Know your commitment about paying a real estate brokerage commission before you sign a listing agreement


thestar.com
Bob Aaron
Bob Aaron bob@aaron.ca

Posted On: Wednesday, September 30, 2020
Should home sellers have to pay commission on a sale if the transaction doesn’t close?

The Ontario Real Estate Association (OREA), an industry group representing realtors, thinks so. It publishes the listing agreement which is used in virtually every real estate transaction in Ontario.

Recently I reviewed an OREA listing agreement that a client was about to sign. My comments surprised him and led to a number of negotiated changes.

The agreement says that the seller will pay the full commission “for any valid offer to purchase the property from any source whatsoever obtained during the listing period and on the terms and conditions set out in this agreement.”

There is no explanation of what is meant by a “valid” offer.

The agreement also says that the commission is payable on the scheduled closing date even if the transaction is not completed, “if such non-completion is owing or attributable to the seller’s default or neglect.”

The agreement obliges the seller to pay full commission whether or not a transaction closes. Even if, for example, the title is defective, if the buyer is unable or unwilling to close or if the house is damaged by fire or flood.

This obligation to pay commission has been upheld in the Ontario courts. In 2008, Richard Fody listed a parcel of vacant land with T. L. Willaert Realty Ltd. for sale at $199,900. Some months later, after a number of rejected offers, Willaert’s buyer submitted an unconditional offer at the full asking price.

Fody never accepted the offer and the deal did not close. Willaert sued Fody for its commission in Small Claims Court and won. Fody appealed to Superior Court and lost again.

“Acceptance of the offer is not required,” the court ruled. “The listing agreement clearly contemplated payment of the commission upon presentation of an offer at the full asking price.”

A similar case arose in 2018 with a different result. In April, 2017, Marlene Nemeth listed her home with Homelife Eagle Realty, a brokerage owned by Hams Ohrstrom. A month later, she received a $900,000 offer but the buyer couldn’t close on the purchase.

Even though the deal fell through, Ohrstrom demanded payment of commission and eventually sued Nemeth in Small Claims Court.

Based on the listing agreement, Ohrstrom was clearly entitled to the commission but after the story was publicized on Global News, the brokerage dropped the case.

Last week I emailed Tim Hudak, CEO of OREA, and members of its forms committee responsible for the listing agreement. I asked how the organization defines a “valid” offer, if it was the intention of the form that commission is payable whether or not the deal closes, and for whatever reason it may not close.

A spokesperson declined to answer any of my questions (and accused me of seeking legal advice). The form, however, is explained on the OREA website behind a members-only wall.

Sellers should always think twice before refusing to pay their real estate agents. But I also advise sellers to seek legal advice when listing their properties for sale with an OREA listing agreement.

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Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.

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