Real Estate Talk:
New commission rules

Buyers must now sign a purchase contract stating how much they will pay their broker in commission

By Joseph Marovitch

August 22, 2024

A recent article in the New York Times reported that the U.S. has new commission rules that change the way brokers are compensated. Quebec also has these rules. Buyers are now required to sign a purchase contract with their broker stating how much the buyer will pay their broker in commission.

The issue is that, in the past, the commission was added to the sale price and paid through the notary. The seller would tell the listing broker how much they want to end up with net and pricing built the commission into the purchase price. Either way, the buyer paid the commission to their seller.

The new rules don’t actually change anything unless the listing broker does not account for the selling broker’s commission and prices the property lower in which case the buyer would pay additionally out of their pocket and would not be able to include all the expenses in the mortgage.

The public is under the impression that brokers do little, especially the selling broker… Brokers representing buyers work north of 40 hours a week.

The process will not necessarily change for the seller. But the buyer, with the impression they will have to pay commission out of their pocket, will deter the use of selling brokers, in which case, without representation, they may lose money, not acquire the best terms and possibly get into legal trouble without professional advice. The listing broker would prepare the documents without offering the buyer advice in acquiring the best price and terms.

The public is under the impression that brokers do little, especially the selling broker, the one representing the buyer. Brokers representing buyers work north of 40 hours a week.

They do the following:

• Advertise, network, send mailings, send newsletters and spend a significant amount of time and money to find business
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• Meet with potential clients at their home or the broker’s office to establish rapport, acquire criteria and other information
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• Research daily for old and new listings that are placed in the client’s file
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• Email listings of interest to the client
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• Answer questions and perform further research to determine if the house has assessments, the actual market value, find out why it is for sale, and more
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• Arrange visits
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• Attend all visits and drive clients
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• Negotiate price and terms
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• Prepare offers, counter offers and all other documents
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• Facilitate conditions of the offer such as deadlines, examination of documents, inspection, financing, phase 1 environmental test and anything else required. These are all arranged by the broker.
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• Assist the notary by providing deeds of sale, certificates of location, taxes, mortgage deeds and any other documents required
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• Use their expertise to ensure the process is smooth and legal

‘… brokers get paid only if they purchase or sell a property, they take a gamble that a transaction will take place before the end of their mandate…’

All these functions require time, money, gas, car maintenance, office supplies, office, permits, insurance, research and much more. In the end, since brokers get paid only if they purchase or sell a property, they take a gamble that a transaction will take place before the end of their mandate, otherwise, they have spent thousands of dollars and hours for nothing.

If the government is going to change the rules, brokers should charge by the hour. This way they will be paid whether they are successful or not, in purchasing or selling a property.

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Next article: Brokers staying on top of things

State of The Market

The inflation rate recently decreased to 2.5% and continues to fall. This provides a path for the Federal government to cut interest rates further and economists believe there will be another 0.25 % rate cut in September. At some point, as rates continue to fall, demand will begin to increase. Larger demand can lead to increased property value, however, with larger demand and increased inventory, buyers will have more choices and options for terms and price. In other words, we will have a more balanced market.

‘The inflation rate recently decreased to 2.5% and continues to fall… and economists believe there will be another 0.25 % rate cut in September.’

Our inflation and interest rates depend very much on world events, and it appears the future is looking a little brighter as the Middle East comes closer to a ceasefire agreement and Ukraine, tough as it is, receives more funding and weapons to stave off its Russian aggressors. These issues will depend in a large part on the outcome of the presidential election in a few months. War around the world means slow supply chains and higher prices on goods and services which cause inflation and higher interest rates.

However, if the wars de-escalate and governments in certain countries calm down and reduce division and drama, we will look forward to a safer and more stable economy, real estate market and world.

Have a great week!

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Feature image: Suzy Hazelwood – Pexels 

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