Commissions - Payment from Trust

Purpose:  This bulletin explains how to handle the receipt and disbursement of funds that are commissions or other remuneration.

This bulletin applies to the broker and administrative staff of a real estate brokerage.

Depositing funds
A brokerage must deposit into its trust account any money they receive for commissions or other remuneration that may include payment to another brokerage. The brokerage must record the money as trust money for the client who pays the commission. If the transaction includes:

the brokerage deposits the money into the brokerage general account or commission payment account. 

Disbursing funds
When the brokerage receives the authority to disburse the commission money from trust, the brokerage should disburse the money in the following order:

A brokerage must not pay any personal or general office expenses from a trust account.

Commission trust accounts
Some brokerages designate a general account as “commission trust account”. The brokerage uses this account to disburse commissions to the brokerage’s industry professionals. For the purposes of the Real Estate Act, the Real Estate Council of Alberta considers these accounts as a general account of the brokerage. Brokerages may disburse commissions from the brokerage’s trust account into this account when the commissions are payable to the brokerage. Brokerages may not deposit into its “commission trust account” any commissions that they share with other brokerages.

For the purpose of the following diagrams, brokerages who designate a general account as a “commission trust account” can replace the term “general” account with “commission trust account.”

Examples

1. Deposit equals commission – two brokerages
Brokerage A enters into a seller representation agreement. The commission is $10,000 with $5,000 for any cooperating brokerage. Brokerage B finds a buyer for the property. The buyer and seller reach an agreement with a trust deposit of $10,000 held by Brokerage A. The deal closes and $10,000 commissions are payable by the client to Brokerage A. The Brokerage receives notice from the client to use the $10,000 in trust to pay the commissions. Brokerage A owes $5,000 to Brokerage B.

Application of Rule 97: Brokerage A must first pay Brokerage B $5,000 from trust. The trust transfer takes place. Brokerage B deposits the $5,000 into its general account as a commission payment. Brokerage A draws $5,000 from the trust account and pays this into its general account for payment of commissions.

This diagram illustrates the scenario.

 

2. Deposits less than commissions – two brokerages
Brokerage A enters into a seller representation agreement. Commissions are 5% of the selling price with 2.5% of the selling price to pay any cooperating brokerage. Brokerage B finds a buyer for the property. The buyer and seller reach an agreement with a trust deposit of $500 held by Brokerage A. The deal closes and $5,000 commissions are payable to Brokerage A. Brokerage A receives notice from the client to use the $500 in trust to pay the commissions. The client pays $4500 to brokerage A to satisfy the commissions owing. Brokerage A owes $2,500 to Brokerage B.

Application of Rule 97: Brokerage A deposits the $4,500 into brokerage A’s trust account. Brokerage A now holds $5000 in its trust account. Brokerage A must first pay Brokerage B $2,500. The trust transfer takes place. Brokerage B deposits this $2,500 into its general account as a commission payment. Brokerage A draws $2,500 from the trust account into the general account to pay commissions.

This diagram illustrates the scenario.

 

3. Deposits greater than commissions – transaction brokerage
Brokerage A enters into a seller representation agreement. Commissions are 7% of the selling price. Brokerage A finds a buyer for the property. The buyer and seller reach an agreement with a trust deposit of $10,000 held by Brokerage A. Brokerage A receives notice from the client for Brokerage A to pay $3,000 from trust to the client’s lawyer and to maintain the balance of $7,000 for commissions. The deal closes and the Brokerage A receives notice from the client to use the $7,000 in trust to pay the commissions.

Application of Rule 97: Brokerage A draws $7,000 from the trust account and pays it into the general account in payment of commissions to pay its real estate broker.

This diagram illustrates the scenario.

 

4. Deposits less than commissions – transaction brokerage/double ender exemption
Brokerage A enters into a seller representation agreement. Commissions are 7% of the selling price. Brokerage A finds a buyer. The buyer and seller reach an agreement with a trust deposit of $5,000 held by Brokerage A. The deal closes and commissions are $7,000. The client pays Brokerage A with an additional $2,000 for commissions. Brokerage A receives notice from the client to use the $5,000 in trust to pay the commissions.

Application of Rule 97: The exemption applies. Brokerage A draws the $5,000 from the trust to pay into the general account to pay commissions. Brokerage A deposits the $2,000 received from the client into Brokerage A’s general account.

This diagram illustrates the scenario.

5. Commissions to referring and cooperating brokerage for seller client
Brokerage A refers a seller to Brokerage B. Brokerage A and B agree to a 30% referral fee of Brokerage B’s listing portion of the commission. The commissions are $10,000 with $5,000 for any cooperating brokerage. Brokerage C finds a buyer for the property. The buyer and seller reach an agreement with a trust deposit of $5,000 held by Brokerage B. The deal closes and commissions are $10,000 payable to Brokerage B. Brokerage B receives notice to use the $5,000 deposit for commissions. Brokerage B receives a check for $5,000 for the balance of commissions. Brokerage B owes $5,000 to brokerage C and $1,500 to brokerage A.

Application of Rule 97: Brokerage B deposits the $5,000 from the seller into its trust account. There is $10,000 in brokerage B’s trust account. From the $10,000 held in trust, brokerage B pays brokerage C $5,000 as commissions and pays Brokerage A $1,500 as a referral fee. Brokerage B draws the remaining $3,500 from the trust account into the general account in payment of commissions.

This diagram illustrates the scenario.

6. Commissions to referring and cooperating brokerages for buyer clients
Brokerage A refers buyer clients to Brokerage B. Brokerage A and B agree to a 30% referral fee. Brokerage B finds property for the buyer. The buyer and seller reach an agreement with a trust deposit of $5,000 held by Brokerage C. The deal closes and commissions of $7,000 are payable to Brokerage C. Brokerage C receives notice to use the $5,000 deposit for commissions. Brokerage C receives a check for $2,000 for the balance of commissions. Brokerage C owes $3,500 in commissions to Brokerage B. Brokerage B owes a referral fee of $1,050 to brokerage A.

Application of Rule 97: Brokerage C deposits the $2,000 received from the seller’s lawyer in trust. There is now $7,000 in trust. Brokerage C pays $3,500 to brokerage B from trust. Brokerage C draws $3,500 from the trust account into its general account. Brokerage B deposits the $3,500 into its general account, and brokerage B pays brokerage A from the general account for the referral fee.

This diagram illustrates the scenario.

Related information

Legislation

 

 

 

 

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