Marketing, advertising, fees, licensing, education, and insurance are only the tip of the iceberg for costs associated with being a professional REALTOR®. Add to that the industry experience, product knowledge, negotiation expertise, and contract prowess required for a successful transaction, and it's plain to see that a professional REALTOR® earns their fee.
The real estate industry in Alberta is varied in the ways compensation can flow to the buyer’s brokerage, and ultimately to the REALTOR®, so let us talk a moment about what those ways are, and how to ensure it is done properly and transparently.
The Law in AlbertaIt is important to first recognize that in the province of Alberta, only the brokerage is licensed to trade in real property. Because of this, a professional REALTOR® is registered with a brokerage and goes out into the real world representing the transactions on the brokerage’s behalf. This is the reason why all agreements are between clients and the brokerage, and all fees paid concerning a trade in real estate must be paid to the brokerage and not the REALTOR® directly. Once the fee is received by the brokerage, the REALTOR® is compensated by the brokerage based on their agreement, but a REALTOR® must never accept any payment directly, for any reason or they would be in violation of Alberta law.
How the fee flowsThe most common flow of compensation is through the Exclusive Seller Brokerage agreement. In that agreement, the seller agrees to pay their brokerage a total fee for the successful sale of their home. Also, as part of that agreement, the seller agrees with the brokerage the amount of compensation that will be offered to any cooperating brokerage out of that total fee. The seller’s brokerage then displays that cooperating fee amount in the listing through the MLS® system. The buyer’s brokerage will have a written agreement with the buyer for compensation, usually through the Exclusive Buyers Representation Agreement detailing the amount of the fee. Once the buyer purchases the property and everything closes successfully then the fee is paid to the seller’s brokerage from the seller’s lawyer out of proceeds of the sale, and the seller’s brokerage subsequently compensates the buyer’s brokerage their portion, who subsequently compensates the REALTOR® their portion.
What if the fee offered in the MLS® system is less than what the buyer has agreed to pay the buyer's brokerage?Ah, now we come to the nitty-gritty. Because all compensation is negotiable in Alberta and there is no standard fee for service and no standard service offerings, there can be some difference in the amount expected by the buyer’s brokerage and the amount offered by the seller’s brokerage. The best way to handle such a situation, when the REALTOR® and the buyer are using an Exclusive Buyer Representation Agreement which includes a set fee, is by way of a specific term in the purchase contract. Because only the buyer and seller are parties to the purchase contract and the brokerages are not, the buyer must be the party to insist on the seller meeting their obligations to the buyer’s brokerage if they are to purchase the home. A sample term would look like the following, but legal advice would be advised in the crafting of a term for compensation:
The seller agrees to pay the buyers brokerage, [insert buyers brokerage name], the sum of [insert fee amount described in EBRA] +GST on the final selling price at closing, in order to allow the buyer to fulfill the buyer’s obligations to the buyer’s brokerage through the Exclusive Buyer Representation agreement #__________________________. This compensation is in lieu of advertised compensation.
Are there exceptions?Yes, of course. This is the most common flow of compensation for the buyer’s brokerage, however, it does not answer every situation. For example, if the buyer and the buyer’s brokerage have used a Non-exclusive Buyers Representation Agreement, the brokerage has no option to receive anything other than the compensation offered by the seller through the MLS® system. This too must be disclosed to the buyer, in this case, using a fee disclosure form.
Other variations may also arise in specific situations and a professional REALTOR® will be able to advise on the various situations as they arise based on the relationship agreements they have with the buyers, and the specifics of the purchase. When things get too complex, as they sometimes can, do not hesitate to seek competent legal advice.
Provincial Practice Advisor
Bryan has many years of experience in the real estate industry including over 10 years as a former broker in the Edmonton Region.
Email: email@example.comPhone: 403-209-3619