There is no standard commission for real estate or mortgage brokerage services in Alberta. Commissions to industry professionals are negotiable.
Wise consumers know that the cheapest deal isn’t always the best deal. Before choosing a real estate professional, you’ll likely want to compare the services and fees of a few real estate professionals. These interviews can help you understand the range of commission rates available, and the services provided at the various rates.
Commission is something you can negotiate with your real estate professional. Some industry professionals and brokerages aren’t willing to negotiate their commission while others are. That’s their right. As a buyer or seller, you have the right to work with someone who charges a commission that you’re comfortable with.
RECA requires real estate agents and mortgage brokerage professionals to tell you how they’ll be paid for their services. It’s important you know this, as it could prevent unexpected expenses later and have an effect on how your transaction proceeds.
Remember, all payment agreements you enter into are between you and the brokerage, not between you and an individual industry professional. You pay the brokerage, which then pays the individual industry professional.
Individual industry professionals cannot demand or accept payment directly. If you encounter a situation where an industry professional demands direct payment, refuse the request, and call the industry professional’s broker.
Real estate and mortgage brokering is a service, making GST applicable.
RECA requires residential real estate, property management, and mortgage brokerage professionals to have a written service agreement with clients. This agreement outlines fee payments between you and the brokerage.
You and your real estate brokerage can negotiate any terms agreeable for services provided. The seller in a real estate transaction typically agrees to pay commission to their brokerage upon a successful sale. That agreement will also indicate how much of that commission will be paid to (shared with) the buyer’s real estate brokerage.
Any of the following calculations are possible:
One amount of percentage charged on a portion of the sale price and a different percentage charged on the balance of the sale price.
The fee remains the same regardless of the sale price.
The Real Estate Act prohibits a real estate brokerage from calculating a fee based on the difference between the gross sale proceeds and the net sale proceeds deemed acceptable by the seller. This situation may occur when a poorly informed seller under-estimates the value of a property, and a dishonest practitioner fails to offer proper advice and takes advantage of the situation.
For example, a seller tells his real estate professional he thinks his property might sell for about $500,000 because another property in the neighborhood sold for that amount. The real estate professional already knows of the neighborhood sale. In fact, he has been in the property and knows his seller’s property is far superior. Rather than $500,000, the industry member thinks his seller’s house can sell for $550,000 or more! The industry member realizes the seller is unaware of the true value of his property. If he is unscrupulous and willing to contravene the Real Estate Act, he may tell the seller, “If you’re happy with $500,000, I’ll try to sell your property for that, and keep anything above that as my commission.”
The uninformed seller may think this is a fine arrangement; after all, his neighbour got $500,000, but then had to subtract the commission costs and his agent is offering to get him $500,000 and will only keep what he might get over that amount. However, the seller is unaware of the value of the property. If the property sells for $550,000, the agent would collect $50,000 as his commission – far more than he would typically earn on a sale of this value.
RECA does not permit this type of commission payment.
Lenders or borrowers can pay mortgage brokerage fees. It depends what is written in the service agreement, and may also depend on which party is the client.
Residential mortgage brokerages are prohibited from requesting fee payments before certain events occur – such an accepted mortgage commitment and the lender supplying a disclosure statement. However, this only applies to personal, family, or household mortgages.
If your purchase requires mortgage financing for commercial, industrial, business, or professional property usage, the mortgage broker will canvass various lenders looking for ones that are interested in your application. They will send a detailed proposal to those lenders. Despite this work, lenders may turn down your application because it doesn’t meet their qualifications – not because your broker failed in their efforts. To cover this service expense, the brokerage may charge a non-refundable fee, ensuring compensation whether a lender accepts your application or not.
Keep in mind the mortgage industry member must disclose to you in writing that the fee is non-refundable before accepting it from you. Again, this isn’t a requirement for personal, family or household mortgages.
Make sure you know whether the fees are refundable, and don’t sign any agreement until you’ve read, understood and agreed to it.
A bonus is a payment over and above the usual fee. It’s sometimes offered to encourage activity on a property.
You’re entitled to know about any payments an industry member might receive as a result of your transaction. Knowing this information will help you determine if the industry professional is acting in your best interest.
For example, a seller looking to sell quickly is offering buyer’s professionals a “bonus” so they notice his listing. Before accepting this payment, the buyer’s representative must advise his buyer client of the bonus, and obtain written consent from them to receive it. As with all fees, the seller must pay the bonus to the brokerage, which then pays the individual professional.
Industry professionals will often refer clients to other professionals for services. For example:
Before accepting a referral payment, industry professionals must disclose to you in writing that they are forwarding your information, and that they may receive a referral fee. They must take reasonable steps to ensure the person they refer you to is authorized to perform the activities (if applicable). As with all fees, payment of referral fees goes to the brokerage, and the brokerage pays the industry professional.