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Professional Standards Manual

General Information

4. Disclosures

(d) Disclosure of Remuneration

The Rules require that as a licensee, you must disclose all remuneration you receive or anticipate receiving from anyone other than your client. Section 5-8 of the Rules requires that the disclosure be in writing. Section 5-8(1.1) of the Rules permits remuneration from a party other than a client to be disclosed in the service agreement and/or in a record other than an agreement giving effect to a trade in real estate that is separate from the service agreement. This means that the disclosure of remuneration cannot be made, for example, in a contract of purchase and sale, because that is an agreement giving effect to a trade in real estate.

Section 5-11 of the Rules provides that the disclosure of the commission or compensation be in writing as follows:

5-11(1) This section applies if a licensee receives or anticipates receiving, directly or indirectly, remuneration, other than remuneration paid directly by a client, as a result of the licensee

(a) providing real estate services to or on behalf of the client,

(b) recommending to the client

(i) a home inspector, mortgage broker, notary public, lawyer or savings institution, or

(ii) any other person providing real estate related products or services, or

(c) recommending the client to a person referred to in paragraph (b) (i) or (ii).

(2) Subject to subsection (3), the licensee must promptly disclose to the client all remuneration paid or payable to the licensee’s related brokerage in relation to the real estate services provided, and the disclosure must include all of the following:

(a) the source of the remuneration,

(b) the amount of the remuneration or, if the amount of the remuneration is unknown, the likely amount of the remuneration or the method of calculation of the remuneration, and

(c) all other relevant facts relating to the remuneration.

(3) If trading services are provided by a licensee who has been designated to provide those services as a designated agent to or on behalf of only one party to a trade in real estate, the only remuneration that must be disclosed is the remuneration paid or payable to the licensee’s related brokerage in relation to the services provided by that licensee to or on behalf of that party, and the disclosure must be made in accordance with subsection (2).

 

Client Relationship Creates Disclosure Obligation

Section 5-11 of the Rules requires you, as a licensee, to disclose all remuneration you receive that is not paid directly by your client. A client is defined in the Rules as the principal who has engaged the licensee to provide real estate services to or on behalf of the principal. The definition anticipates that a principal and agent relationship exists when a licensee is engaged by a client. Fiduciary obligations arise as a result of the principal and agent relationship, including an obligation to disclose any remuneration received from someone other than the client.

If the person on whose behalf you are acting is not a client, (i.e. a customer), the requirement for disclosure of remuneration does not arise. Keep in mind that it is the nature of your relationship with your client that creates the obligation to disclose all remuneration paid for other than by the client.

Licensees must disclose the source and amount of the remuneration, or, if the amount is not known, the likely amount and method of calculation.

Section 5-11 of the Rules requires disclosure of all funds that licensees receive other than from the licensee’s client and not just the amounts received from referring the client to home inspectors, mortgage brokers, etc.

 

Disclosure When Acting for Buyers

[May 2015. The following section was added to the Professional Standards Manual]

As a buyer’s agent you have an obligation to disclose to your clients any remuneration that your brokerage will receive in relation to real estate services provided to the parties involved in the real estate transaction. The Rules require that licensees disclose all remuneration they anticipate receiving that is not paid directly by the client. This includes commissions, and also referral fees and any non-monetary bonuses you receive in exchange for a referral (such as gift certificates, air miles, bonus points, etc.). Remember, all remuneration must be paid to the brokerage—never to you directly.

Section 5-11 of the Rules makes it clear that the amount of remuneration that you must disclose to your client is the amount payable to the brokerage, not the amount that will eventually be paid to you, the licensee.

As well, subsection 5-11(3) specifies that when a licensee is acting as the designated agent for only one party in a transaction, the amount of remuneration that must be disclosed is the amount payable to the brokerage in relation to that client.

To assist licensees to make the required disclosures, the Council provides a Disclosure of Remuneration, Trading Services form. This form is available from the Council’s website and on Webforms. To make sure you understand how to use the form, read through the following scenarios. This information is also available in the April 2015 Report from Council newsletter.

