Real Estate Talk:
Changes to brokerage act

Upcoming changes to the real estate brokerage act regarding broker commissions

By Joseph Marovitch

January 12, 2022

Imagine a seller hires a real estate broker to represent them in the sale of their property. The broker representing the seller is called the listing broker. The listing broker will measure and photograph the property and prepare a video. The broker will then research other comparable properties that have sold in the past 12 months and research currently active comparable properties for sale to ascertain the current market value of the seller’s property.

The listing broker will then market the property via social media, ads in local papers, mail flyers and newsletters. The listing broker will call qualified potential buyers, email newsletters, arrange showings, administer forms, and negotiate price, terms and conditions. The listing broker, if required, will facilitate the mortgage broker, inspector, and notary. For this service, brokers usually charge a commission of 5%, which they would divide with a selling broker.

A selling broker is the broker that brings a buyer to the listing broker’s property for sale. The selling broker found the property for their client either by researching Centris or receiving an email from the listing broker, or by the selling broker’s client informing the selling broker that they saw the listing broker’s property in an ad, online, or via a flyer they received in the mail.

In the situation where the listing broker represents both parties, in Quebec, the listing broker has a written commitment with the seller and a verbal commitment with the buyer. In actual fact, the listing broker’s priority is the seller, not the buyer. Therefore, there is a conflict of interest.

There is also the case where a buyer contacts a listing broker, without representation by a selling broker, due to the listing broker’s marketing campaign.

In the situation where a buyer is represented by a selling broker, the selling broker works for and represents the buyer only. The listing broker works for and represents the seller only.

In the situation where the buyer is not represented by a broker, both the buyer and seller are represented by the listing broker only, until now.

In the situation where the listing broker represents both parties, in Quebec, the listing broker has a written commitment with the seller and a verbal commitment with the buyer. In actual fact, the listing broker’s priority is the seller, not the buyer. Therefore, there is a conflict of interest.

If the listing broker represents both buyer and seller, having knowledge of the finances and intention of both parties and the ability to acquire gain from one party over the other in the form of higher commission as well as a priority obligation toward the seller to acquire the highest price, best terms, and conditions, either the buyer is not receiving the best service possible or there is manipulation taking place.

To alleviate the issue, as of June 10, 2022, the Real Estate Brokerage Act (REBA) will be amended, stating that all buyers and sellers must be represented by separate brokers to avoid conflicts of interest. These changes affect residential sales only of dwellings with five units or less, including single and attached homes, and condominiums both divided and undivided.

As well, verbal contracts will no longer be valid. Buyers must complete and sign a buyer’s contract with their selling broker, just as a seller must sign a brokerage contract with their listing broker. Listing brokers shall receive a commission from their seller as per their contract, and selling brokers shall receive commissions from their client as per the selling brokerage contract.

‘To alleviate the issue, as of June 10, 2022, the Real Estate Brokerage Act (REBA) will be amended, stating that all buyers and sellers must be represented by separate brokers to avoid conflicts of interest.’

In the event a selling broker shows a client a property that is listed by the selling broker and the buyer wishes to make an offer, the selling broker must terminate their buyer contract and inform the buyer to acquire another broker to represent them.

As a note, a buyer may choose not to be represented by another broker in the purchase process. In this case, the listing broker must be fair to both sides, however, the listing broker must be clear to the buyer that the listing broker is working for and representing the best interest of the seller.

There are other conditions, circumstances, and exceptions affected by the new amendment. For further information, go to www.oaciq.ca and type Forthcoming Amendment to the Real Estate Brokerage Act in the search box.

Should you have questions or comments, please refer to the comments section at the bottom of the page. As well, to view past articles, click here.

Next article – CMHC-proposed surtax on primary residence homes over $1 million and its possible effect

STATE OF THE MARKET

Interestingly, the Quebec Professional Association of Real Estate Brokers (QPAT) states that the real estate market is robust in terms of sales and prices that continue to rise as inventory decreases. Obviously, low supply and high demand dictate increasing prices. As we make our way through a fifth wave of the pandemic with increasing infections, hospitalizations, and deaths, it is no wonder that people have decided to stay put and not sell their homes.

I am not sure I would call this market robust so much as skewed. A robust market is one where there is balance and a home for every buyer. It is wonderful to sell a home for as much as possible, however, is a property with a 30% to 45% increase in value over a two-year period a good thing when the current circumstances cause people to lose their jobs, stay home with a curfew, and have reduced income while the few benefit?

‘If a buyer or seller is not versed in the process, a good experienced real estate broker can be like a tour guide, navigating through the process of safety guidelines, avoiding legal pitfalls and considering, not neglecting, conditions.’

As well, buyers are out there competing with many other buyers and neglecting due diligence and safety precautions. Buyers are purchasing property without warranty, without inspection, and paying prices that will bite back should interest rates rise suddenly, which is possible. Brokers, good or bad, are selling everything.

In this time when inventory is low, demand is high, and the pandemic is still strong, it is more important than ever for buyers and sellers to have knowledge and guidance. If a buyer or seller is not versed in the process, a good experienced real estate broker can be like a tour guide, navigating through the process of safety guidelines, avoiding legal pitfalls and considering, not neglecting, conditions.

Have a great week and stay safe.

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Feature image: Rodnae Productions from Pexels

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