Practical Aspects and DraftingChapter 2 · 48 practice questions

Chapter 2: Commission Calculations

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Chapter: Commission Calculations – Legal Framework and Practical Application

COMMISSION CALCULATIONS Module QC-PRAT — Real Estate Licensing Exam Reference LISTING AGREEMENT Seller + Broker sign Commission % stated OFFER / CONTRACT Buyer's offer accepted Price agreed CLOSING Title transfers Funds disbursed COMMISSION Paid to broker at closing CORE FORMULA Commission = Sales Price × Commission Rate Example: $300,000 × 6% = $18,000 total commission COMMISSION DISTRIBUTION TOTAL COMMISSION 100% of commission LISTING BROKER Usually 50% of total (negotiable split) SELLING BROKER Usually 50% of total (negotiable split) COOPERATING BROKER If different from listing (selling broker role) AGENT-LEVEL SPLIT (Broker → Agent) Listing Agent share Selling Agent share Split per agency agreement Note: Commission rates are negotiable. MLS rules may require offers of cooperation. Refer to state regulations.

Overview

This chapter covers the fundamental legal and professional principles governing real estate commissions under Quebec’s Real Estate Brokerage Act (RLRQ, chapter C‑73.2). Mastery of these concepts is essential for ensuring that commission claims are valid, ethical, and enforceable. The material addresses three interconnected areas: the mandatory conditions for claiming a commission, the distinction between when a commission is earned versus when it becomes payable, and the basic arithmetic of calculating commission amounts. Understanding these elements allows brokers and agencies to structure their transactions correctly and avoid disputes.

Key Concepts

1. Legal Requirement for Claiming a Commission (Article 30 of the Real Estate Brokerage Act)

Article 30: The Two Mandatory Signatures Article 30: The Two Mandatory Signatures Real Estate Brokerage Act (RLRQ, c. C-73.2) — Essential and prerequisite condition for any commission BROKERAGE CONTRACT Written and signed BEFORE any service provision No exceptions (exclusive or not) Indefinite-term mandate included SIGNATURE 1 Party who must pay the commission (debtor client) ✓ SIGNATURE 2 Agency license holder (the agency itself) not just an employed broker ✓ ✗ LEGALLY INSUFFICIENT — NO COMMISSION CLAIMABLE Verbal agreement Unsigned contract Unilateral signature ✗ ✗ ✗ ⚠ CONSEQUENCE Even with visits, purchase offers or listing on the inter-agency service 📋 REMINDER Contract concluded BEFORE any service provision creating an obligation to pay

The cornerstone of any commission claim is a valid, written brokerage contract. Article 30 of the Real Estate Brokerage Act states unequivocally that no remuneration may be claimed or received unless the broker or agency holds a contract that meets two essential conditions:

  • It is signed by the party who will pay the remuneration (typically the seller or the buyer, depending on the mandate).
  • It is signed by the agency license holder (the broker or the agency’s designated representative).

This requirement means that verbal agreements, unsigned contracts, or contracts signed by only one party are legally insufficient to support a commission claim. The written contract serves as the legal foundation for the entire brokerage relationship and the corresponding right to compensation.

2. Commission Earned vs. Commission Payable

A critical distinction exists between earning a commission and having it become payable. These are two separate moments in time:

  • Commission earned: The right to the commission is acquired as soon as one of the conditions stipulated in the brokerage contract is fulfilled during the term of the mandate. A common example is the seller’s refusal of a promise to purchase that meets all the conditions specified in the listing agreement. At that moment, the broker has performed the service that entitles them to the commission, even though payment is not yet due.
Earned vs. Payable: Two Moments Earned vs. Payable: Two Moments The commission is earned before it is payable — two distinct moments that protect the broker ① WRITTEN BROKERAGE CONTRACT Art. 30 Real Estate Brokerage Act Signed by client + agency condition met EARNED The right arises — without being due E.g.: seller refuses a conforming purchase offer ② TRIGGER EVENT Signing of the deed of sale (notarial closing) PAYABLE The right becomes due — the broker can collect Signing of deed of sale OR seller default date triggers Signing of the brokerage contract Condition met → commission EARNED Deed of sale / default → PAYABLE Collection of commission + taxes SUMMARY — PATH OF THE RIGHT TO COMMISSION: 1. Written contract signed (art. 30) → potential right 2. Condition met (e.g. refusal of conforming offer) → right EARNED 3. Deed of sale signed OR seller default → right PAYABLE 4. Calculation and collection (price × rate + GST/QST) 🛡 Protects the broker's right References: Real Estate Brokerage Act (RLRQ, c. C-73.2), art. 30 • OACIQ Code of Ethics The commission is earned as soon as a condition of the contract is met — payable at closing or upon seller default.
  • Commission become payable: The actual payment of the commission usually occurs at the signing of the deed of sale (closing). If the transaction fails because of the seller’s fault (e.g., failure to fulfill conditions), the commission becomes payable on the date of that default. The deed of sale is the normal trigger for payment, but the commission was already earned at an earlier point.

This distinction protects the broker’s right to compensation when a client’s actions frustrate the transaction, while still aligning payment with the final transfer of property.

