My Deal Fell Through – Do I Still Owe My Real Estate Agent Commission?

After soaring for years, house prices in and around Toronto have pulled back sharply in recent months. Prices in the GTA have fallen 17 per cent on average from the market’s peak in April, according to the Toronto Real Estate Board.

That drop is prompting some buyers who bought when prices were at their highest peak to try to get out of their deals – usually once they realize, as the closing date approaches, that the price they paid is now more than the house is worth. But re-negotiating agreements with vendors and real estate agents can be tough and walking away from what seems like a poor deal isn’t as easy as one might think.

Related Read: What Happens When a Buyer Walks Away From a Real Estate Deal?

Scrutinize Buyer Representation Agreements Closely

Generally, the real estate industry operates on participants being paid only upon a successful result – but that’s not always the case. That’s why it’s critical that you clearly document the relationship between you and your agent from the outset, including your expectations of the agent’s services, what you’re prepared to pay for those services, and the duration of your commitment.

Most of this is outlined in your Buyer Representation Agreement, the contract wherein you agree to work exclusively with the agent’s firm for a designated period of time. Among other things, the BRA highlights the agent’s commission structure and overall compensation, including a holdover clause stipulating that if you buy a home after your BRA has expired, and that buyer was originally found by your agent, you may still be on the hook for a commission.

What many buyers don’t realize, however, is that they may also be liable for such commissions if they change their minds and attempt to back out of a sale that’s well underway. That’s what happened to one Toronto-area family when they decided to walk away from a new house they agreed to buy in 2017.

Little Room for Buyer’s Remorse

Last year, Marcello and Anita Mastroianni decided to sell their semi-detached home in Vaughan and buy a larger place for their growing family, subsequently making an offer to purchase another home nearby for $1.3 million. But, within weeks of signing the paperwork, both homes dropped sharply in value. Alarmed, the Mastroiannis decided to walk away and not close on the new house – even though they knew they would lose their deposit.

But that wasn’t the end of things as they quickly received notice from their real estate agent that he was going to pursue them for the commissions that he had lost. While the matter is still before the courts, reports CTV, they may face further disappointment since the agreement they signed essentially guaranteed a commission, regardless of the outcome.

Vendors Are on the Hook as Well

It’s not only buyers who get cold feet, of course. Given the market’s volatility, there’s no shortage of reasons that might drive sellers to change their minds and take their property off the market – even after receiving an offer for full asking price. But that doesn’t mean they can ignore the work that went into making the sale.

In a recent court case, a valid offer was presented to the seller within the listing period, even though the homeowner had had a change of heart and was actively working to sink the deal. In that situation, the court concluded that actual acceptance of the offer wasn’t required for money to be owed. Since the listing agreement clearly outlined the commission to be paid upon presentation of an offer at the full listing price, the real estate agent was entitled to the full commission, regardless of whether the seller accepted the offer, or the property was actually sold.

Take a Second Look Then Ask for Clarification

Most real estate listing agents use standard forms to create their BRAs, generally with few problems. Don’t sign one without reading it carefully, however, and don’t be afraid to ask for any changes or amendments – realizing that agents may be reluctant to modify their standard agreements since they’ve used them successfully in the past.

But that doesn’t mean they won’t make adjustments, particularly if your request is reasonable. If you’re in any way unsure, have the proposed listing agreement reviewed by your lawyer prior to signing it.

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