It is more important than ever to understand the rules regarding real estate commissions so that you and your clients are protected this year. Here are answers to some common questions I receive related to commissions:
1. Can I collect commission if I bring a full price offer and the seller refuses to accept it?
There has been one case where a listing brokerage was awarded commission when the seller refused to accept a price that they had previously agreed to accept in a prior negotiation. In that case, the property had been for sale for several months and during that time, the seller signed an offer back at a price they would have accepted, which was rejected by the buyer. When the same price was offered a few weeks later and the seller refused to consider it, the judge awarded commission. However, this may not mean that just because a seller refuses a full price offer for a property listed 2 days ago, that the brokerage can claim commission. In this case, the asking price may have been for example, set deliberately low to attract multiple offers.
2. Who wins if 2 salespeople have a signed BRA with the same buyer?
It will depend on other factors. If the buyer lied to both salespeople and the second salesperson who did the deal knew nothing about the first BRA, then the second salesperson should win. If the second salesperson knew that the buyer saw properties with someone else but did not inquire any further, then the result may be different. The lesson is to always ask any prospect whether they have signed any agreement with any realtor as soon as you meet them.
3. Is it better to go to arbitration or to sue for commission in court?
In my opinion it is always better to go to arbitration, rather than go to court. In most cases, the arbitration proceedings do not become public and the matter should end there. When you go to court, the result could end up on the internet, so even if you win, you may lose in the court of public opinion.
4. What do I have to disclose about commission discounts in a bidding war?
In a bidding war, you must tell any buyer brokerage if someone is offering to reduce their commission so that the seller will net more money. This is true, whether the offer to reduce commission is coming from the listing brokerage or from any third party buyer brokerage. You must disclose either the dollar or percentage amount that is being reduced, and then the other buyers can determine whether they wish to revise their own offers.
5. How do I sue a buyer or seller in court for commission?
Remember, it is the brokerage that can sue for commission, not the sale representative. The brokerage would have to assign to you the right to sue, and you would have to indemnify the brokerage against any losses or costs that they may incur.
6. What are the rules about referral fees?
You should always use OREA form 641 to get your referral agreement in writing. It is permissible to pay referral fees to another realtor, and to your own client. You cannot pay them to anyone else. The fee must be paid to the brokerage company, not the individual salesperson. You must advise your client and get their approval if you will be receiving or paying any referral fee.
Mark Weisleder is a senior partner, author and speaker at the law firm RealEstateLawyers.ca LLP. Contact him at mark@realestatelawyers.ca or toll free at 1-888-876-5529.
