It is more important than ever to understand the rules regarding real estate commissions so that you and your clients are protected. Here are answers to some common questions I receive related to commissions:
1. Can I get paid commission without a signed BRA or Listing Agreement?
Without a signed agreement, it is very difficult to claim commission. This includes situations where you may have had a signed agreement but the buyer or seller did the deal after expiry of the holdover clause. In most cases, in order to collect commission, you will have to prove that you did more than just introduce the buyer to the seller. You will have to demonstrate that you assisted in the preparation and delivery of the offers and that there was a verbal commitment to pay commission. Make sure you keep a copy of any email or text message that may have been sent relating to commission. At the very least, have the parties sign the confirmation of co-operation and representation at the time you present the first offer, which also confirms that you are acting for them. This has been held to be enough to later support a claim for commission. Better still, don’t work with anyone until you have something signed in writing.
2. Can a buyer avoid paying commission even with a signed BRA?
There have been cases where buyers have tried to avoid paying commission by saying that the BRA was not properly explained, and that they thought commission would only be paid on the one property where an offer was submitted, but later rejected. The buyers claim that they had no idea that the agreement lasted for 6 months and they were not given a copy for their records. To succeed, develop good habits right now. Always get the buyers to initial the term, even if it is 6 months or less and then give them a copy. If you do it the same way every time, it becomes easier to defend against this later. Some buyers also try to sign the BRA in a corporate name and then buy under a different corporation. Make sure you get the President or other authorized signing officer for the corporation to personally sign your BRA as well, to avoid this from happening. Similarly, get both spouses to sign your BRA, to avoid a situation where the spouse who does not sign with you ends up buying the home later and refuses to pay commission.
3. Can I collect commission if I am a listing agent, the seller accepts the offer but buyer cannot close?
The answer is no. The seller will not have to pay commission. Even if the seller ends up keeping part of the deposit as compensation from the buyer, they do not have to pay commission. It is important to make sure that all buyers are properly qualified. Do not be afraid to ask the buyer salesperson if that is the case, or whether these buyers are just paying 5% down. If you have serious buyers, your deals will close. If you were representing the buyer and the buyer could not close, you could sue the buyer for commission. However, if the buyer can’t close, it is also likely they do not have the money to pay you either.
4. Can I collect commission if the buyer wants to close but the seller refuses to close?
In this case the listing brokerage can collect commission from the seller, as it is provided for in the listing agreement.
5. Do I have to sign the mutual release?
A brokerage does not have to agree to sign a mutual release, but must follow any direction to pay over a deposit to either a seller or buyer, if it is signed by both the seller and the buyer. By signing a mutual release, you will forfeit any right you may have to claim commission later.
6. Can a seller change their mind about paying the balance of commission just before final closing?
The answer is no. The seller has irrevocably directed their lawyer in the agreement of purchase and sale to pay any balance of commission before any money is paid to the seller. If the lawyer pays the money to the seller, then the lawyer can be sued personally for the money.
7. 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.
8. 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.
9. 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.
10. 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.
11. 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.
12. 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.
Contributor: Mark Weisleder, LLP
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