This is the Commission paragraph:
“2. COMMISSION: 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, as may be acceptable to the Seller. The Seller authorizes the Listing Brokerage to co-operate with any other registered real estate brokerage (co-operating brokerage) and to offer to pay the co-operating brokerage a commission of…………….% of the sale price of the Property or…………………………………………………………………………. out of the commission the Seller pays the Listing Brokerage. 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. If, however, the offer for the purchase of the Property is pursuant to a new agreement in writing to pay commission to another registered real estate brokerage, the Seller’s liability for commission shall be reduced by the amount paid by the Seller under the new agreement. The Seller further agrees to pay such commission as calculated above even if the transaction contemplated by an agreement to purchase agreed to or accepted by the Seller or anyone on the Seller’s behalf is not completed, if such non-completion is owing or attributable to the Seller’s default or neglect, said commission to be payable on the date set for completion of the purchase of the Property. Any deposit in respect of any agreement where the transaction has been completed shall first be applied to reduce the commission payable. Should such amounts paid to the Listing Brokerage from the deposit or by the Seller’s solicitor not be sufficient, the Seller shall be liable to pay to the Listing Brokerage on demand, any deficiency in commission and taxes owing on such commission. All amounts set out as commission are to be paid plus applicable taxes on such commission.”
Review
Set out below and marked in bold and italics are those words that are inserted by me to assist in the review. They are not set out in the clause itself. Let’s look at that paragraph in a little more detail:
2. COMMISSION:
Commission Payable
In consideration of the Listing Brokerage listing the Property,
the Seller agrees to pay the Listing Brokerage
Amount
a commission of ……………% of the sale price of the Property or …………………………………………………………………………………………………………………
Trigger for Liability
for any valid offer to purchase the Property
from any source whatsoever obtained during the Listing Period,
as may be acceptable to the Seller.
Cooperating Brokerage Commission
The Seller authorizes the Listing Brokerage to co-operate
with any other registered real estate brokerage (co-operating brokerage) and
to offer to pay the co-operating brokerage
Amount
a commission of…………….% of the sale price of the Property or………………………………………………………………………….
Source
out of the commission the Seller pays the Listing Brokerage.
Holdover Commission
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
Time Period
within ……………………….. days after the expiration of the Listing Period (Holdover Period),
Liability: Introduction
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.
Reduction in Amount Payable
If, however, the offer for the purchase of the Property is pursuant to a new agreement in writing
to pay commission to another registered real estate brokerage,
the Seller’s liability for commission shall be reduced
by the amount paid by the Seller under the new agreement.
Non-completion Liability: Seller’s Default
The Seller further agrees to pay such commission as calculated above
even if the transaction contemplated by an agreement to purchase agreed to
or accepted by the Seller
or anyone on the Seller’s behalf is not completed,
if such non-completion is owing or attributable to the Seller’s default or neglect,
Date Due for Both Completion and Non-completion
said commission to be payable on the date set for completion of the purchase of the Property.
Deposit Application to Commission
Any deposit in respect of any agreement where the transaction has been completed shall first be applied to reduce the commission payable.
Should such amounts paid to the Listing Brokerage from the deposit or by the Seller’s solicitor not be sufficient,
the Seller shall be liable to pay to the Listing Brokerage on demand,
Commission Deficiency
any deficiency in commission and taxes owing on such commission.
Taxes in Addition
All amounts set out as commission are to be paid plus applicable taxes on such commission.”
COMMENT
The trigger for payment used to be a valid Offer. Now, it’s a valid Offer “as may be acceptable to the Seller”. This change was due to the fact that many Listings were substantially underpriced and a full price Offer would generate liability for the commission. But, both the Listing agent and the Seller knew that they were just simply trying to induce some interest in the property. Now, the Offer must be acceptable to the Seller.
There is one commission, for example 5% to be paid to the Listing Brokerage, not the Listing agent, but the Listing Brokerage. Out of that, a cooperating commission may be paid to the Buyer’s Brokerage. Let’s assume that is 2.5%. Disclosure of this amount is required in accordance with the fiduciary duty of accounting.
There is also a holdover provision. This might be for 90 days. So there is a contract which is composed of two time periods:
- 90 days – Listing period
- 90 days – Holdover period
- 180 days – contract period
This provision is an attempt to avoid the “end run”. The property is placed on the market and a prospective buyer attends an open house and is interested in the property. Rather than submit an Offer, they contact the Seller directly and determine to submit their Offer following expiry of the Listing. That will save the Seller 5% in commission! However, for an additional 90 days following the Listing period, the holdover clause will apply and prevent this. The full commission will still be payable. They can still engage in the end run, they just have to wait 181 days.
There’s also one more purpose and that is to avoid the low end Brokerage which charges nothing from scooping the deal.
The first Brokerage charges 5% and does all the marketing and staging of the property. Then, we have a potential purchaser. However, we slide over the 90 day listing period and the Seller elects to engage a low end no service Brokerage. They will do the deal at 3%, effectively saving the Seller 2%. The holdover clause would obligate the Seller to pay the additional 2% top up commission to the first Listing Brokerage, provided that the actual purchaser was introduced to the property during the Listing period.
In both these situations, the Listing Brokerage would have evidence, however there is one more interesting scenario. The next-door neighbour sees the sign on the lawn or a passerby sees the sign on the lawn and they approach the Seller during the Listing period. Rather than refer them to the Listing agent, the Seller chooses to conceal this information and wait until expiry of the Listing period. The Seller has an obligation to refer this contact to the Listing agent and will be responsible for full payment of the commission during the holdover period should this purchaser acquire the property. Again, they could wait 181 days, but they usually proceed quickly after expiry.
There is no actual amount of time for the holdover period. It could be 0 or it could be 365 days.
The commission is payable in full should the Seller default.
It would be reasonable to include a provision to the effect that the commission would also be payable should the Buyer default. That would enable the Listing Brokerage to send an Invoice to the Seller and the Seller could add this claim to their lawsuit, should they be pursuing their legal remedies. However, you will notice that that provision was simply omitted. The failure to include such a provision could be interpreted to suggest that there is no entitlement to commission should the transaction not close.
However, that’s just one interpretation. The opposing argument is that the trigger for the commission is the “acceptable Offer” and not completion of the transaction. The completion date is simply the date that it is due.
The deposit is to be used for payment, and if there is a deficiency, then the Seller is to make that up. HST is in addition to the commission.
Brian Madigan LL.B., Broker