If you were the Listing agent and you had an arrangement with your Seller where in certain circumstances, the overall commission payable may be reduced, then you would be under an obligation to advise prospective Buyers who are submitting Offers. Why? This might affect their bids!
Let’s look at three scenarios where this might take place.
The Listing Agreement calls for a 5% commission, 2.5% to the Listing side and 2.5% to the Cooperating side. Then, the Listing agent meets a potential Buyer at an Open House. The Agent has already included a provision whereby the overall commission will be reduced by 1%, if this happens. The 1% reduction must be disclosed to others.
Cooperating Brokerage Declines Commission
In this situation, a Broker or Sales Representative has a very close relationship with their Buyer and offers to waive their commission entitlement. Perhaps the client is their spouse, son, daughter or even themselves.
The first step is that they will propose this waiver of commission to the Listing agent.
The second step is that the Listing agent will take this matter to the Seller. The Seller would have to agree to amend the Listing to allow this accommodation.
If they don’t agree, thereby maintaining an even playing field for all, this matter does not require disclosure. Often, accepting this type of reduction can backfire because other potential buyers may simply opt out of the process. And, one of them might have been the high bidder!
If they do agree, then this 2.5% reduction must be communicated to the other bidders.
Cooperating Brokerage Offers Reduction in Commission
In this instance, the cooperating Brokerage agrees to lower its entitlement from 2.5% to 1.0%.
Documenting the Disclosure
At the present time, OREA has not released any Forms which would deal with this type of disclosure.
Let’s consider, in the meantime, for a Seller using something along these lines:
Matters which may Affect Offer Acceptance
Re: 123 Main Street, Toronto, Ontario
Under s. 23.(4) of the Trust in Real Estate Services Act, effective 1 December 2023, the Seller’s agent has made a determination that there are certain matters which may affect consideration of the acceptance of an Offer.
The following matters have been identified for disclosure:
- Buyer #1 is represented by the Listing Brokerage and the total commission payable by the Seller will be reduced by 1%.
- Buyer #2 is represented by a Cooperating Brokerage which has declined the 2.5% cooperating commission in entirety.
- Buyer #3 is represented by a Cooperating Brokerage which has reduced its entitlement from 2.5% to 1% in full satisfaction of the cooperating commission
Dated at Toronto, this _____ day of December 2023
Witness XYX Realty Brokerage
The undersigned prospective Buyer hereby acknowledges receipt of a copy of this Disclosure document,
Dated at Toronto, this ____ day of December 2023
Witness Gordon Sumner (Buyer)
A document along the lines of the one noted above would be suitable for such a disclosure and acknowledgement.
Kindly note that this particular disclosure is made by the Listing Brokerage and not the Seller, and the Acknowledgement is to be signed by the prospective Buyer.
Also, note that a witness is not required, but it may be helpful.
Under REBBA, while these matters were to be disclosed, there was no requirement to document such disclosure in a file.
Under TRESA, that has changed. Written disclosure is required and the Acknowledgement is to be documented and recorded in the Listing Agent’s file. This is on a “best efforts” basis only, because TRESA doesn’t apply to Sellers or Buyers or Consumers. They can do whatever they want. However, the registrant will still have to document the “refusal to sign” in the file in addition to the disclosure document that was tendered.
This means: maintain careful records!
Brian Madigan LL.B., Broker