Personal Finance

Proposed Change to the Act governing Real Estate Agent Listing Commission

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  • May 21st, 2015 9:10 am
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[OP]
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Aug 2, 2010
13570 posts
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Proposed Change to the Act governing Real Estate Agent Listing Commission

Hi Folks!

I am spearheading a proposal to change the Ontario Real Estate and Business Brokers Act and this proposal will be presented to both the Ontario Minister of Government and Consumer Services, The Honorable David Orazietti, as he deals with changes to this legislation, and also the Competition Bureau of Canada, who also deal with these matters.

The reason is that currently one has to pay a listing agent a % of the sale price of a property or a flat rate or both. In the last 9 years the average price of a Toronto detached home has increased 100% while inflation has only increased 16%. At the same time the commission paid to agents to list and sell a home has also increased 100%, as it is almost always a % of the listing price, yet the work done is the same (or arguably less these days with lockboxes and new technology). I want to list my property and offered the agent a % of the price I 'would get anyway' (the price at which the home would sell instantly with an MLS listing as it was such an attractive price) and the actual sale price. Guess what the agent told me? It was illegal! I checked. It is!

I was absolutely and totally shocked! Read on:

Currently the section dealing with commission in the Ontario Real Estate and Business Brokers Act, 2002, as amended, reads (key prohibition sentence underlined):

Commission and remuneration
36. (1) All commission or other remuneration payable to a brokerage in respect of a trade in real estate shall be an agreed amount or percentage of the sale price or rental price, as the case may be, or a combination of both. 2013, c. 13, Sched. 3, s. 2.

If no agreement
(1.1) If there is no agreement as to the amount of the commission or other remuneration, the rate of it or other basis for determining it shall be that generally prevailing in the community where the real estate is located. 2013, c. 13, Sched. 3, s. 2.

Percentages
(2) If the commission payable in respect of a trade in real estate is expressed as a percentage of the sale price or rental price, the percentage does not have to be fixed but may be expressed as a series of percentages that decrease at specified amounts as the sale price or rental price increases. 2002, c. 30, Sched. C, s. 36 (2).

Prohibition
(3) No registrant shall request or enter into an arrangement for the payment of a commission or any other remuneration based on the difference between the price at which real estate is listed for sale or rental and the actual sale price or rental price, as the case may be, of the real estate, nor is a registrant entitled to retain any commission or other remuneration computed upon any such basis. 2002, c. 30, Sched. C, s. 36 (3).

Through extensive research today I found that S36(3) is there as a consumer protection measure. However, it seems whomever drafted this legislation killed a fly with a hammer in the way they implemented the prohibition. The prohibition prevents an unscrupulous RE agent from convincing a client to 'under list' their house, ie set a listing price way below what a reasonable listing price is and then charge them a high commission rate in order to earn a higher commission than they would have earned if they simply charged the standard 2.5% on the sale price. The problem is it bans all incentive-based commission structures. However, my amendment allows this commission structure while preserving consumer protection. A win-win for everyone.

My proposal is to have S36(3) removed completely, S.36(1.1) & S.36(3) to remain the same, but to have S.36(1) amended to read as follows (changes and addition are in bold underlined):

Commission and remuneration
36. (1) All commission or other remuneration payable to a brokerage in respect of a trade in real estate shall be either:

(a) an agreed amount or percentage of the sale price or rental price, as the case may be, or a combination of both. 2013, c. 13, Sched. 3, s. 2.

(b) an agreed amount or percentage of the difference between the price at which real estate is listed for sale or rental or any sale or rental price less than this and the actual sale price or rental price, as the case may be, or a combination of both, but in no case shall the percentage commission exceed two and one-half percent.

The 2.5% cap I included totally removes the possibility of any unscrupulous agent convincing a client to under list a house in order to obtain a greater commission than the current standard 2.5%. That would only be possible if there was no 2.5% cap. Even if the agent was able to convince the client to list their property at $0 the maximum they could earn in commission would still only be that which they could earn under the standard 2.5% commission under S36(1) as it stands now.

Some may argue that my proposed S36(1)(b) would encourage agents to under list homes but they do that all the time now and homes never sell for what they list for anyway, especially those that are under listed. Furthermore, and much more important, is now the agent has a real incentive to try to get the highest possible price for the property because the higher it sells for the more commission they make but they get nothing, other than any flat rate non-refundable listing fee agreed to, if they sell the home for what the property owner 'would get anyway' or some other lower price that you choose that you want to have the commission starting to be paid at.

