6. Remuneration
As for the brokerage contract to sell, the mandatory form Exclusive brokerage contract – Purchase provides that the broker’s remuneration can be a percentage or a lump sum. The buyer and the broker must make a choice between these two basic methods, to which other terms and conditions, to be described in the mandatory form Annex RC – Remuneration and costs, may be added.
In the case of a percentage, depending on the situation, the amount will be calculated on the price entered on a promise to purchase or on the desired price entered in clause 5.1 of the brokerage contract to purchase (BCP).
For example, in clause 6.1, if the calculation is made on the amount of $390,000 offered in a promise to purchase, the remuneration will be $11,700 for a 3% percentage or $7,800 for a 2% percentage.
The calculation is the same if it is made on the desired price rather than on the purchase price offered in the promise to purchase. This will be the case if the buyer voluntarily prevents the performance of the contract. The same will apply if the promise to purchase consists in a transaction on the seller’s share capital.
Under clause 6.2 of the contract, the broker undertakes to collect any remuneration due by another agency or broker. This clause also informs the client that the remuneration sharing arrangement can vary between brokers and between properties and may exceed the remuneration agreed to in the BCP. The broker must inform his client of the shared remuneration expected before the client drafts a purchase proposal. This disclosure contributes to better transparency toward the consumer.
This clause also states that the remuneration to be paid by the buyer will be reduced by any remuneration the broker may receive from another agency or broker under a remuneration sharing agreement provided for in a brokerage contract to sell.
It is possible that the remuneration agreed to in the brokerage contract to purchase does not match the remuneration share which will be received from another broker under clause 7.3 of the latter’s brokerage contract to sell.
If the remuneration indicated in the brokerage contract to purchase is lower than the shared remuneration, the buyer will have nothing to pay to his broker. The deduction will bring his balance to 0. If it is higher, the buyer’s broker may collect the difference. This can be done in two ways: directly from the buyer or by making sure the amount can be financed as part of the purchase price offered. The same applies if the transaction carried out by the buyer concerns an immovable sold by a seller acting without an intermediary.
If the financing option is chosen, it must be made part of the promise to purchase by using clause R2.5 of the form Annex R – Residential immovable, which will be attached to the promise to purchase as a complement to clause 11.4.
Example 1
- The remuneration share is 3% of the sale price.
- The remuneration provided for in the brokerage contract to purchase is 2.5% of the sale price.
- Both the buyer and the seller are represented by a broker.
- The buyer agrees to pay the difference between what is stipulated in the brokerage contract to purchase and what his broker receives from the seller’s broker.
- Clause 11.4 of the promise to purchase states that the total remuneration provided for in the brokerage contract to sell will be paid directly to the seller’s broker.
- Clause R2.5 is not used and no instructions are given to the notary.
- The buyer’s broker’s remuneration will be 3%, and will be paid by the seller’s broker or agency.
Example 2
- The remuneration share is 2% of the sale price.
- The remuneration provided for in the brokerage contract to purchase is 2.5% of the sale price.
- Both the buyer and the seller are represented by a broker.
- Clause 11.4 of the promise to purchase states that the total remuneration provided for in the brokerage contract to sell will be paid directly to the seller’s broker. No instructions are given to the notary to pay an amount directly to the buyer’s broker.
- Clause R2.5 is not used.
- The seller’s broker’s will pay the sums due (2%) to the buyer’s broker and the buyer will pay the difference (0.5%) when he receives an invoice form his broker for this amount.
Example 3
The remuneration due to the buyer’s broker will be paid from the sums available to the seller. The amount of remuneration will be included in the purchase price and taken into account for the financing.
This situation could arise where the buyer is represented by a broker while the seller is not. The remuneration provided for in the BCP will be withheld from the sums available to the seller at the time of signing the deed of sale and then paid to the broker by the notary. Nothing is entered in clause 11.4 of the promise to purchase since the seller is not represented by a broker. Clause R2.5 of Annex R will be used.
When the price offered on the promise to purchase includes the value of the remuneration payable to the buyer’s broker
An important factor to take into account when considering adding your remuneration to the offered purchase price is that the Canada Mortgage and Housing Corporation (CMHC) imposes two basic conditions in order for it to insure a potential mortgage loan. The amount of the remuneration must be included in the purchase price indicated in the transaction proposal (contract to sell or promise to purchase) and the price offered, including remuneration, must not exceed the value of the property.
In addition, the fact that the price offered in the promise to purchase includes the value of the remuneration that will be payable to the buyer’s broker requires a special approach, first with the buyer and then with the seller when presenting the transaction proposal. The seller must have a clear understanding of the situation and the collection mechanism, but more importantly, he must be clear on the amount he will receive from the proceeds of the sale minus the broker’s remuneration.
TABLE 1 — Purchase price entered in clause 4.1 of the promise to purchase reduced by the percentage remuneration including taxes
| Purchase price entered in 4.1 | $250,000 | |
| - Remuneration (2.5%) | $6,250 | |
| - GST (5%) | + $312.50 | |
| - QST (9.975 %) | + $623.44 | |
| - Rétribution incluant les taxes | $7,185.94 | |
| Remuneration including taxes | - $7,185.94 | |
| Proceeds remaining available to the seller | $242,814.06 |
TABLE 2 — Proceeds remaining available to the seller to which remuneration is added as a lump sum including taxes
| Proceeds remaining available to the seller | $240,000 |
| Remuneration (entered in R2.5), including taxes | + $7,000 |
