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Brian Madigan LL.B., Broker
BRMadigan@Rogers.com

RE/MAX West Realty Inc.,
Brokerage
Independently owned and operated

96 Rexdale Blvd. 
Toronto, Ontario 


Phone: 416-745-2300

Cell: 647-404-8150 
Toll Free: 1-888-507-0817

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Offer Triggers Commission

August 29, 2019 - Updated: August 29, 2019

Offer Triggers Commission

Under the standard form Listing Agreement, it is the offer which actually triggers payment of the commission.
 

Often, it is thought that it would be an “actual agreement” or a “successful closing”. While both of those ideas are good, they are not really the first step in the process triggering the obligation to pay commission to the Brokerage under the Listing Agreement.
 

Listing Agreement
 

Let’s have a look at the actual wording in the standard form Listing:
 

“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 and on the terms and conditions set out in this Agreement OR such other terms and conditions as the Seller may accept.”
 

Let’s break out this clause somewhat, so that we can read and understand it:
 

“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 and
 

on the terms and conditions set out in this Agreement
 

OR such other terms and conditions as the Seller may accept."

 

Review

 

So, it’s the actual valid offer which triggers the payment of the commission. Naturally, that assumes that the offer will be in compliance with the “Agreement”. That means the Listing Agreement, not the Agreement of Purchase and Sale.
 

If the price were clear, the possession and closing date were clear, then, there’s not really much room left for interpretation.
 

An offer which is lower in price than the list price, would be insufficient. An offer which calls for a closing six months after that stipulated in the listing would be too late. An offer which included conditions would not meet the requirements. Otherwise, we would be OK and the Seller would owe the commission to the Listing Brokerage.
 

An Actual Sale, an Accepted Offer or an Agreement of Purchase and Sale
 

Also, have a look at the last line noted above:
 

          “OR such other terms and conditions as the Seller may accept.”
 

If the Seller agrees to a lower purchase price, longer closing and some conditions, then the commission is owing once again. Kindly note: there was nothing that required this accepted conditional Offer which became an Agreement of Purchase and Sale to become “unconditional”. So, a Buyer may not get financing, and the Seller still owes the commission. At least, that’s what it says!
 

Unconditional Agreement of Purchase and Sale
 

Oddly enough, there is no reference and it’s not a trigger for payment of the commission.
 

Completed Agreement of Purchase and Sale
 

Since the 1960’s lawyers have been amending Listing Agreements to say:
 

          “commission payable only upon successful completion”, or
 

          “commission payable upon closing”.
 

In both cases, the trigger for payment of the commission was moved from finding someone who might be interested, at least to the point where they submit an offer, to an actual completed transaction, where the Seller now has money from the deal, and the Buyer is now the Owner of the property.
 

Public Perception
 

Most members of the public think that commission is payable only upon a completed transaction.
 

Registrant Perception
 

Most people in the real estate business think the same thing as the public, and that is that commission will only be paid on a completed deal. There are about 88,000 registrants in Ontario, so that’s a fairly large number.
 

Real Estate Lawyers
 

Basically, they will all amend the Listing Agreement appropriately, if they are retained in sufficient time.
 

Caution
 

If you are concerned about paying a commission “just for an offer”, then be sure to include an appropriate Amendment.
 

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com


Tagged with: commission payment listing agreement trigger ontario law
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Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

Phone: 416-745-2300

BRMadigan@Rogers.com

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