Deal to waive commission must be disclosed
I was unsuccessful in a bidding war and I later learned that the salesperson for the winning buyer offered to waive most of his commission to get the deal. Is that allowed? When buyers are competing for a property, there are several things they can do to make their offer more attractive. The most obvious choice is to increase the offer price. But there are other things that a seller might be looking for when they consider an offer.
In your case, the buyer, with the help of their representative, made their offer more attractive by reducing the commission paid. This can be an appealing prospect for the seller, because they typically pay the commission for both representatives. While this practice is allowed, real estate salespeople and brokerages also have certain obligations in these situations.
The seller was obligated to inform you and any other buyers who made written offers. Once you received the disclosure, you could have used this information to revise your offer.
These obligations come into play when a would-be buyer makes an offer, while proposing revised com- mission terms that could make their offer more attractive. If the seller and their brokerage agree to consider the proposal, the brokerage has to tell any other buyers who submit written offers (through the buyers’ sales representatives).
The seller’s rep must make this disclosure as soon as possible and before they accept any offer. The disclosure has to indicate that there is a commission reduction and state what the reduced commission rate would be, should that particular offer be accepted.
RECO strongly encourages written notice in these sorts of situations so that there is a record.
You might wonder why the buyer’s representative would agree to this arrangement. This can happen when the buyer and the seller are working with the same brokerage. Since the brokerage would get commission from both the buying and selling side, they agree to reduce their rate. In other cases the buyer’s representative may agree to reduce the commission to increase the chance of a successful purchase. However, they may have other reasons for doing it.
Ultimately, a brokerage is not obligated to reduce its commission, and it should not be assumed it would be willing to do so.
There are some other issues you should keep in mind when dealing with a multiple-offer situation.
Before you decide to make an offer, consider how much the property is worth to you and the maximum you are willing to pay.
Once you set a limit, it’s a good idea to stick to it.
Getting caught up in the emotional roller-coaster of the offer process could lead to you overpaying for the property.
You might also be tempted to make your offer more attractive by removing conditions like a satisfactory home inspection or a financing condition.
These conditions are there to protect you, so don’t rush into the decision to drop them.
This is an area where a registered real estate professional’s guidance is key.
When you’re looking for a representative, they can assist you with their knowledge of local market conditions and their prior experience with bidding wars. That can be a great asset as you’re trying to find a new home. Joseph Richer is registrar of the Real Estate Council of Ontario (RECO). He oversees and enforces all rules governing real estate professionals in Ontario. Email questions to askjoe@reco.on.ca. Find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at youtube.com/RECOhelps.