December 1st - 2006

Commission rules clarified in REBBA 2002 guide

It’s been over six months since REBBA 2002 and its regulations took effect. Since then, brokers and salespeople have had to get familiar with the changes and begin complying with them.

It’s been over six months since REBBA 2002 and its regulations took effect. Since then, brokers and salespeople have had to get familiar with the changes and begin complying with them.

Many of the changes, like the commission provisions, enhance the consumer protection already in place and clarify the rules for registrants and consumers. Commission provisions in REBBA 2002 look at how commission is paid and by whom; how it can be calculated; and, how commission details must be disclosed. They also pertain to commission issues relating to several commonly used real estate agreements.

The Ministry of Government Services (MGS) recently provided some insights into the rationale behind some of the new, and restated, commission rules and how registrants can ensure they comply with them.

Substantive changes
New: Section 25 of the REBBA Code, Agreement Relating to Commission requires disclosure of any terms relating to commission that could affect whether an offer to buy is accepted. This will allow buyers to improve their competitive position by amending their price, commission arrangements or terms. To comply with Section 25, Agreement Relating to Commission: Make sure buyers making competing offers are aware of any commission details that might affect the actual amount of the offer or acceptance of the offer. RECO’s Guide to REBBA 2002 provides the following example in its Code of Ethics Explanatory Notes section:

“The listing salesperson is presenting two offers, one for $295,000 (obtained by the listing salesperson) and one for $296,000 (from a co-operating brokerage). In confidence, the listing salesperson informs the seller that he will reduce his commission by $5,000 if his offer is accepted, as he is receiving both listing and selling portions of the commission. He does not inform the co-operating brokerage of this alteration to commission arrangements. The seller accepts the listing salesperson’s lower offer, as the net amount is greater given the reduced commission. Disciplinary action follows with the listing salesperson found to be in violation of Sec. 25 of the Code.”

New: Ont. Reg. 579/05 – Educational Requirements, Insurance, Record and Other Matters, Subsection 11 (6), Insurance, prohibits registrants from collecting commissions if their insurance premiums are not paid in full. To comply with Subsec. 11(6): Make sure you have Commission Protection Insurance, Deposit Insurance and Errors and Omissions Insurance in place and in good standing.

New: Unexpired Buyer Representation Agreement– Ont. Reg. 567/05 –General, Subsec. 23(2) and Unexpired Listing Agreement, REBBA 2002, Subsec. 33(3) prohibit a brokerage from claiming commission or other remuneration if the registrant knows that an unexpired buyer or seller representation agreement or listing agreement exists, unless the buyer or seller agrees in writing. The provisions prevent a kind of brokerage interference, but the primary purpose is to protect the public from confusion and avoid the situation of being “double-signed”. To comply with these two new rules: Make sure you respect an existing client relationship involving another registrant.

Revised rules
The provision preventing registrants from receiving both a commission and a fixed amount is continued from the earlier Real Estate and Business Brokers Act. Though many in the industry question why, the MGS said that the need for this provision was given careful consideration, and that it does not pose an excessive limitation on the industry. REBBA 2002, Section 36, also clarifies that a registrant cannot enter into any arrangement that bases part of the commission on a difference between the listing and sale price. So, to comply with REBBA 2002: Make sure you charge either a percentage or a set amount – not both.

When it comes to the RECO advertising guidelines all claims of savings or comparisons regarding commission must be backed up by enough information so a consumer can make a proper comparison. So, a claim to “Save up to $2,000 in commission with Brokerage A” should have a disclaimer: “Based on the difference between a 2% commission rate when Brokerage A represents both buyer and seller versus a hypothetical 5% commission rate. If the selling brokerage is another firm, including Brokerage A, a higher commission rate than 2% may apply. Commission rates may vary from brokerage to brokerage.” The crux: Make complete disclosures when advertising your services.

Other provisions in REBBA 2002 and its regulations relating to commission include a rule regarding employing brokerage, the purpose of which is to protect the public from the confusion that would result if brokers or salespeople were employed by multiple brokerages, as well as rules regarding entitlement, legal action, referral fees and disclosure of agreements involving the same trade.

Understanding the new rules and regulations under REBBA 2002 and the reasons behind them is important not only for public protection, but also to avoid sanctions by the Registrar for non-compliance. RECO’s Guide to REBBA 2002 identifies significant and substantive changes, provides an A to Z search of all topics related to the new Act, and a handy reference section. Current registrants received a copy of Guide to REBBA 2002 in March 2006 and all new registrants will receive a copy in Phase I.

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Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
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