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Remuneration Guidelines

Remuneration Guidelines

Guidelines
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  • Guidelines

    BCFSA’s Guidelines provide a practical application of the information and give suggested best practice guidance to assist real estate professionals. These guidelines provide BCFSA’s interpretation of RESA and all other applicable legislation.

    In addition, BCFSA’s Guidelines may be a useful information source for the general public looking for information about standards of conduct for real estate professionals.

Purpose

These guidelines will help you understand how to act in your client’s best interest in situations where your actions may be influenced by actual or potential remuneration. This includes not using remuneration offered by a listing brokerage to filter which properties you are willing to show your client. This also serves as a reminder to be cognizant of the Competition Act in the execution of your obligations and how the Act also serves to protect your client’s interests.

Please note that technically the brokerage negotiates any remuneration or commission rates, even though in practice, brokerages allow real estate professionals to negotiate remuneration. To be consistent with the legislation, these guidelines will always reference remuneration negotiated, earned, and paid by the brokerage. Prudent real estate professionals should always discuss remuneration with their managing broker to ensure that during the negotiation process, they are not offside with brokerage policy.

  1. Showing properties to buyers based on cooperating remuneration;
  2. Understanding remuneration restrictions;
  3. Understanding remuneration disputes and advances.

Guidelines

Showing Properties to Buyers Based on Cooperating Remuneration

When searching for properties that match a client’s search parameters, often the databases which advertise the properties include the cooperating commission being offered. It is important to remember that you must always act in your client’s best interest. This includes showing properties your client may be interested in where the seller is offering a lower-than-expected remuneration or no remuneration.

One of the simplest ways to address your commission expectations when representing a buyer is to review with them and request they enter into a buyer agency agreement. By outlining your expectations when it comes to commission at the outset of your agency relationship and agreeing with your client who will compensate you should a seller be offering a commission amount that is below what you charge, you will eliminate the issue of having to represent your client in a transaction where a reduced commission or no commission is being offered by the seller or the seller’s brokerage.

Please click here for more information on buyer agency agreements, and here for more information on the duties you owe to your clients.

Understanding Remuneration Restrictions

In real estate there is no standard remuneration. Remuneration can be negotiated by you (if you have the authority), your brokerage, and your client. Suggesting to your client that there is a standard is contrary to competition laws. It is also a violation of competition laws to collude with other brokerages to drive up remuneration rates or to discourage other real estate professionals or brokerages from reducing their rates.

The remuneration rates charged by your brokerage should be based on the services provided. You should be able to justify the fees your brokerage charges, whether working with buyers, sellers, strata corporations or owners renting properties regardless of what other real estate professionals in the industry are charging.

The Competition Bureau of Canada is an independent agency that ensures businesses and consumers benefit in a competitive marketplace. The Competition Act outlines what practices are considered anti-competitive and illegal. It also has and has provisions that include both criminal and civil offences.

Understanding Remuneration Disputes and Advances

RESA does not address commission disputes between brokerages or between a brokerage and their real estate professionals. Remuneration earned by a brokerage is paid to their real estate professionals based on their contracts. You can be paid as an employee of the brokerage or an independent contractor. You should speak with your managing broker if a remuneration dispute arises. If the situation cannot be resolved, you may need legal advice.

Relevant Cases

Case #1: Licensee Had Seller Client Sign an Addendum Stating That the Seller Would Receive Specified Net Proceeds from the Sale and the Licensee Would Receive the Remainder of the Sale Proceeds as a Bonus.

The licensee was a co-listing agent for the seller. The seller signed a listing agreement to list the property for $799,999 and agreed to pay commission to the listing brokerage at 7% on $100,000 and 2.5% on the remainder. The seller entered into a Contract of Purchase and Sale for the Property for $880,000 and then signed an addendum stating that he would receive $825,000 from the sale proceeds and the remainder would be given to the licensee and the co-listing agent as a bonus.

