A straightforward but often misunderstood topic when buying and selling real estate is: how do Realtors get paid?  Ontario Realtors earn commissions from the purchase and sale of property. The seller’s Realtor negotiates a commission that will be paid between his or her brokerage and the buyer’s brokerage. As per section 36(1) of the Real Estate Business and Brokers Act, 2002, the commission payable to the brokerages shall either be an agreed amount or a percentage of the sale price, but not both. If a property does not sell, the seller will generally not be liable to pay anything to their and the buyer’s brokerages and Realtors.

There is no legal requirement that governs what percentages are appropriate.  So long as the Realtor fulfills his or her professional, ethical, and fiduciary duty towards his or her client, the negotiated overall commission is what usually governs the deal.

If a real estate salesperson is involved in the purchase and sale (which is the normal course), then the commission payable is further broken down between the respective brokerages and their real estate salespersons.  This may be a 75:25 allocation in favour of the real estate salesperson or a simple transaction fee (e.g. $300) that the salesperson must pay to the brokerage to facilitate the transaction.

While in most cases there is no direct cost to a buyer for their Realtor’s services, a buyer may be liable to pay for some or all of their Realtor’s commissions if they agree to it in a Buyer Representation Agreement (as discussed above).

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Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.   If you need legal advice with respect to buying, selling or renting real estate, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario real estate lawyers registered to help you with your purchase, sale, and lease of real estate.

In this blog, I’ll be discussing typical commission structure of real estate salespersons.

Here’s how it works…

First off, the real estate agent representing the seller negotiates a commission that will be paid to 2 parties based on the selling price.  The 2 parties are the:

• Real Estate Brokerage representing the seller; and
• Real Estate Brokerage representing the buyer.

In Toronto, the typical overall commission that will be divided among these two parties ranges from 3.5% to 5% or even higher (it depends on many factors). So let’s take the following example.

Let’s say the overall commission is 5%. This is allocated as follows: 2% to the Real Estate Brokerage representing the seller and 3% to the Real Estate Brokerage representing the buyer (these allocations can vary).

Importantly, these percentages are further broken down between the respective Brokerages and their agents.  This may be a 75%:25% allocation in favour of the agent or a simple transaction fee (e.g. $300) that the agent must pay to the Brokerage.  So you can think of it like this:

For a $500,000 sale price, 2% can go to the Sellers (Brokerage and Real Estate Salespersons).  That’s $10,000 that will be split, for example, 75%:25%, which means that $7,500 will go the Real Estate Salespersons and $2,500 will go the Brokerage.

Going back to real estate commissions in general, there is no legal requirement that governs what percentages are appropriate.  So long as the Real Estate Salespersons fulfills his or her fiduciary duty towards his client, the negotiated overall commission is what governs (based on principles of contract law) the deal.

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Please keep in mind that this is not legal advice.  The information provided herein is for educational purposes only. If you would like to get in touch with a lawyer to help you draft, interpret, negotiate or resolve a dispute about a joint venture, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers).  We have Toronto and Ottawa lawyers who can assist you in this regard (I would know, I’m one of them!).

So this blog will deal with the basics of a joint venture agreement or contract.  In other blogs, I’ll get down to the nitty gritty.

Definition
Plaint and simple, a joint venture is a contract between two or more parties to share resources, knowledge, skills, etc. towards a common objective.

Parties
As usual in these types of agreements, the parties are identified at the get-go (make sure this is done properly or else your contract won’t be worth the paper it’s written on!).

Recitals
This is the background story you want to tell that leads up to the formation of the joint venture.  It could go something like: Party X does Y and has Z.  Party A does B and has C.  The two would now like to join forces to make even more $$$.  So they’re agreeing to have a joint venture in accordance with the terms and conditions set out in the joint venture agreement or contract…

Definitions
It’s a good idea to set out the definitions you’re going to be relying upon near the top of the joint venture agreement (for ease of reference and good organization).  You could include definitions here about “Confidential Information” (assuming there will be confidential information passed between the parties as a result of the joint venture), what constitutes “Force Majeure” (e.g. act of God that relieves a party of liability under the agreement in certain circumstances), etc.

Business Structure
The joint venture agreement or contract will generally state how the joint venture is structured.  Is it simply two separate entities acting in concert through the joint venture agreement or contract?  Will there be a new corporation formed?  Will there be a partnership formed?  Will that partnership be a general or limited liability partnership?  For more discussion about the general forms of business one can structure in Ontario, check out this free information about business structures we’ve been accumulating.

Nature of the Relationship
So will the joint venturers be partners (capable of binding each other), corporate shareholders, or simply joint venturers (i.e. their rights and obligations are limited to the terms of the joint venture agreement or contract).

