What is this all about?
In the landmark Sitzer/Burnett trial, home sellers in Missouri successfully sued the National Association of Realtors (NAR), Keller Williams, and HomeServices of America, challenging the traditional real estate commission structure. The plaintiffs argued that these real estate giants conspired to keep buyer agent commissions artificially high, infringing on competitive and fair market practices. After a brief deliberation, a jury awarded the plaintiffs nearly $1.8 billion in damages, sparking a national debate on real estate commission structures and transparency. The verdict represents a significant push against established industry norms, with the defendants announcing plans to appeal, underscoring the ongoing legal and industry-wide implications of this case.
As the dust settles in the US, a similar legal challenge in Canada is poised to follow suit, signaling a shift that could transform real estate transactions and relocation practices on both sides of the border.
This seismic shift stems from the decoupling of traditional commission models, where sellers have historically covered the commissions for both selling and buying agents. The essence of this change lies in the move towards greater transparency and flexibility in how commissions are negotiated and disclosed, challenging long-established practices.
For the relocation industry, these changes are more than just legal footnotes; they represent a pivot that could dramatically affect corporate relocation policies. As companies navigate this new terrain, the potential for increased relocation costs looms large, necessitating a re-evaluation of how support is structured for relocating employees. The question at hand is not just about covering additional costs but about ensuring the competitiveness and attractiveness of relocation packages in a shifting market.
What should we inform our corporate clients to do for their employees? Will the market shift all at once? No. The Market has a Memory.
Many sellers will continue to pay for buyer services. This payment will make their properties more attractive to buyer agents. However, some may not. This means that we have to instruct our clients as to how to handle this change. Do they still cover commission big enough to cover the costs of the selling agent and the buying agent? Or do we recommend that they only pay the selling side, which may make properties less attractive to buyer agents.
Will there be sellers who immediately stop paying the commissions of buyer agents? Yes. And in these cases, the buyer’s agent will turn to their client (a relocating employee) and require them to pay Realtor commission for their services. How much will it be? If current compensation is mirrored then (PLEASE NOTE: all commissions are fully negotiable, but for the ease of understanding the potential cost on relocation programs, we will illustrate using the most typical norms) this would mean 2.5% in eastern Canada or 3.5% on the first one hundred thousand and 1.5% on the balance in Western Canada This means a cost of approximately $17,500 in eastern Canada $9000 in western Canada. Should the company relocating the employee cover this new cost? Or could it take the position that the whole market hasn’t changed, “you should be able to find a home where the seller does indeed cover buyer’s commission”. So, yes companies could just to outlaw buyer’s commission as a covered cost in their relocation policy. But what happens if more than 1 in 10 seller’s stop paying buyer’s commission. So, half the market pays buyers commission and the other half doesn’t. Should a company cover buyer representation fees then? It becomes a more reasonable proposition at this point and a possible increase in the already expensive cost of relocation.
But then do you limit how a transferee sells their property – outlawing the coverage of buyer representation commission out of the sale. That is not reasonable if the market hasn’t done a significant shift away from sellers covering buyer commission.
One other consideration is if corporations do not cover the cost of buyer brokerage fees the cost will be borne by their relocating employee. This means that they are going to have less money for down payments, thereby reducing the amount that they can pay for a property, possibly buying an inferior property than they had at origin. That would not be a very popular relocation program.
Where will this eventually settle? I remember back in the day, the argument made by listing agents was that if you did not have the buyer’s side commission at a decent level (i.e 2.5% in some eastern Canadian cities), then you would not attract buyer’s agents. Now, such a story carries a certain grain of truth, in that money is a big motivator. The theory went: if a buyer realtor saw a listing that offered them 3%, compared another property that offered them 2%, they have the financial motive to encourage their buyer to choose the 3% property. So went the theory and probably in many instances it was practiced this way.
Now, it needs to be said that real estate regulatory measures have been significantly increased since those days, as market regulators and Real Estate associations worked to break old views of Realtors only considering their pocket book. In fact, buyer brokerage has been a significant change in regulations, so yes, buyer Realtors have fiduciary responsibility to their clients which means that they owe their clients the highest level of ethical service.
But the point stands: the legacy commission percentages are sticky, and buyer representative fees are likely to continue along a similar pattern.