The licensee was found to have committed professional misconduct in that he:

  • (1) Failed to act in the best interests of his client when he prepared and had the seller sign an addendum to the Contract of Purchase and Sale stating that the seller would receive net proceeds from the sale and the licensee would receive the remainder of the sale proceeds as a bonus; and
  • (2) He acted in a potential conflict of interest and failed to advise the seller to seek independent professional advice in relation to the remainder of the sale proceeds that the licensee would receive as a bonus.

Contraventions: section [Must act in best interests of the client], [Licensee must not request or enter into agreement for remuneration based on difference between listed price and actual price], [Advise the client to seek independent professional advice on matters outside of the expertise of the licensee], [Take reasonable steps to avoid conflict of interest], and section [If conflict of interest does exist, fully disclose to client] of the Real Estate Services Rules (“Rules”).

Read the full case (will open in a new tab)

Case #2: Licensee Accepted “Listing Administration Fee” Directly from the Seller, a Person Other than His Brokerage, and Did Not Deliver or Pay the Remuneration Received for Real Estate Services to his Brokerage.

The licensee prepared a multiple listing contract for a property and on Schedule A to the listing stated that the “listing agent will receive a flat commission of $5,000” and “vendor to provide the listing agent with a $250 listing administration fee.” The seller prepared a cheque dated August 7, 2009 for $250 and left the payee blank but provided the cheque to the licensee. On February 8, 2010, the listing expired and on February 9, 2010, the licensee deposited the cheque into his personal account. The seller stated that his understanding was that the cheque would not be cashed unless the property was sold. The licensee thought that the administration fee was to cover the costs associated with listing the property and was not based on the sale of the property, thus why he had reduced his commission owing upon sale of the property. The licensee’s managing broker told the seller that the up-front administrative fee was to ensure that some of the costs associated with listing the property are covered in the event the property does not sell. The licensee mistakenly believed that this administration fee would not be considered as remuneration for real estate services.

The licensee was found to have committed professional misconduct in that he:

  1. Accepted remuneration from a person other than his brokerage and failed to promptly pay or deliver remuneration received for real estate services to his brokerage; he accepted remuneration for real estate services directly from the seller and deposited that remuneration into his own personal account rather than delivering same to his brokerage; and
  2. Failed to apply reasonable care and skill in that he failed to clarify, in writing, the details and circumstances under which the $250.00 listing administration fee would apply.

Contraventions: section [Licensee must deliver or pay all money held or received as remuneration to the brokerage], section [Licensee must not accept remuneration from any other person other than brokerage] of the Real Estate Services Act; and section [Reasonable care and skill] of the Real Estate Services Rules.

Read the full case (will open in a new tab)

Case #3:

Golden Ears Plaza v. Rafieyan et al., 2013 BCPC 219 (CanLII) was an action by a developer to recover advance commissions paid to the developer’s licensee, where four sets of buyers did not complete their purchase, among other claims including whether the developer could recover the advances from the related brokerage of the licensee.

The court found that former section 5-15(4) of the Rules (now section 61(4)) applied when determining the circumstances in which advance commissions delivered to a brokerage by its licensee (the developer’s agent) may be withdrawn from the brokerage’s trust account, but the court did not include an analysis for this finding. (Section 61(4) applies when money is held by the brokerage other than as a stakeholder.) The court did find that the brokerage withdrew the money from its trust account and paid it to the licensee before it was earned in accordance with the Rules, but the claim against the brokerage did not succeed because the brokerage was not a party to the contract (the contract was between the developer and the licensee) and the brokerage was not vicariously liable for the licensee’s repayment due to the licensee’s independent contractor status. The court’s statements on section 61 were obiter dicta, but they offer some insight into the application and interpretation of that section.

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Managing Broker Considerations

All remuneration being paid to your brokerage’s related real estate professionals must be paid through your brokerage with a few exceptions. A real estate professional is not permitted to collect any remuneration (monetary or otherwise) directly from a client or third party. Your brokerage policies and procedures manual should include information about remuneration, required disclosures, advances and any brokerage policies on referrals.