Some examples with Listing Price = $1.0M & Sale Price = 1.3M (flat rate non-refundable listing fee also an added option)

1. S(36)(1)(b) Incentive Based. Agreed that 2.5% commission paid on any amount over $1.0M. Commission = $1.3M-$1.0M = $0.3K x 2.5% = $7,500

2. S(36)(1)(b) Incentive Based. Agreed that 2.5% commission paid on any amount over $0.8M. Commission = $1.3M-$0.8M = $0.5K x 2.5% = $12,500

3. S(36)(1)(b) Incentive Based. Agreed that 2.5% commission paid on any amount over $0.5M. Commission = $1.3M-$0.5M = $0.8K x 2.5% = $20,000

4. S(36)(1)(b) Incentive Based. Agreed that 2.5% commission paid on any amount over $0.0M. Commission = $1.3M-$0.0M = $1.3K x 2.5% = $32,500

5. S(36)(1)(a) Conventional. Agreed that 2.5% commission paid on sale price = $1.3M x 2.5% = $32,500 - ie same as 4.

Note that one can choose any other commission rate for the S(36)(1)(b) incentive based method but there is a cap of 2.5%. The commission rate under S(36)(1)(a) has no cap but typically it is always 2.5% or less.

I've been racking my brains to try to shoot some holes through this amendment, have circulated it amongst friends including some lawyers and accountants (I'm a lawyer but have not practised in years) and no one can up with anything negative about it, only positive. If I do say so myself I think it is a brilliantly simple amendment that preserves consumer protection while increasing the choice of commission structures, remunerates only for value added (but perhaps a bit more if a lower than listing price is chosen) and will serve to reduce prices paid for commission. At the same time it is a positive for agents as it will still allow successful ones enjoy a good income by forcing out the many low-producing agents out there who currently can sell just a few houses a year and stay in business. Lastly, it is not being forced on anyone. Agents are free to decline this commission structure and let competition decide.

I would like to hear any thoughts, comments or any other constructive criticism on my proposed amendment and allowing incentive-based RE agent commission.

NOTE: I WOULD REALLY LIKE THIS TO NOT TO BE A FORUM TO DEBATE THE MERITS OF USING REAL ESTATE AGENTS OR TO DEBATE WHETHER OR NOT REAL ESTATE AGENTS ARE 'WORTH IT' OR WORTH BEING PAID 2.5% BUT MERELY A FORUM TO DEBATE MY PROPOSED CHANGE TO THE ACT TO ALLOW INCENTIVE-BASED COMMISSION FOR THOSE WHO WANT IT. THANK YOU.
106 replies
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Jan 27, 2007
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You need a TL;DR version.
[QUOTE]I know you are, but what am I.... ;) [/QUOTE]
[OP]
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Aug 2, 2010
13570 posts
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dutchca wrote:
Apr 9th, 2015 9:40 pm
You need a TL;DR version.
It's a simple change the legislation, but a serious topic that deserves and requires more than a few lines to be sufficiently explained such that I am not asked a million questions to explain the details better.

I hope people can add constructive criticism, not meaningless comments like the person above who can't be bothered spending 5 minutes to read my post, but if they did sure proved they had nothing of any value to add
Deal Addict
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Dec 4, 2009
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You have too much time on your hands.
"I'm a bit upset. I've been grab by the back without any alert and lubrification"
Lucky
[OP]
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Aug 2, 2010
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Toukolou wrote:
Apr 9th, 2015 10:40 pm
You have too much time on your hands.
I choose to spend some of my free time on what I feel is a worthy cause. This is an issue which I think can be improved dramatically to benefit all.

I'm doing something constructive. You're not on this thread and probably not otherwise given your insult.
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Jan 4, 2009
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eonibm wrote:
Apr 9th, 2015 10:56 pm
I choose to spend some of my free time on what I feel is a worthy cause.
ok, ready to join your cause, I'm pumped. Let's do it!!

You make up some ribbons, I'll get the bumper stickers. We can get Bono to sing at the telethon, and maybe Jerry's kids can be strategically photoshopped into the posters.
[OP]
Deal Guru
Aug 2, 2010
13570 posts
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Sauerkraut wrote:
Apr 10th, 2015 9:12 am
ok, ready to join your cause, I'm pumped. Let's do it!!