And it deserves to be said the value that a buyer real estate representative brings to the table: A buyer’s agent exclusively represents the buyer’s interests, guiding them from start to finish in the home buying process. They identify matching properties through the MLS, ensuring access to current listings. Buyer’s agents negotiate deals, handle paperwork, and connect buyers with trusted professionals like mortgage brokers and inspectors, streamlining the process and tackling any issue. That deserves to be compensated, but in a new world order where buyers pay this fee, where will it land (it could be really hard on first time home buyers!)
Again – the Market has a Memory
When companies came on the market that listed on MLS but provided less services, so that fees could be lowered (such as pay a service fee for marketing on MLS but not for organizing showings or for the sales negotiation), it was discussed in real estate circles that this new flexible model could up-end the legacy model of regular commission. It didn’t happen. Why? Even in the face of multi-million dollar homes selling in 8 days, the old commission structure that compensated realtors for $10,000s just held on. Part of this is because Realtors evolved. Many Realtors started offering, for instance, advanced staging options as part of their packages. But the fact remains that this commission model has been stubborn before, it may be stubborn in the future.
Part of the stickiness of these fees is that Realtors are not always the mega-rich easing their way through life. They don’t earn all that money that you think. The brokerage company takes a portion (10-30%) of the commission to support its operations, including staff wages and office expenses. The remaining funds go to the agent, covering personal overhead such as transportation, insurance, and office costs, alongside transaction-specific expenses (e.g., advertising for sellers, gas for buyers). These costs, plus taxes and personal income, must be managed from this share. Given the extensive, often unseen work agents do, their hourly earnings, especially for median-priced homes, are generally reasonable and not excessive.
Relocation Companies
Relocation companies, particularly those whose business models are heavily reliant on referral fees from real estate transactions, face their own set of challenges. The reduction or elimination of these fees could prompt a significant business model reassessment. How these companies adapt—whether through diversification of services or restructuring of fee models—will be crucial to their sustainability. If employers outlaw the coverage of buyer representation commission, then their employees are going to have to cover this cost. If this cost is more than 30% higher than it need be, because of a relocation company referral fee, the relocation company will not be tolerated by that buyer.
Disinflationary?
The potential market reactions to these changes are multifaceted. On one hand, the shift could exert disinflationary pressures on real estate prices, as the direct costs of buying a home become more transparent and potentially lower. On the other hand, market dynamics such as seller willingness to cover buyer agent commissions could lead to a variety of outcomes, influencing both the attractiveness of properties and the overall cost of relocation.
OK – so what is All Points advising?
Amidst these uncertainties, the advice for corporate clients is to tread carefully, maintaining flexibility in their relocation policies and staying attuned to market developments, with the help of a good Relocation Management company. With regional variations in real estate practices—(if there are changes in commission structures, it will not be adopted uniformly across the country – Calgary and Toronto won’t switch in tandem) – tightly wording your relocation policy to suit one condition may no longer work. So, corporate clients, whatever they decide must ensure their strategies are both informed and adaptable. A one-size-fits-all approach to real estate is probably not in the cards for many years, as we watch this process roll out.
Conclusion
In conclusion, the evolving real estate commission and relocation landscapes present a complex matrix of challenges and opportunities. For corporations and relocation service providers alike, the path forward requires a proactive, informed approach. By staying ahead of these changes, they can navigate the uncertainties of today’s real estate market, ensuring their relocation strategies remain both competitive and effective.
An aside conclusion: if I am wrong above, and the whole market flips wholesale to a situation where sellers stop paying buyer’s agent’s commission, the biggest loser will be the home buyer (noted above). Down payments will shrink and therefore the type of property that the buyer can afford. In particular, first time home buyers and the youth (who are already priced out of the market) will have a tougher time to come up with enough money to both pay for a Realtor’s services and make a down payment. It isn’t directly a “relocation” point, but companies move first time home buyers all the time. In fact, someone leaving Toronto to take up a position in Edmonton – one of the perks of relocation is that they can finally get into the housing market. Well, that is at threat.
All Points is a professional relocation services firm with extensive experience in real estate in the context of relocation. If you want to subscribe to our articles, please click subscribe below. We will keep our clients up to date on market trends across various Canadian markets, with advice as to how to manage their relocation policies.
