Okay, here we go again. A few years ago we had the Competition Bureau down our throats telling us about our anti-competitive behaviour. Their point back then was about allowing outsiders into our MLS system, and a whole host of other things, including commissions. I encountered it when instructing what was back then a BCREA applied practice course for new licensees in B.C. At the end of a full day there was a 10-minute bit on anti-competitive behaviour and one video pointed out that the government would use undercover investigators to check up on us.

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Fast forward to last week, October 2021, when I see the media has done the work for the bureau in an undercover story by CBC’s Marketplace. It’s a steering/commission piece, mostly about an unfair playing field for commission-challenged FSBOs based on licensees “steering” clients away from those FSBOs. (Don’t get me started on out-of-area mere postings.)

The news isn’t all bad as there are solutions that are quite simple. At least the one I present here is better than more scrutiny from the bureau. This may not be for everyone, but it helps me avoid the anti-competitive behaviour the bureau is against. After this news story it’s likely it will be at us again.

Let’s go back to our early career when we sought out formal sales training outside of our board or association mandatory courses. I’m talking about Floyd Wickman, Marc and Chris Leader, Dwayne Groome and others. They all taught us to have a “buyer counselling session” BEFORE we showed any properties to our suspects/prospects. That way we can “bona-fy” the (hopefully) soon-to-be client and set a level playing field, with everyone knowing all the rules.

Here in B.C. like many other jurisdictions we have Buyer Agency Exclusive Agreements. These contracts create loyalty, define our expected commission set out in dollar value (not a percentage) and the timeline we will be engaged with our client. There are two negative options to this for the consumer: they must not use the services of another licensee in the geographic area of the clients’ desired purchase,  and the buyer must pay us a commission.

In our B.C. contract, Clause 6A says: “The Buyer(s) will pay the Buyers Brokerage a fee of ________.”  This is where we, knowing what our remuneration requirements are, because we all did a business plan, fill in the dollar amount.

The trouble is many licensees that I see day to day in my instructor’s role do not use a business plan. Some see the industry a place to print money and many more cannot justify their commission or show their value and why they deserve any commission.

Under 6A, I add into the blank space these words: “$12,000 (or whatever amount fits the property and my needs) paid by the Sellers and the Listing Brokerage.”

I then move on to clause 6B, which describes how I will get paid, which is generally through the sellers and the listing brokerage as I have added in 6A.

I then discuss Clause 6C and it states this: “Monies, if any, under clause 6B (6B is about what is being offered as remuneration by the listing brokerage) shall be deducted from the amount due and payable by the Buyer under clause 6A and the Buyer shall pay any shortfall owing to the Buyer’s Brokerage.” Pretty clear here. That is, if it is explained properly or at all.

I state that any shortfall is covered by the buyers. I state where my paycheque goes –  X per cent to the brokerage, 25 per cent raw income tax costs, GST costs, money re-invested back into the business and the amount my spouse and I use to run the household expenses (car, house, insurance, vacation).

I also state what my business expenses are in a general way, making sure they understand this business is stark on health and welfare benefits. I get no EI or pension plan and my E&O deductible is $2,000 per incident, plus my brokers’ portion, another $2,000. Read your contractor agreement and see. I get no argument and people are happy to pay me.

Let’s be real here, what other industry waits 30 to 120 days or longer to get paid after the deal firms? Not many. We need to be in control of our business and contracts help us do that.

Now I have the discussion about the discount commissions that may be encountered. I tell the buyers that they are expected to make up the shortfall. I will inform them what dwellings offer in commission and let the buyer decide which ones they want to see. I also say it is rare for me to see many discount commission structures and they needn’t worry about it and we will cross that bridge if and when we come to it. This avoids me having to steer them away from what could be a perfectly good purchase for the buyers. Isn’t that what we are here to do, work for the client?

Here is the point: Let the buyer decide, not you, if they want to see properties listed with discount commissions, or if they will make up any shortfall. Be prepared to justify your income. Let them avoid those properties, not you. The consumer has every right to not see them based on their needs and ability to deal with your service contract. Know it before going into the relationship.

Yes, you may end up losing or referring the client out based on the agreement you enter into. That is the risk and your business model to defend, or not. In 25 years, I have taken one discount commission. Not a bad stat. It’s not all that common because discount brokerages where I work are a small percentage of the market. For you, it may be different and you must be creative and show better value.

There are, in some jurisdictions, the ability to negotiate a better commission with the listing brokerage and the seller in other ways, like fee agreements. I will leave it to your board or association to determine that method as they are sometimes not easy and can be controversial.

