No Deductions From House Value for Notional Real Estate Commissions

Let’s assume that Bob and Wilma don’t get along. They have been married for 20 years and for the last 12 years have resided in their present home.

Somebody has to go.

Let’s assume that the property is worth $1 million and if they were to sell it together to some third party, they would yield $950,000 after payment of the real estate commission.

If either Bob or Wilma want to acquire the other’s interest and keep the property, what “price” do they have to pay?

The British Columbia Court of Appeal settled this point in Willie v. Willie in 2013.

The person wishing to acquire, will do so at $500,000. There is no credit for notional, unpaid real estate commission or a liability for such in the future.

Naturally, if there is about to be an impending sale, then the $50,000 commission will come off the top.

So, the ultimate question is:

  1. Gross, or
  2. Net.

And, the Court decided on “gross”.

This is a matter which had been topical for years and there were very good arguments for deducting the full cost of the notional commission, half the cost of the notional commission or simply ignoring it and letting the chips fall where they may.

This is what the Trail Judge said:

“On reflection I am satisfied I should have applied the Wheatley line of cases and not deducted a notional real estate commission from the $1,140,000 offer of the claimant, because his interest was being sold to the respondent and there is no evidence before me that she was going to re-sell it in the near future and incur a real estate commission.”

This is what the Appeal Court said:

“In my view, there was no justification for such an order in this case since it is clear that the husband intended to continue to live in the home and would not, therefore, incur such an expense.”….

“I am not convinced that, in accomplishing that end, the failure of the chambers judge to deduct a notional commission was unfair to the appellant. It is abundantly clear there were no actual costs of disposition. Nor was there any evidence to suggest she might sell the home in the foreseeable future.”

That’s it, nothing more. If either Bob or Wilma want the house for themselves, they are going to have to pay $500,000 to the other party for their half.

Brian Madigan LL.B. Broker

www.OntarioRealEstateSource.com

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