Toronto and surrounding suburbia is going through the hottest Real Estate Market ever! It is so hot, even New Condominiums are flying off the builders shelves. It is so hot, realtors are bringing clients in droves to these condo sites, as builders are offering between 3% to 5% commission to an agent just by registering a client with them. This is not a recent offering by builders. Builders have been offering commissions on new home sales and offering draws at various stages of a build for a number of years. However, because of the hottest market in history, these builders have been inserting a clause in their commission agreements to agents, and many realtors accept this clause. Realtor's beware as the builder is inserting a clause that requests money back if a deal does not close, or if a builder does not build.
Builders dangle a commission carrot in front of your eyes, and if the deal falls apart you have to give the commission back. In essence, builders are lending an agent money if they want it back! Is this even legal as per the CRA. I don't think so! A brokerage can't call an invoice an invoice until a real estate transaction is closed. This is why you see: "Reminder" or "this is not an Invoice". Commission is not earned until a transaction is closed, in the eyes of the Canadian Government. In reality, these builders are in contradiction of our tax laws. They can not offer you draws against your commission until the deal has closed.
Think about it, when a builder builds they request large deposits in excess of $75,000 dollars. If a deal does not close, the buyer forfeits their deposit to the builder. The builder prepays marketing companies and all other companies in order to achieve 50% sales in a building, so they can get mortgage funds to commence the project. Is a realtor not helping a builder achieve 50% sales by bringing clients and successfully entering into an agreement of purchase and sale. So why are they asking for commission back? Do Builders ask the marketing agency for money back? No they don't.
But still, Agents sell the product of these Builders who slip this clause in there commission agreements. Bring your clients to another Builder! But I know realtors will not. And so, the Builder gets away with dangling a carrot in front of your eyes, which he can yank back when he wants. Builders want Brokerages to be liable for this money, if a transaction does not close, not the agents. My agents have tries to scratch the clause off or at the minimum take the liability off the brokerage and onto the salesperson, which I am good with, but the builder will not. It is a brokerages right to allow their agents to be paid directly, if it waives its rights.
I spoke to one of the larger builder's admin and they said that they would prefer to go after the Brokerage over a salesperson. They also had no comment regarding agents contributing to the sales and wanting their money back.
I say this to the Builder: Brokerages are catching on. Brokerages will not be on the hook for monies given to them before a completion date. Brokerages will hold the money until it closes. Realtor's should take their clients to other Builders who understand the work we put into helping them achieve sales!