Cost Plus Arrangements Allowed for Real Estate Deals

One of the issues of concern to the real estate profession has been the restriction to charge either a fixed amount or a percentage of the sale price.

The difficulty had been that some vendors thought their properties were worth a fortune. Reluctantly, some agents (even good ones) would take on an overpriced listing, hoping that throughout the duration of the listing, the vendor would “see the light” and reduce the price.

Oftentimes, the listing would simply “expire”, or the vendor would “miss the market”.

This resulted in the agent having run up a series of expenses and front-ended the vendor’s overly optimistic speculation of the market value.

Now, that can come to an end. Agents will be able to charge for their “front-end, fees, costs, disbursements etc.” if the property doesn’t sell.

The existing compensation arrangement has always seemed not only anti-competitive, but anti-agent.

The Ministry of Consumer Services proposed a few changes to the Real Estate and Business Brokers Act, 2002, which allowed real estate agents to charge:

•        Commissions

•        Fees, or

•        Both commissions and fees

The Act also required, should the compensation arrangement provide for a percentage, the percentage, if it changed, had to be on a downward sliding scale.

That simply doesn’t make any sense. Why not have an upward sliding scale? The more money I sell it for, the more money I make! But, this time around, the choices are just a fixed percentage or a downward sliding scale percentage.

Brian Madigan LL.B., Broker

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