How sweeping U.S real estate changes could impact Canada

Peter Armstrong, our Senior business correspondent is here to break it all down for us. Peter, can you bring us up to speed? How could this court settlement have an impact on home sales in the US? Yeah. Look, I I think the keyword you use there is could this, this is a huge ruling, undoubtedly. And it could upend, frankly, a cornerstone of this industry, which is the way that buyers and sellers pay their real estate agents right now. If you want to buy a house, you can pull up the listing yourself. You can get your agent to bring you the listing. You can see how many bedrooms, how many bathrooms, the size of the lot. You can see what you’re going to pay in taxes, but you won’t see how much money of the sale, how much of the money from the sale is going to be used to pay your agent. And that’s what the settlement in the US has eliminated. It simply means that buyers should now get access to that information and as such they should be able to negotiate that fee a little bit better. The the potential implications here are enormous. Right now you have agents making 10s of thousands of dollars, whether the buyer wants to use an agent or not. And I really do think, Erica, that’s one of the fascinating stories we’re going to be watching over the next several months in the US is how the real estate industry as a whole adapts to this new rule. OK. So it has the potential to significantly alter the real estate market South of the border. Walk me through how it works here in Canada. Yeah, the, the two systems of course are governed by very different legal systems, obviously, but the systems themselves are remarkably similar, right. Real estate agents, one representing the buyer, one representing the seller. They split a fee. You know, here in Canada, we have different systems across different jurisdictions, but they really are all quite similar. Toronto has the simplest math, so let’s use that. Realtor fees in Toronto cost about 5%. The median price of a single detached home last month was a bit more than $1.2 million. So realtor fees would run you 61,000 bucks Now back in 1994, thirty years ago, the average price of a home in Toronto was $205,000. So realtor fees were $10,000. The buying agent, the the selling agent would split that fee, and that split is baked into the deal. When you’re buying a house, you have no way of knowing or even negotiating how much those fees are going to be. So fees are through the roof, you point out, since the 1990s, even though the technology has changed enormously since then. Exactly now. Back then, you needed an agent to find you the listing. Now most buyers do much of that legwork on their own, on their laptop, right? In a lot of cases, a buyer’s agent is just helping with booking a viewing advice on a bid price and filing all that paperwork for you. In a lot of countries, you can hire somebody for like 500 bucks to do that for you. And, you know, technology is supposed to bring down prices. And yet, as you say, fees in this case are up considerably. Now, you spoke with the lawyer who’s bringing a similar lawsuit here in Canada. What did he tell you about the status of his case? Yeah, he says the fundamentals of his case are the same as the basics. In the US case, it’s it’s about transparency. It’s about fairness. It matters because we’re talking about a huge amount of money. Well, the entire point of our case in Canada is that there there is no transparency. The real estate associations, the brokerages, the franchisors have created a system that ensures that there is no transparency. Effectively for buyers and sellers, the seller is required to make an offer of Commission to the buyer broker. So he’s suing the Canadian Real Estate Association, dozens of brokerages right across the country. But you know, wheels of justice do turn slowly. So it’s going to be years before these cases are done. We reached out to the Canadian Real Estate Association that’s named in this suit and they sent us a quote saying in Canada, Realtors use their expertise to help guide buyers and sellers through the home buying process. Consumers have always been able to negotiate commissions with their agent as either sellers or buyers, so lots to watch going on. So what is the bottom line here then, Peter, for consumers in Canada? What’s the likelihood that we’re going to see those 10s of thousands in fees get eliminated the same way they were in the US? Yeah, that’s the billion dollar question here. And I think there’s a couple of things worth noting here. One, the real estate industry and agent brokerages in the US, they’re already pushing back against the notion that this settlement is going to lead to wholesale change. So we’ll have to wait and see just how much change actually happens on the ground. The other is that a bunch of people told me, as I reported this story, that Canada is a very status quo environment, that change is often incremental here. So the legal questions are the same, but will we end up with a similar settlement to the one in the US or perhaps a more nuanced kind of Canadian compromise? Either way, what are the implications of any change? I spoke with one real estate expert about what that change might actually look look like here. There’s a chance that they may not be happy about it because what if now the buyer Commission, agent Commission, you have to pay out of your pocket and the bank is not paying for it, right. Like right now it’s baked into the mortgage amount. So you don’t have an out of pocket cost, but now you have the flexibility and freedom to negotiate but that amount is coming out of your own pocket right away. So. So it’s very difficult for one to say it will 100% everybody will be happy or with some would say well I was happy with the with the law system. So there’s much more nuanced future, and we have to wait and see. It sounds like there may be some unintended consequences. What else should we be watching for? So, I mean, grains of salt abound here, but you know, Realtors that I spoke with and told me the current system sure isn’t perfect, but that it worked, right? And that in its way it kept a cap on at least the percentages that were charged by agents. If the system now changes and buyers can negotiate those real estate agents say it, it’s a sure bet that the agents are going to negotiate more too. So you’ll see some lower, but some higher. At the end of the day, I think the key thing for everybody here, whether we’re talking about the courts, the buyers, the sellers, the agents, the brokerages, all of them, the key is transparency. The more you know, the better you off you are. And isn’t that pretty much the case for everything? Peter, thanks for this Peter Armstrong in Toronto tonight.