This idea is not a panacea and I am sure there are better ideas out there as to how to handle steering, but this is easy and is staring us in the face.

No wonder the Insights West poll from 2017 says only about 50 per cent of Canadians have a positive view of Realtors for being ethical, trustworthy or transparent. I have been in Professional Conduct and Ethics for over 15 years and I see it. We have a lot of work to do and with every negative media story we look worse all the time. Not one client has ever asked me if I was a Medallion Club member – they mostly do not care. That is a space occupied in between our ears, not the public’s. The client simply wants their needs met.

Takeaways: We are in a media world, cameras are everywhere. Know your role, learn agency and be a good communicator and always work within your area of expertise. Know, inside and out, all the documents your clients will be using/signing or agreeing to. Be able to summarize in an accurate fashion what these contracts mean to the client – the good, the bad and the ugly. Figure out what you need to live on for income, show your value/expenses (in a general way) and work for it. There are few if no easy shortcuts in real estate that are ethical.

We also need to be the good educators of the public, one client at a time, with every new rule or change in professional practice. It’s up to us or we get to spend a ton of cash on defending ourselves against a very unsympathetic government. Good luck and keep your stick on the ice.

37 COMMENTS

  1. Frankly, I think when working with a buyer, the buyer should pay a retainer that, if a property is purchased, and commission paid, the retainer is refunded. Alternatively, if there is no purchase, the retainer is kept by the brokerage and divided appropriately with the salesperson. Why are we sometimes, if not a lot of the time, working for nothing?

    • Pollyanna: I think this is an excellent idea provided you are working as an Exclusive Buyer Agent and can work for your clients 100% of the time and never ever work as a DUAL AGENT.
      I think there are only a handful of Realtors working as an Exclusive Buyer Agent in Canada today. Working for nothing is not much fun, but with thousands of Realtors in the business and few houses to sell I can see why many Realtors may want a retainer to pay for their gas and monthly fees.. I don’t think many buyers would be very interested in giving any Realtor a retainer if the Realtor couldn’t find them their dream home. Let’s reverse the situation. Would you give the buyer say $500 to work with you for 60 days and if you didn’t find them a property they can keep the money. Paying $500 with the potential to make thousands is a good investment.

  2. Great article Wes, thanks for mentioning my name, I am teaching this in Vancouver right now (Lesson 3 and 6) as well as an online program. Having your client pre-approved (properly) and committed using Exclusive Buyer Brokerage is the professional way and takes care of your clients best interests.

    • Dwayne good comment. Out of interest just how many Realtors in BC are Exclusive Buyer Agents. So far I have not been able to find a TRUE EBA in BC searching on the internet. In Canada I have found 2. This is the definition of EBAs I am using – “An Exclusive Buyer Agent represents only the home buyer, for a more trustworthy real estate process. Exclusive Buyer Agents (EBAs) work within a company that never represents sellers and never takes listings.”

  3. I have been a licensed RE salesperson for over 30 years. Registration fee was $56, TRREB, etc. another $150 (or so), no HST.
    Broker provided (or paid for) much of other expenses – i.e., cards, OHIP (50%), etc., etc. Seller paid total commission SIX PERCENT 6%; (Montreal 7%), to the brokerage, usually through his/her lawyer upon receiving the invoice from the brokerage. That’s history – NOW cost of running the business is xxx%!!!.
    Here’s a newer incident. In 2018~2019 I showed several properties, amidst fierce bidding, to a very young couple. (mortgage qualified first). Then we found a “mere posting”. Listed below market (with bidding). I believe no other Agent went to show ‘sincerely’. The Sellers uncle was most cooperative. He said he liked my sincerity. We got it. My Buyers are still ecstatic!

  4. In over 50 years and over 2,000 sales the lowest selling commission I can recall ever accepting was 2%. That was a property listed by the former name of Purple Bricks. They let me negotiate my selling commission because I asked to. Most sellers were paying 2.5 to 3%. In all of my sales it is the only discount broker listing I have ever sold. This may change with my future sales, but the number of discount listers doing significant business in my area is minuscule.

    • Good for you Norm. Today in Toronto and Vancouver you would only be making say $16000 to $20000 per transaction. Norm you can certainly do better than that. I’m shocked that a discount broker would only pay you 2%. Just joking! 2% is even too much Norm.