 

Scenario 1: Designated Agent Acts Only for the Buyer

Joe Agent is a licensee engaged with LMN Realty Ltd. He is a Designated Agent for a buyer who is going to make an offer on Susie Seller’s home. Susie Seller, who is represented by a licensee engaged by XYZ Realty Ltd, has agreed to pay a total commission of $10,000, with $5,000 to be paid to a brokerage representing the buyer (LMN Realty Ltd.).

Q: What does Joe need to disclose to his client?
A: Joe is obliged to disclose to the buyer only the portion of the commission being paid to his brokerage: $5,000.

Disclosure 1

 

Scenario 2: Designated Agent Acts as Dual Agent

In this transaction, Joe Agent is the Designated Agent of both the seller and the buyer. With the consent of the seller and the buyer, Joe is acting as a Limited Dual Agent for both parties.

Q: Does this change what Joe must disclose?
A: Yes. As a Limited Dual Agent, Joe is obliged to disclose to the buyer the full amount of the commission being paid by the seller to the brokerage.

disclosure 2

 

Scenario 3: Different Designated Agents from the Same Brokerage Represent Buyer and Seller Individually

In this scenario, Joe Agent of LMN Realty Ltd. is the Designated Agent of the buyer in the transaction. Larry Licensee, who is also engaged at LMN Realty Ltd., is the designated agent of the seller. As the sole agents of their respective clients, Joe and Larry are not acting as Limited Dual Agents.

Q: Does Joe need to disclose the full amount of the remuneration payable to LMN Realty Ltd.?
A: No. Joe is acting as Designated Agent only for the buyer, therefore he is obliged to disclose to the buyer only the portion of the commission being paid by the seller to LMN Realty Ltd. in relation to his services.

disclosure 3

 

Scenario 4: Disclosure of a Referral Fee

Mary Chow has just sold her home in Burnaby. Her home was listed for sale with LMN Realty Ltd. and Joe Agent was her Designated Agent. Mary now wants to buy a strata lot in Kelowna. She asks Joe if he can recommend a licensee in Kelowna. Joe and Mary discuss three potential licensees, and Mary says she thinks she would like to work with Dave of XYZ Realty Ltd. Joe has an arrangement with Dave: if Joe refers a client to Dave who subsequently sells or buys real estate through Dave, Dave will pay Joe a $1500 referral fee that will be paid to LMN Realty Ltd. on completion of the trade.

Q: Must Joe disclose this fact to Mary when he recommends Dave?
A: Yes. Mary is a client, Joe refers Mary to Dave, and Joe anticipates receiving $1500 if Mary uses the services of Dave and XYZ Realty Ltd. to purchase a strata lot. The following example shows the proper way for this to be disclosed to Mary using Part C of the Disclosure of Remuneration Trading Services form. The disclosure must take place at the time Joe makes the referral to Mary, so she is aware of the information when she is deciding whether to use Dave’s services.

disclosure 4

 

Scenario 5: Disclosure of a Non-Monetary Bonus

Joe Agent has been approached by Best Rate Financial Services, a lending institution. They are willing to pay Joe 100,000 air mile points for every client’s name that Joe provides to them who subsequently borrows a minimum of $200,000. Joe is working with a buyer who is going to need to borrow $250,000 to complete a purchase, and with the buyer’s approval Joe gives the buyer’s name to his contact at Best Rate Financial Services. That person contacts Joe’s client and this leads to his client borrowing $250,000 from Best Rate Financial Services.

Q: Must Joe disclose this referral arrangement to his client?
A: Yes. Joe must disclose any form of remuneration that he anticipates receiving as a result of referring a real estate related service provider to his client. The definition of remuneration is very broad and includes any form of benefit, regardless of its size or nature.

The disclosure must be made when the information can be used by the client to make an informed decision about whether he or she wants to use the referred service provider. The following example shows how proper disclosure should be made, using Part C of the Disclosure of Remuneration Trading Services form. Note that Joe properly discloses that the travel points are going to be “paid” to LMN Realty Ltd., Joe’s related brokerage.

All forms of remuneration must be paid to the brokerage for disbursement to the individual licensee.

disclosure 5