Let’s suppose that Bob the Buyer is very interested in purchasing a house in a certain area. Bob contacts Fred who is an agent working that targeted area. Fred doesn’t have any listings, but he says that he will canvass the area.
He signs Bob up to a Buyer Representation Agreement (BRA). The commission specified is 2.5%
Fred then finds Sam who agrees to sell his house. The Listing Agreement provides for a commission of 4%.
What’s Fred’s commission:
Here’s a portion of the commission clause:
COMMISSION: In consideration of the Brokerage undertaking to assist the Buyer, the Buyer agrees to pay commission to the Brokerage as follows: If, during the currency of this Agreement, the Buyer enters into an agreement to purchase or lease a real property of the general description indicated above, the Buyer agrees the Brokerage is entitled to receive and retain any commission offered by a listing brokerage or by the seller. The Buyer understands that the amount of commission offered by a listing brokerage or by the seller may be greater or less than the commission stated below. The Buyer understands that the Brokerage will inform the Buyer of the amount of commission to be paid to the Brokerage by the listing brokerage or the seller at the earliest practical opportunity. The Buyer acknowledges that the payment of any commission by the listing brokerage or the seller will not make the Brokerage either the agent or sub-agent of the listing brokerage or the seller.
If, during the currency of this Agreement, the Buyer enters into an agreement to purchase any property of the general description indicated above, the Buyer agrees that the Brokerage is entitled to be paid a commission of 2.5% or for a lease, a commission of..N/A.. The Buyer agrees to pay directly to the Brokerage any deficiency between this amount and the amount, if any, to be paid to the Brokerage by a listing brokerage or by the seller. The Buyer understands that if the Brokerage is not to be paid any commission by a listing brokerage or by the seller, the Buyer will pay the Brokerage the full amount of commission indicated above.
Essentially, the BRA guarantees Fred 2.5% on the deal. If Fred gets Sam to agree to more, then Fred keeps the higher amount, or 4.0%. Fred agrees to tell Bob the amount of the commission that Sam will pay. That’s based upon the fiduciary duty of accounting. Fred has to account to Bob, because Bob was a client.
In this instance, we have multiple representation. Fred has two clients and owes fiduciary duties to both. Fred gets to keep 4.0% on this transaction, Sam pays 4.0% and Bob pays 0%.
Brian Madigan LL.B., Broker