It is also suggested that your real estate professionals understand the difference in how the brokerage holds funds depending on the circumstances. For example, the brokerage may hold deposit funds as a stakeholder in a resale transaction or commercial lease, or may hold deposit funds for the benefit of a landlord in a residential rental property management transaction. In a pre-sale transaction, the brokerage holds deposit funds as a trustee under the Real Estate Development Marketing Act (REDMA). Each scenario has specific requirements for withdrawing funds from trust and may affect when funds are considered earned and can be paid as remuneration. This guideline addresses receipt and payment of remuneration under the Real Estate Services Act (RESA) only and does not address licensees’ obligations under REDMA. For more information on licensees’ obligations under REDMA, see the Pre-Sales Guidelines.


BCFSA developed the following guideline as a starting point for a brokerage’s own enquiries to determine how related licensees are paid depending on both the nature of their remuneration and how they are engaged by their related brokerage.


(1) Licensees Receiving Remuneration in the Form of Commission

Licensees who receive remuneration in the form of commission must be paid from either

  • the brokerage’s trust account, or
  • the brokerage’s commission trust account.

Where there is an independent contractor relationship between the licensee and the brokerage


When remuneration held in a brokerage trust account may be withdrawn under RESA and the Rules, the brokerage’s share of the remuneration may then be paid into the brokerage’s general account. The remaining net share of the remuneration that is payable by the brokerage to the licensee must then be paid, at the brokerage’s option, either directly out of the brokerage’s trust account to the licensee or into a commission trust account and, from that account, to or on behalf of the licensee.


A commission trust account must be used in instances where the licensee is responsible for making remittances such as GST and income tax, and the brokerage has agreed to make these remittances on behalf of the licensee. In this instance, the ‘net share of the remuneration’ that is payable to the licensee includes the amounts that are to be remitted on behalf of the licensee. This net share must first be transferred from the brokerage’s trust account into the brokerage’s commission trust account. The brokerage may then remit on behalf of the licensee, and pay the remaining balance to the licensee, out of the commission trust account.

Where there is an employee employer relationship between the licensee and the brokerage


Where there is an employee employer relationship between the licensee and the brokerage, the brokerage is responsible for paying certain expenses associated with the licensee. These expenses may include any deductions that the employer has a legal obligation to remit, i.e.: the employee portion of CPP, EI, income tax, etc.


When remuneration held in a brokerage trust account may be withdrawn under RESA and the Rules, the brokerage’s share of the remuneration may then be paid into the brokerage’s general account. The remaining net share of the remuneration that is payable by the brokerage to the licensee must then be paid, at the brokerage’s option, either directly out of the brokerage’s trust account to the licensee or into a commission trust account and, from that account, to or on behalf of the licensee.


(2) Licensees “Employed” by a Brokerage and Remunerated by Regular and Periodic Wages


Brokerages who employ licensees (including representatives, associate brokers, or managing brokers) and who pay these licensees on a periodic and regular basis (e.g., hourly, weekly, bi-weekly, monthly, or yearly), may pay these wages from the brokerage’s general account, as this remuneration is not dependent on any one trade in real estate or any one service agreement. It will be paid to the licensee irrespective of the number of trades in real estate or service agreements. The licensee’s remuneration is therefore not directly related to money that is held in the brokerage trust account.


Any bonuses that are to be paid to the licensee may also be paid from the brokerage’s general account, provided that the bonus is not based on any trade in real estate or specific service agreement, but rather at the brokerage’s discretion.


Bonuses or commissions based on one or more trades in real estate, or one or more service agreements, may not be paid out of the brokerage’s general account. They must be paid from the brokerage’s trust account or commission trust account. Under this scenario, the licensee could still receive their wage remuneration out of the brokerage’s general account, but the bonus must be paid from either the brokerage’s trust account or commission trust account.


(3) Advance Commissions


When a developer offers to pay a commission advance on a pre-sale transaction, the real estate professional is usually presented with and asked to sign, on behalf of their related brokerage, an agreement that sets out the terms under which the commission is being advanced. Such an agreement may include a provision that if the project does not proceed or the transaction does not complete, the brokerage agrees to repay the advance. As such, if the brokerage then pays out the advanced commission to the real estate professional, the brokerage itself has taken on a contingent liability to repay the advance, in the event of a collapsed sale.


