RESOURCES

Since the introduction of the Trust in Real Estate Services Act (TRESA) and increasing discussions around self-represented parties, we’ve seen a rise in queries from real estate brokerages and agents. One common concern is how to handle the payment of a Buyer’s commission when the Seller is either self-represented or has a limited-service agreement, such as for a mere posting.

In such cases, a well-drafted remuneration clause can provide a solution. This clause, inserted into the Agreement of Purchase and Sale, establishes an agreement between the Buyer and Seller, where the Seller agrees to compensate the Buyer for their brokerage fees.

It is crucial to note that the remuneration clause must create an agreement between the Buyer and Seller—not between the Seller and the Buyer’s brokerage. According to TRESA, real estate brokerages are prohibited from entering into agreements with a Buyer or Seller unless it involves a representation agreement. Therefore, ensure the clause establishes a direct arrangement between the Buyer and Seller.

A well-constructed remuneration clause in an Agreement of Purchase and Sale should cover the following key elements:

1. Parties Involved: The clause should clearly define the agreement as being between the Buyer and Seller—the main parties to the Agreement of Purchase and Sale.
2. Purpose: It should state that the Seller agrees to compensate the Buyer for the Buyer’s brokerage fees or a portion thereof, as outlined in the Buyer Representation Agreement.
3. Amount: The clause must specify the exact amount the Seller agrees to pay, along with any applicable taxes.
4. Timing of Payment: The clause should clearly indicate when the payment is due. Typically, this is upon the completion of the transaction.
5. Payment Method: The clause must identify who will make the payment (the Seller) and how it will be disbursed, whether through the Seller’s brokerage or lawyer. It should also clarify the recipient—whether the payment goes directly to the Buyer or their brokerage.

RECO’s website notes that they have consulted with financial institutions regarding the use of remuneration clauses in Agreements of Purchase and Sale. Their feedback indicates that financial institutions do not typically distinguish between these clauses and other agreements where the Seller agrees to cover the Buyer’s commission.

However, it is crucial to ensure that the remuneration clause is not structured as a “cash back” or a credit to the Buyer on the statement of adjustments. Doing so could negatively impact the Buyer’s mortgage approval, as financial institutions are likely to interpret it as a reduction in the purchase price.

We regularly assist real estate brokerages and agents to draft clauses tailored to their needs. If you require assistance with drafting a remuneration clause or if there is anything else we can assist with, our firm will be more than happy to help. Please don’t hesitate to contact our office at (905) 270-6660 or via email at [email protected].

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Yashkaran Singh is an Associate Lawyer at Kormans LLP. You can reach Yashkaran here: [email protected].

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