You make up some ribbons, I'll get the bumper stickers. We can get Bono to sing at the telethon, and maybe Jerry's kids can be strategically photoshopped into the posters.
Do you have any comments on the actual proposal itself? Obviously not. That's what I am looking for thanks.

dutchca, Toukolou & Sauerkraut - perfect examples that some on RFD are just here to waste time with idiotic comments which add no value whatsoever - nice.
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Jan 4, 2009
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Naw, this is only the 3rd or 4th RE thread that you've started. It's way too early...I'm waiting until you hit double digits.
Member
Dec 2, 2007
284 posts
9 upvotes
Hi OP,

I'm on board. I've been following your other thread and it has opened my eyes somewhat. Your proposed change brings only positive benefits to the consumers. I'm assuming anyone in this thread that disagrees is a RE Agent.
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Mar 23, 2011
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eonibm wrote:
Apr 9th, 2015 10:56 pm
I choose to spend some of my free time on what I feel is a worthy cause. This is an issue which I think can be improved dramatically to benefit all.
Volunteering at a soup kitchen, helping out at schools, donating your time to worthy charities are worthy causes...this is just a mission for hatred of Real Estate fees. The average person moves once every 15 years, I don't think this is a cause that will change the balance of life for the masses.
Alex
[OP]
Deal Guru
Aug 2, 2010
13570 posts
3627 upvotes
Here 'n There
Sauerkraut wrote:
Apr 10th, 2015 9:40 am
Naw, this is only the 3rd or 4th RE thread that you've started. It's way too early...I'm waiting until you hit double digits.
This is the first one on this specific proposal. What part of that do you not get? Please get lost.
Sr. Member
Oct 13, 2011
511 posts
289 upvotes
I think what you have here is very solid. However, I'm not very good with legal language, I am thinking whether the language would allow for a flat fee under a certain amount.

So using your example, on a $1 Million listing, if sale price is under $1M, would the propose changes allows for the owner compensate the listing agent for a fixed fees and for offers over $1M, it will be Fix Fees + 2.5%
Deal Guru
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Nov 30, 2009
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sherman51 wrote:
Apr 10th, 2015 9:45 am
Volunteering at a soup kitchen, helping out at schools, donating your time to worthy charities are worthy causes...this is just a mission for hatred of Real Estate fees. The average person moves once every 15 years, I don't think this is a cause that will change the balance of life for the masses.
If everyone thought this way, change would never come. Do away with the complacent Canadian mindset! Free your MIND! :cheesygri

Good luck OP!
Member
Dec 2, 2007
284 posts
9 upvotes
LostInTruth wrote:
Apr 10th, 2015 11:01 am
If everyone thought this way, change would never come. Do away with the complacent Canadian mindset! Free your MIND! :cheesygri

Good luck OP!
Absolutely what I was thinking. Canadians are too complacent (Especially those in Ontario) and just accept things the way they are or whatever negative changes the government imposes on us. We need to start forcing positive change.
[OP]
Deal Guru
Aug 2, 2010
13570 posts
3627 upvotes
Here 'n There
sherman51 wrote:
Apr 10th, 2015 9:45 am
Volunteering at a soup kitchen, helping out at schools, donating your time to worthy charities are worthy causes...this is just a mission for hatred of Real Estate fees. The average person moves once every 15 years, I don't think this is a cause that will change the balance of life for the masses.
Using your logic The Competition Bureau would never have forced the Canadian Real Estate Association (CREA) to required a broker sell flat rate MLS listings to consumers which they did recently, because, after all, as you say 'the average person moves once every 15 years' and so it will not 'change the balance of life for the masses'.

Using your logic Ontario Minister of Government and Consumer Services, The Honorable David Oraziettias would not be introducing legislation in July of this year targeting phantom bids, because 'the average person moves once every 15 years' and so it will not 'change the balance of life for the masses'

Well let me enlighten you about how many people it will benefit. It will benefit those property owners who are behind the almost 40,000 real estate transactions per month that occur now in 2015 across Canada with over 15,000 of those occurring in the GTA alone.

So let me get this straight. There are almost 500,000 real estate transactions in Canada per year now and almost 200,000 in the GTA alone per year and you are saying it does not matter if the rules are changed because it will not 'change the balance of life for the masses' and 'the average person moves once every 15 years'? Well, lets see now. That's 8,500,000 transactions that will occur in Canada in 'the next 15 years' and 3,000,000 transactions in the GTA (and that's without any increase) but to you that will not 'change the balance of life for the masses'. Really? Wow? What planet are you living on?

Either you have absolutely no clue about anything to do with real estate or you are an idiot. I'll assume the former as I don't like to call people names (and before you jump the gun I am not calling you that but just telling you that was an option I had) and enlighten you. Sheesh!

Sources for # of transactions:

Canada: http://creastats.crea.ca/natl/ GTA: http://www.torontorealestateboard.com/m ... h_0315.htm

I can only assume that with comments like the ones sherman51 just made that those making them are obviously real estate agents who don't want to see their gravy train slowed down at all or simply have no clue about real estate. Or, they think giving 500,000 property owners per year and 200,000 in the GTA alone increased choice of commission structures while preserving consumer protection is not worthwhile. WOW!

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