3. Calculating Commission Amount

Commission is typically calculated as a percentage of the sale price before taxes. For example, if the agreed commission rate is 6% and the sale price is $250,000, the commission before taxes is:

Commission Calculation with Taxes (GST/QST) Commission Calculation with Taxes (GST/QST) Sale price before taxes × Commission rate = Base commission + Applicable taxes STEP 1 Sale price (before taxes) $250,000 STEP 2 Commission rate (specified in contract) 6% × STEP 3 Base commission (before taxes) $15,000 $250,000 × 6% = $15,000 Addition of applicable taxes (Quebec) GST (5%) $15,000 × 5% = $750.00 QST (9.975%) $15,000 × 9.975% = $1,496.25 + = TOTAL TO COLLECT $15,000 + $750 + $1,496.25 $17,246.25 ⚠ IMPORTANT — Brokerage contract The commission rate AND its calculation basis must be clearly specified in the brokerage contract to avoid any dispute. Taxes (GST/QST) are added separately to the base commission. Reference: Real Estate Brokerage Act (RLRQ, c. C-73.2), art. 30 — OACIQ Code of Ethics

$250,000 × 6% = $15,000.

This base amount is then subject to applicable taxes (GST/QST), which are added separately. The calculation is straightforward, but the broker must ensure that the rate and basis (e.g., sale price before or after taxes) are clearly stated in the brokerage contract to avoid misunderstandings.

Important Regulations, Procedures, and Code of Ethics Provisions

  • Real Estate Brokerage Act, Article 30: The primary legal provision governing commission claims. It establishes the mandatory written contract requirement. Without such a contract, no commission may be claimed, regardless of how much work the broker performed or how close the transaction came to closing.
  • Regulation respecting brokerage contracts: Specifies the content and formal requirements for various types of mandates (exclusive listing, agency agreement, etc.), including clauses that define when the commission is earned and when it becomes payable.
  • OACIQ (Organisme d’autoréglementation du courtage immobilier du Québec) Guidelines: Professional practice standards reinforce the legal provisions. For example, they clarify that the commission is earned as soon as a condition stipulated in the contract is fulfilled during its term (e.g., seller’s refusal of a compliant promise to purchase), not at the signing of the deed of sale, which is strictly the payability event.
  • Code of ethics of the OACIQ: Requires brokers to act with integrity and transparency in all dealings related to commissions, including disclosing the exact terms in writing before any claim is made.

Common Relationships Between Concepts

  • Contract as the Prerequisite for All Commission Claims: The written broker contract signed by both parties is the indispensable foundation. Without it, no event—whether a visit, a promise to purchase, or a deed of sale—can give rise to a legally claimable commission.
  • Sequence of Events: The typical chronology is: (1) valid written contract signed → (2) broker performs services (e.g., presents a promise to purchase) → (3) a contractual condition triggers the earning of the commission (e.g., seller refuses the promise) → (4) the closing (deed of sale) triggers payability → (5) broker receives payment plus applicable taxes. If the transaction fails due to the seller’s fault, payability occurs at the date of default.
  • Impact of Non-Compliance: A broker who attempts to claim a commission without a proper written contract violates Article 30 and may face disciplinary sanctions, civil liability (reversal of payment), and reputational damage. Conversely, a properly drafted contract protects both the broker and the client by clarifying responsibilities and timing.
Non-Compliance: Consequences Non-Compliance: Consequences Article 30 Real Estate Brokerage Act — RLRQ, c. C-73.2 SCENARIO WITHOUT WRITTEN CONTRACT Commission claim without signed contract (art. 30) Disciplinary sanctions Disciplinary Committee OACIQ Civil liability Refund of amounts collected Damage to professional reputation Loss of client and public trust ✗ CLAIM DOOMED TO FAILURE SCENARIO WITH VALID WRITTEN CONTRACT Valid written brokerage contract Signed by the client and the agency (art. 30) Broker protection Right to commission earned and payable Client protection Clarity of responsibilities Clarified responsibilities and deadlines Earned → Payable → Calculation ✓ CLAIM WELL-FOUNDED Reminder: No verbal agreement, email, or informal exchange replaces the signed written contract (art. 30) The contract must be concluded BEFORE any provision of services — Sine qua non condition
  • Calculation Consistency: The commission rate must be applied to the correct base (e.g., sale price before taxes) and must be stated in the contract. Any ambiguity (e.g., “commission of 6%” without specifying whether it is on the sale price before or after taxes) can lead to disputes. The simple percentage calculation (price × rate) is the standard method.
Commission Disputes: From Amicable to Civil Recourse Commission Disputes: From Amicable to Civil Recourse STEP 1 Client refuses to pay the commission STEP 2 Attempt at amicable resolution STEP 3 Dispute persists → two possible recourses Essential preliminary condition: Valid written brokerage contract (art. 30) ✓ Valid contract ✗ No contract RECOURSE 1 Disciplinary Committee of the OACIQ RECOURSE 2 Civil proceedings (court) FAILURE Claim doomed to fail ⚠ Frequent source of disputes: contract ambiguities Unclear clauses on the rate, the split (co-brokerage), the conditions of acquisition, the safety clause, or the timing of payment → Draft a clear and complete contract from the outset Art. 30 conditions: ✓ Signed by the debtor client ✓ Signed by the agency Earned vs payable commission Earned: conditions met Payable: deed of sale signed Real Estate Brokerage Act (RLRQ, c. C-73.2) — OACIQ — Code of Ethics

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