Commission Structures and Essential Elements of Contracts

Commission Structures Brokerages may charge either a flat fee or commission but not both Structures set out in S36(1) of REBBA 2002 Flat fee = stated amount in listing agreement The seller(s) pay this amount to the listing brokerage (LB) who pays co-operating brokerage(s) Commission = percentage of sale/rental price (i.e. 3%)

Commission Structures Graduated Arrangement This fee arrangement is often used for higher priced homes It is a type of percentage sale commission For example, you sell a home for $1 million – you get 5% commission for the first $400,000 followed by 4.5% commission for the next $300,000, and finally $4% on the next $300,000 (total of $45,500) Rebates Broker may offer rebate incentive to buyer/seller Rebate may be a percentage of commission or flat amount

Essential Elements of a Contract Capacity – this means parties must be legally competent to enter into a contract Mentally sound Not intoxicated (drunk) The parties must be able to understand what was taking place when the contract was being signed Not a minor The parties must be over the age of 18 If a party is a minor, the contract is voidable unless minor does something once they are over age of 18 Not illiterate The person must understand the terms of the contract for them to be legally enforceable

Essential Elements of a Contract Lawful Object The contract must be lawful in order for it to be enforceable in court Consideration Each party must receive something Exchange may be act for money (I will pay you $20 to wash my car), act for act (I will wash your car if you wash mine), or promise for promise (I promise not to sue you if you promise to pay me the money you owe me) Courts do not look at value/adequacy of consideration, but the consideration must be lawful

Essential Elements of a Contract Consideration must be executory and not past consideration It must be exchanged at the time of the contract Contracts can only be made without consideration if a seal is used Such contracts are only valid if the parties to the contract are aware of the legal effects of a seal Courts accept pre-printed, handwritten or red wafer seals Business corporations should use a corporate seal or contain: “I have the authority to bind the corporation”

Essential Elements of a Contract Mutual Agreement There must be an offer and an acceptance An offer that is different from the actual offer cannot be accepted Offer and acceptance must be the same For instance, you receive an offer from someone who wants to buy your property for $250,000. You cannot change the price to $300,000 Genuine Intention Parties must consent to the terms of the contract and agree to be bound under it

Essential Elements of a Contract Clear and Definite Agreement must be sufficiently precise and clear Essential terms must be agreed upon in order for a binding contract to exist These include price, closing date, property address Some terms may be arbitrated into the contract by a third-party , such as commission (percentage of sale) Court may imply certain terms into a contract Contracts that contain a “time is of the essence” clauses but do not have closing dates may be invalid due to lack of certainty Negotiation provisions may also cause uncertainty (e.g. a contract in which purchase price will be determined in five years)

Essential Elements of a Contract If any of these essential elements of a contract are missing, no contract exists An agreement lacking these essentials may still be construed as an undertaking to make a contract at a later date

Most Common Contract Errors Common mistake Mutual mistake Unilateral mistake Misrepresentation Intoxicated person Undue influence/duress