      • Surely you jest that I would ONLY be making $20,000. Hard to tell whether you are joking about that amount. That is a good pay check in Sarnia. My first million in real estate volume in 1970 of a true $50,000 gross commission, was a lot of real estate trades. My largest commission check was $800. Gotta love our raise in pay

        • Not joking Norm. 4% on 1000000 = 40000 / 2 =$20000. That would be a very good payday for any Realtor. 2.5% = $25000. I’m assuming that when you are working with buyers you are representing the buyers 100% of the time and not practicing DUAL AGENCY. I’m also assuming that you would allow the buyers to negotiate their fees. As an experienced Realtor you would understand that DUAL AGENCY is not in the consumers best interests. NORM NO DOUBLE DIPPING!

        • There is nothing wrong with selling your own listing if you treat both sides fairly. I have sold hundreds of my own listings over 50 years. The only complaint I had was a lawyer who knew I was making a lot more on the closing date than he was. The sale was a complex building contract for a new home. I kept my 5% of a 5% listing

          • You have to find some excuse to support this otherwise it’s just not supportable.

            But it’s actually just an excuse. No matter how one puts it, the seller and beller are not in for what the indaustry describes as a win/win. If that was a real thing, Every major game on the planet would not have a singular winner.

            Certainly, you cannot say to the seller with any honesty – you’re on your own here because despite your hiring me to put your interest’s first, well I also said that to the buyer and so they too are on their own to hash it out with you.

            I’ve yet to see one ad promising the best and highest sales price to a seller also promise the best and lowest purchase price to the buyer or any adjustment in between.

          • Norm:

            PED is correct. You may think you’re treating both your client, the seller, and the buyer (not your client) fairly in equal measure when double-ending, but that is impossible to actually do. You are attaching a subjective argument to an objective problem, and that’s a no-no. Your argument satisfies your way of looking at the issue only, thus enabling you to sleep at night. You are deluding yourself, much as a politician does when spouting stuff to back up his/her position one day, then when the political wind changes direction, the opposite another day. I’m not saying you are dishonest. I believe you believe what you believe. Your belief is simply incorrect on this issue. Plato would have a field day with your spin of this argument.

        • There is nothing wrong with selling your own listing if you treat both sides fairly. I have sold hundreds of my own listings over 50 years. The only complaint I had was a lawyer who knew I was making a lot more on the closing date than he was. The sale was a complex building contract for a new home. I kept my 5% of a 5% listing. Ps. I have NEVER had to hit a buyer up to pay my commission. David; you do it your way; I’ll do it mine. I am sleeping well at night just in case you are worried about my conscience.

          • Norm you state: “nothing wrong with selling your own listing if you treat both sides fairly..” Impossible most of the time. Norm at some point you will probably disadvantage the buyer or seller to get the BIG payday of a double commission. Your also state “I have NEVER had to hit a buyer up to pay my commission.” So Norm you advise your buyers that your services are “FREE”/NO COST.

  5. In Nova Scotia all real estate agents are required, by our provincial regulator, to enter unto a Buyer agency agreement with their Buyers. I didn’t like the idea at first, but it takes care if alot of pitfalls – including this subject. If a buyer wants to see a FSBO, I usually contact the FSBO seller and tell them that I have a buyer contract in place stating my commission and that buyer would normally have my full commission paid by Seller and the FSBO will usually agree to enter into a Fee Agreement with me for the amount of commission. Not too many buyers in this sellers market that want to add on a commission payment on top of sale price.

  6. Every one knows a lot of brokerages use the discount modle to get listings. The sellers are told all the agents will work on their property when it is on the MLS. I have no problem with this I think competition is good for our industry. On the other hand we have sellers that offer a low commission knowing that the realestate agents are not going to like it. In alot of cases they are hopeful that any buyers out there will force the agent they are working with to show the house or go direct to them and cut out the agent.These sellers have little respect for realestate agents and feel they are over compensated.
    The sale price and the commission is like a lure to get the agents to work on your property. Wrong lure no bites.
    Over paid government workers are more than happy to try and force realtors to work on these properties. They can try to force the agents to show them. Like the old saying goes…you can take a horse to water but you can’t make it drink

  7. There is another answer that the Government needs to consider.

    Why can a consumer not take “both” the APS and the BRA to their chosen lender and use the combination of both amounts being paid to buy the home as the basis for their mortgage? My understanding is the the reason that is not being done is because CMHC does not recognize that amounts being paid under a BRA are part of the cost of buying a home. This would have no impact on prequalification criteria or the lender’s ability to approve a specific amount; just how that amount is determined.