The technical requirements of structuring advance commission agreements, and of making a payment under that agreement, in compliance with RESA and the Real Estate Services Rules (Rules) are complex. Moreover, there may be significant consequences attached to payment of an advance commission including legal, financial, tax or other consequences. Brokerages are cautioned against paying advance commissions on pre-sales. In the event that a brokerage wishes to provide an advance commission on a pre-sale despite the potential risks of doing so, it is critical to first seek independent professional advice. The absence of independent professional advice and/or adequate due diligence may be considered in connection with any licensee discipline arising from non-compliance with RESA and related enactments in respect of advance commissions.


Where a brokerage is considering permitting commission advances, the managing broker’s obligations include but are not limited to ensuring that:

  • agreements related to pre-sale transactions and commission advances comply with the requirements of RESA and the Rules (including when funds must be held in trust and when funds held in trust may be paid out, and signing by all required signatories including as applicable the client, the parties to a trade in real estate, the brokerage, and/or the individual licensee(s)); and
  • only persons with authority to bind the brokerage enter agreements that purport to bind the brokerage.

In addition, the managing broker should ensure that:

  • the brokerage maintains books, accounts, or other records to identify when commissions are “advances” (this may depend on whether the licensee provides services to the developer/ seller or the buyer); when advances may be required to be repaid (and must be identified as a contingent liability for the brokerage); and the security provided (if any) for any repayable commission advance or loan; and
  • brokerage policies and procedures provide detailed explanation of requirements, restrictions and expectations that apply to advance commissions.

In general, money received as remuneration must be paid to the brokerage (unless an exemption applies). Money held in a brokerage trust account by a brokerage, other than as a stakeholder, may be withdrawn in accordance with a service agreement or other agreement under which the applicable real estate services are provided, or at a time otherwise agreed to in writing by the client. Accordingly, it is important to document how an “advance” was withdrawn in accordance with RESA and the Rules.

In addition, advance payment of commissions on pre-sale transactions carries broader implications for the brokerage’s financial position. Brokerage policies and procedures should address the ability of a related licensee to enter into an agreement that may create a future liability for the brokerage, and the terms of any pre-payment or loan extended to a related licensee in connection with advance commissions. These matters require careful consideration because they can impact the brokerage’s solvency if the pre-sale transaction does not complete (e.g., due to project cancellation, developer bankruptcy), and create resource requirements for the brokerage (e.g., professional fees; collecting from a licensee who may or may not remain with the brokerage; adjustments to financial records; and/or other transaction costs).

Applicable Section of RESA/Real Estate Services Regulation/Real Estate Services Rules

  • Section 3, RESA, Requirement for license to provide real estate services
  • Section 4, RESA, No recovery of remuneration by unlicensed person
  • Section 7, RESA, Relationships between brokerages and other licensees
  • Section 27, RESA, Payment into trust account
  • Section 28, RESA, Circumstances in which brokerage holds money as stakeholder
  • Section 30, RESA, Withdrawals from trust account
  • Section 31, RESA, Payment of licensee remuneration
  • Section 30, Real Estate Services Rules, Duties to clients
  • Section 34, Real Estate Services Rules, Duty to act with reasonable care and skill
  • Section 43, Real Estate Services Rules, Written service agreements required in some cases
  • Section 56, Real Estate Services Rules, Disclosure of Remuneration
  • Section 57, Real Estate Services Rules, Disclosure to Sellers of Expected Remuneration
  • Section 60, Real Estate Services Rules, Remuneration restriction in relation to trades in real estate
  • Section 61, Real Estate Services Rules, When licensee remuneration can be paid out of trust account
  • Section 62, Real Estate Services Rules, Some remuneration not required to be paid into brokerage trust account
  • Section 2.5, Real Estate Services Regulations, Exemption for employees of developers

Definitions

Remuneration: includes any form of remuneration, including any commission, fee, gain or reward, whether the remuneration is received, or is to be received, directly or indirectly.