In this Blog I’m going to talk about three pitfalls…commission, commission and commission. This is an area that needs special attention because not all Seller’s are aware of the implications of agreeing to payment on a Listing Agreement. I’ll go into other pitfalls in future Blogs.
In this “electronic” age, it is more and more important that you understand and read what you are signing. Lets face it, when you receive an electronic document for signature, which is often quite small, it’s mighty easy to simply click on those yellow boxes. Well, each one of those clicks is committing you to a binding legal agreement.
A Realtor® may send you these documents for signing without explanation. The onus is on you! If you don’t read the document or understand it, but, proceed to sign you will have no recourse if things go wrong. As they often do.
Commission—ANY VALID OFFER
I bet most sellers are not aware that if a Realtor® brings you a full price offer, or one that meets the terms and conditions of the Listing Agreement, whether you accept that offer or not, you are obligated to pay the commission amount that you agreed to in the Listing Agreement.
In a recent court case in the Ontario Supreme Court of Justice (2008), the judge and even on appeal, determined that:
Acceptance of the offer is not required. The listing agreement clearly contemplated payment of the commission upon presentation of an offer at the full asking price.
Deputy judge James Searle ruled in favour of the real estate agent, and found that the listing agreement was sufficient to make the seller liable to pay the stated commission on the basis of an offer which met all the terms of the listing agreement (taken from the Toronto Star report Jan 9, 2014).
Here’s the clause in it’s entirety from the Listing Agreement:
In consideration of the Listing Brokerage listing the Property, the Seller agrees to pay the Listing Brokerage a commission of
........% of the sale price of the Property or ..........
for any valid offer to purchase the Property from any source whatsoever obtained during the Listing Period and on the terms and conditions set
out in this Agreement OR such other terms and conditions as the Seller may accept.
Note that in reality, the terms and conditions of the Listing Agreement that apply to this clause is price and the duration of the Agreement.
There is no law that says that you have to accept a full price offer, but, if you don’t, and a Realtor® has brought you one, doing the job that was expected of them, you may end up in court over the commission amount.
You need to be aware of this clause and be prepared.
There is another clause a bit further down in the commission agreement section that you should also be aware of…and it goes like this:
If a Seller accepts an offer and does not close due to default or neglect by that Seller, commission is still due and payable to the listing brokerage. Likely if a seller doesn’t close, that seller may find themselves in court with the buyer as well.
Commission—SPLIT
Every Listing Agreement contemplates the possibility that your property may be sold by brokerage other than the one you have signed on with. It is required that the Realtor® indicate to the seller how much of that commission will be paid to the other brokerage.
It is always favourable to any seller to split the commission evenly. That means that the listing brokerage gets half and the selling brokerage gets half. Why? Offering half of the commission is an incentive to all other Realtor®’s to sell your place. For instance, the Realtor® you hire at 5% may only offer 2% to another brokerage…and keep 3% for themselves. Other properties are offering 2.5%...is your property attractive to other Realtor®’s? Is the job your Realtor® is doing worth more than a Buyer’s Realtor®?
A Realtor® may not even tell you about the split when they send you the paperwork for signing. You need to read all paperwork, especially the blanks that are filled in. If you are unhappy with the split you need to address it with your Realtor®. Ask your Realtor® to tell you the additional services that justify that lower split.
Note: Our governing body (RECO) has a rule stating that a Realtor® must show a property to their buyer client no matter what the commission rate is. There may be an obligation to show the property, there is no obligation to sell it! And, unless that Realtor® has a Buyer Representation signed by their buyer, they may not be obligated to show a lower commission property.
Commission—HOLDOVER CLAUSE
This is another clause that Sellers pay little attention to and the Realtor® may not bring to their attention, and it goes like this:
The Seller further agrees to pay such commission as calculated above if an agreement to purchase is agreed to or accepted by the Seller or anyone on the Seller’s behalf within ............. days after the expiration of the Listing Period (Holdover Period), so long as such agreement is with anyone who was introduced to the Property from any source whatsoever during the Listing Period or shown the Property during the Listing Period.
A Realtor® might enter 365 days in this section. That means that for 365 days, or what ever period is entered here, after expiry of your Listing Agreement you may have to continue to accept offers from your Realtor®. The rule is, the potential buyer must have been introduced to your property in any form whatsoever prior to the expiry date of the Listing Agreement. The key is the word “whatsoever”…that could mean from a sign on your property, from a previous showing, from a previous advertisement, from word of mouth…it could be anything that can be proven.
This clause also means that you can not sell your property privately for this additional time if that private buyer was introduced to the property from “any source whatsoever”. That’s a tough one to prove.
This clause is no longer in effect, however, if you relist with another Realtor®, but you may have to pay the difference in commission if your first Realtor®’s commission was higher.
Insist on having input on any document you are signing. READ, READ, READ, and ask for clarification on anything you don’t understand.
Read, Understand
Believe it or not these agreements were designed to protect you, the general public, from unscrupulous behaviour on the part of a Realtor® . However, the onus is on you to protect yourself. SELLER BEWARE!
Read, understand and have input into anything that is added to these agreements.
If you don’t understand something, ask for clarification. If you don’t like something, such as commission split and holdover, then have those changed. You are as much a part of this agreement as the Realtor®...so, you have as much say into what goes into that agreement.
I personally do not ask anyone to sign without going over all of the main points of the agreement with them, asking that they read the document in it’s entirety and to ask any questions for clarification. Realtor®'s are only expected to disclose in writing—they do not have to explain it. You need to ask for explanations and you absolutely need to have input into any agreement. Remember this is something you are AGREEING to. If you don’t AGREE, don’t sign.
Commission reviewed
Once you enter this Agreement be prepared to pay commission if you receive a full price offer...whether you accept it or not. If you don't close on a deal you may also have to pay commission.
Know and understand the impacts of how your Realtor® pays other brokerages for their part in selling your property.
Be sure to input how much time you are willing to allow for a holdover period. This should be a reasonable amount of time. 60 days may be quite suitable.
ALWAYS READ AND UNDERSTAND WHAT YOU ARE SIGNING.
If in doubt…ask for clarification and/or seek legal advise.
Kathy Dimaline is a Real Estate Broker for RE/MAX Grey Bruce Realty Inc. The comments on this Blog are the opinions, only, of Kathy Dimaline and do not constitute any legal advice or legal opinion and does not represent the interests or opinions of RE/MAX Grey Bruce Realty Inc., brokerage.