    Our friends at the Competition Bureau have caused us to have the MLS® System modified to accept “mere postings”, despite the fact that the brokerages that submit these listings do not meet the basic requirements that any reasonable consumer would expect a “professional” to provide. They certainly do not meet the legal and ethical standards involved in representation.

    What doesn’t seem to have crossed anyone’s mind is that the people being hurt most by this are the people who are scraping every nickel together to get the minimum down payment together. They are the ones that simply cannot afford to pay any portion of a commission that isn’t being deducted from the proceeds of sale.

    Since CMHC is a Crown Corporation, the federal government has the authority to instruct them to begin looking at the entire cost of a home purchase as the basis for mortgage financing. This could include the APS, any invoiced amount stemming from a BRA, and possibly even the land transfer taxes involved in a transaction. This would certainly open the door to more people looking to buy a home, and it would encourage a more thorough discussion between REALTORS® and their client and customers regarding compensation.

    • And skewing information used by appraisers and the (mis) incomplete information stays in appraiser’s sold files for decades.
      Later if the appraiser searches sold prices in an area in just a cursory fashion the sold prices, not indicating loud and clear that the buyer paid all or a portion of rhe commission impacts his subsequent appraisal results ordered by the bank.

      • When I was an appraiser candidate, the boss would give me a ripped off scrap of paper with an amount written thereon. That was the target I had to hit in order for the bank to award a mortgage for their client, be it a purchaser or one simply wanting to refinance, aka using the property as an A.T.M. We were the go-to appraisers in our town as far as certain lenders were concerned. Even when completing an appraisal for a marriage break-up, the boss would call and find out what the appraiser for the opposing spouse came up with, and make sure our appraisal for the other spouse, our client, was a close match. “We’re here to make money, not go to court.” was his reasoning. I’ve said it herein before, and I say it again: the residential real estate appraisal profession is a bull shit profession, inasmuch as what I experienced. Including non-sale items within sold prices on comparables’ grid sheets effs things up even more.

        Economics 101: Supply and demand rules the day, every day. Everything else is window dressing and smoke and mirrors…and salesmanship, aka salesmanshit when spewed by dishonest salespeople.

        • Brian:
          Very easy to do an appraisal if you know the acceptable value. I’m sure most Realtors would never disclose the selling price to the appraiser.

          • Yes David, that’s why I was expected to complete six appraisals per day: inspected, written up and delivered. Pick three sold comparables that closely match the target’s required value, plug in the numbers and adjustments, fudge the adjustments if need be, and presto!..a qualified appraisal signed, sealed and delivered. We had a license to print money…or should I say, my boss did. I suspect other appraisal firms in town operated similarly. It was just too easy not to.

        • I don’t things have changed that much. I expect there are a lot of drive by appraisals being done today or the appraiser just look at the virtual tours. There is so much competition that if one lender declines a mortgage based on an appraisal another lender will make it happen.

      • Appraisals are only good for a year depending on the number of comparables. Sales from years gone by have no bearing on today’s appraisals. I’m just being picky, Carolyne

        • That’s true, picky Norm – lol. But there are some appraisers who love to follow history patterns. Particularly if they had done a prior appraisal on a specific property.

          Not sure of current rules, but years ago I think they had to keep files for ten years at one point. Maybe some kind of govt requirement…

          Respectfully
          Carolyne

        • Actually Norm, an appraisal is only valid on the day it was signed off on by the appraiser, and only for the purpose for which it was commissioned; i.e., for the purpose of helping establish a selling price for a private seller; for mortgage approval on behalf of a purchaser; for mortgage approval on behalf of refinancing; for marital breakup; for C.R.A. purposes; for challenging property taxes etc. Different values can be arrived at for each of the above commissions, and routinely are. It all depends upon who the appraiser is working for, aka who is paying. Thus one appraisal is not a one-size-fits-all document.

          Now you know why I call the appraisal business a bull shit profession. It’s why any lawyer worth his/her salt can rip a residential appraisal to shreds in court and thus make most any residential appraiser look like a biased hack.

  8. Agree with all of you. CBC did a laughable one sided piece. Listing agreements are mandatory in one way shape or form. B.R.A’s should be too! I always use one, and I will show them every property including new builds. It’s the buyer who usually decides not to see discounted commission properties, or at least do the math and see if there is value for them.

    • Joe I don’t think real estate consumers nor the Competition Bureau found THE CBC documentary LAUGHABLE AND ONE SIDED.

  9. Have W5 interview you. That would be worth watching, not their one sided SENSATIONALIZED version.

    I was licensed in 1981. Having been through 22% first mortgage rates, market meltdowns to overheated markets, I’ve seen everything. Commission cutting is nothing new, nor are for sale by owner service providers.