Term and Termination
How long will the joint venture last for and what events give rise to its premature termination?  Will the parties simply be able to give each other notice?  Will the joint venture dissolve by operation of law, by one party filing for bankruptcy, by one party attempting to illegally assign their interest in the joint venture to a third party, etc.?  Again, you should consult with a lawyer to find out what kinds of things typically go in this section.  Also important is what to do in the even of default.  Does one of the joint venturers become liable to pay the other if they are at fault?  Who determines fault and according to what test (e.g. sole and absolute discretion)?  There’s a lot to think about here…

Joint Venture Assets and Benefits
How will these things be deal with?  Will there be a percentage of ownership?  Will the benefits be based on revenues or profits?  Can these interests be assigned?

Operations
How will the joint venture be operated on a day-to-day basis?  Will the joint venture committee have the power to enter contracts on behalf of the joint venture?  Perhaps the joint venture committee will create a new corporation to take on a certain responsibilities and simply own equally the shares of the new corporation.  That new corporation would operate as a separate business, but its shareholders would be the joint venturers (who would elect the directors, who in turn would appoint the day-to-day officers).  This would be a good place to put reporting and record-keeping requirements too.

Joint Venture Responsibilities
Here, we get to the nitty gritty of who will be responsible for what in the joint venture. Separate paragraphs will be needed for each of the parties.

Joint Venture Management
Will there be a committee?  Will representatives from each of the parties be on the commitee?  Will there be a chairperson?  How will meetings be managed, votes and decision made?  Will there be direction from owners and delegation to the committee?  In my opinion, and as I’ve previously blogged about, businesses should be run as dictatorships with consultants, not as democracies (too many voices means things won’t get done).  

Representations and Warranties
What kinds of true, fair, and complete statements must the parties make to induce the other parties to enter the agreement?  The parties want to know that their joint venturer partners have the authorization and operational wherewithall to do what it is they are about to do.  If these representations and warranties no longer hold true, then what’s the consequence?  Notice?  Termination?  This should be spelled out here…

Liability and Indemnification
Will the joint venturers try to limit their liability from each other in connection with the joint venture?  Will they indemnify each other for their own wrongdoing – whether in contract, tort, negligence, misconduct, breach of statute or otherwise?

General Terms and Conditions
This section of the Joint Venture Agreement will deal with things like (which I’ve previously touched on in teh context of an independent contractor agreement):

• Notices
• Entire Agreement
• Governing Law
• Interpretation
• Assignment
• Waiver
• Cumulative Remedies
• Counterparts
• Enurement
• Entire Agreement
• Time of Essence
• Independent Legal Advice
• Force Majeure
• Severability
• Survival
• Currency

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Need a Toronto Accident and Injury Lawyer?  Go to Dynamic Lawyers and make a post.

If you have been in an accident or suffered an injury, you may need to find a Toronto Accident Lawyer. Accident Lawyers – also referred to as Personal Injury Lawyers – handle matters such as:

• Defective Products
• Medical Malpractice
• Motor Vehicle Accident
• Occupier’s Liability
• Personal Injury
• Slip and Fall
• Workplace Accident
• Wrongful Death

Make a Post on Dynamic Lawyers
You can find Toronto Accident Lawyers and Toronto Personal Injury Lawyers by making a post on Dynamic Lawyers. Make sure to include important information in your post, such as: (1) when the injury took place or when you found out about it, (2) what your damages were/are/will be, and (3) a good description of what happened. When Toronto Accident and Personal Injury Lawyers review your post, they’ll want to know these things as a starting point. These Lawyers have researched accident and injury cases and legislation and will know if there is a time limitation on your ability to bring a claim as well as your probability of success in both negotiating or litigating a resolution.

Contingency Fee
Frequently, Toronto Accident and Personal Injury Lawyers take on cases that have merit on a contingency fee basis, which means that they won’t get paid until you get paid. Percentages typically range from 20 to upwards of 40% of what you collect from third parties. This compensation method facilitates access to justice because lawyers are often too expensive on an hourly basis to pursue your claim. Bear in mind, however, that this compensation method provides an incentive for lawyers to try to settle a case pre-maturely. This should be avoided where the case has merit and you (i.e. the client) do not want to settle for less than a certain amount.

Select the Right Accident and Injury Lawyer
Go with a lawyer who is accessible, responsive, and has a proven track record of getting clients what they want. Personal Injury Lawyers can demonstrate their knowledge, skills, and experience in a given area of law by showing you cases they have been involved in (and hopefully won), articles they have published, and perhaps even giving you client referrals. You should not feel obliged to go with a particular lawyer. Trust your instinct. Do your due diligence. Just make sure that you are comfortable communicating with the Personal Injury Lawyer and providing them with instructions on how to proceed. Remember: although Personal Injury Lawyers give you advice and recommendations based on their experience, you are always going to be in the driver’s seat.

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