of success. Toronto law firm Kalloghlian Myers LLP represents the plaintiff, and did not respond to an interview request.

One of the defendants, the Canadian Real Estate Association (CREA), told BIV it is limited in what it can say at this stage.

“We believe the allegations to be without merit and will continue to defend against them,” said CREA spokesperson Pierre Leduc.

In the U.S., a similar lawsuit was settled by the National Association of Realtors (NAR) earlier this year for US$418 million, which was paid into a settlement fund. Plaintiffs had alleged that by mandating that commission be split between agents for the seller and buyer, NAR violated antitrust laws and created an industry-wide standard commission of about six percent. 

Now, U.S. agents will no longer discuss commission splits, a shift that could lower commissions across the board. While the Canadian and U.S. lawsuits have key differences, they raise some of the same questions, such as whether requiring listing agents to offer compensation to buyer’s agents distorts competition and results in higher fees.

The CREA maintains that the Canadian system is different, in that the commission allocated to buyer’s agents “can be any amount except zero,” and that written service and fee agreements are in place for buyers in at least seven provinces, covering more than 80 per cent of homes sold in Canada.

Realtors assume the risk of not getting paid

Caught in the middle are B.C.’s realtors, who face significant challenges and costs in their profession, in which many eke out a living and relatively few enjoy lucrative careers.

Realtors must first invest time and money to take a real estate course and obtain their license. From there, many lose money during the first two or three years, when the lucky ones may have a couple of transactions per year at most. To gain experience, they may have to offer reduced commissions, or work as juniors to more senior agents.

While some high-end brokerages operate differently, it’s generally not guaranteed that a realtor will be paid unless a deal closes, even as they shell out for upfront costs and spend time on meetings and open houses.

In light of the risks they assume and the value they add, realtors may be hesitant to switch to a new commission paradigm.

Meanwhile, Sutton’s McCredie said it’s more important than ever for the public to understand commission structures. “It’s really good for people to understand how people are compensated, and in the past, they didn’t have that,” he said.

“Say a house sells for $800,000. Typically in the past, you’d be in a closing room and you would see for the first time how much your realtor’s getting paid, and it was usually a bit of a shock because people looked at it and went, ‘Wait a second, you’re getting paid $30,000 for this?’ They didn’t fully understand it, and a lot of criticism usually came from the lawyer or the accountant who at the same time was saying, ‘Wow, that’s a ton of money.’

“But what I would say to them is, ‘Sorry, you didn't put out any money, you didn't take any risk associated with this—the realtor did.’”