    I address remuneration up front when on an appointment, never hedging or hoping commission cutting will not come up. With sellers I ask which services they could live without. Offering as an example, if an agent cannot negotiate their own paycheck, how can he/she negotiate the biggest invest of their life? That gets them thinking. From there I diligently go through the services a full service brokerage offers.

    Applying this to the buyer is more difficult. With buyers I send them everything listed in their range, and let them decide which properties to see. If they choose to view a posted listing, I emphasize they will pay the commission. Two things can happen here, I lose the buyer, or they opt out of viewing the property, as they are not going to pay extra for buying a property.

    We provide a service. We cannot work for free. W5 missed this point. Would they go to work and happily do their best job, if they were expected to do it gratis, or at a fraction of their current pay?

    Why would anyone else be expected to do what they would not?

    • Excellent response, I am sure the W5 crew were paid for their time. I also wonder if it is legal to photograph and record someone without their knowledge? Usually when you make a phone call that will be recorded you are advised “this call may be recorded for training purposes” or some similar wording. We work hard for our clients, yes, every once in a while a deal comes together easily, but most of the time we are spending many weeks, months, hours working for a particular client, especially the new buyers, I have one couple who have been viewing and making offers for almost two years, the commission I eventually make will not come anywhere near covering my time.

  10. Clearly the industry needs you cloned, Wes.
    
    COMMISSIONS ~ or “Where does all the money go?”

    Take into consideration that this article I wrote is decades old and was written pre-buyer broker contracts, but the concept remains the same, across the country.

    Agents across North America put links to my article on their own websites and I received volumes of email telling me how thankful they were to have something to explain commissions to their own buyers and sellers. Many agents included my article in their own newsletters long before Internet days as it got around via my own marketing newsletters that went out as direct mail marketing in groups of 20,000, quarterly, often read by relocation companies and law offices, and reprint requests came pouring in. Phone calls and faxes. Later, emails. But the basics haven’t changed.

    ===

    COMMISSIONS ~
    (or Where does all the money go?)
    The public often has no idea where the funds go that they pay out as commission. Just a brief note to discuss the basics: Agents are forbidden to discuss commissions, company-to-company, Broker-to-Broker. Why? There is a fear of being charged with price-fixing by the anti-trust rules and regulations.

    So, the general discussion here is just meant as education for the public. Typically, using one method or another, there are five adjuncts sharing the commission paid.

    First off, the commission is split between two corporations. Then, internally within each company, splits kick in as to what sort of split there is between the sales rep (registrant) and the company that he or she works for, or has their licence held by as an independent contractor. If there is a referral fee involved in corporate relocation and such (often 35% off the top), that fee is broken down, office by office, leaving the remainder to be divided among the owner/Broker, corporation and the sales representative. Then Revenue Canada and/or the IRS gets involved. Typically, they get 50% of the sales rep’s portion, and the corporation pays its taxes based on the volume category they fall within according to business taxation rules.

    So you can see, using an example as such, only: If you pay 5 pts, as a Seller and if the split is 2.5 pts to each corporation, using an example of $250,000. as the sale price. that would be total commission, plus GST or other local taxes, equaling $12,500. and that is a lot of money, yes.

    Divide the $12,500. by two corporations, equals $6,250. Further divide that by two sales reps (and sometimes more if there is a team involved), and that equals $3,125. to each rep. Now, if the salesperson pays 50% to the government for personal taxes, that leaves the sales rep with $1,562.50 (which represents a little over 10% of what you paid out), out of which he must pay for his car, his insurance, his gasoline, and all his related office expenses. And, if you ask your REALTOR® to cut his commission, typically that figure comes directly out of his own pocket, not that of his company.

    See the article – “Realtor Costs : Your Costs at:

    http://www.carolyne.com/costs.html

    Carolyne L 🍁

  11. Oh stop being so sensible!

    From discussions I see within the industry the problem it seems to me to be that some just don’t want to have this very discussion with a prospect which here in Ontario we are trained to do anyway. They fear the buyer will choose to not sign a representation agreement and it’s obvious since this was a setup, none of these agents had a signed representation agreement nor did they bother to explain their service and remuneration requirement, instead they wanted to latch onto the prospect so they concocted a lie.

    Anyone who does that or takes on as a prospect/client who thinks agent remuneration is not worth whatever they’re asking deserves to end up in a CBC expose and expelled from the industry.

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