In residential real estate transactions, the concept of “Effective Cause of Sale” plays a critical role in determining how real estate brokers rightfully earn their commissions. While the public may assume that commissions are straightforward and automatic, the reality is much more complex. It is essential for both buyers and sellers to understand how brokers are compensated and the conditions under which commissions can be contested.

The Importance of Contracts

For the past few years, both buyers and sellers have been obligated to sign a brokerage contract with a real estate broker in order to be legally represented. Without a contract in place, the consumer is technically unrepresented, which leaves them unprotected, and exposed to greater risk.

The Typical Transaction Process

1-Two brokers are typically involved in a standard real estate transaction: the listing broker, who represents the seller, and the collaborating broker, who represents the buyer. The process generally unfolds as follows:

2-The buyer signs a contract with their real estate broker.

3-The broker actively searches for properties on behalf of their buyer.

4-The buyer expresses interest in a property and tells their broker.

5-The buyer's broker schedules a visit with the listing broker.

6-The buyer visits the property, accompanied by their broker.

7-If the buyer is still interested, their broker gathers additional documentation from the listing broker, such as the certificate of location, seller's declarations, renovation receipts, tax bills, and energy costs.

8-A keen buyer will often return for a second visit to the property with their broker, and possibly other family members, contractors, designers, etc. 

9-With their broker's guidance, and after reviewing comparable sales, the buyer prepares and submits a formal offer, otherwise known as a promise to purchase.

10-Negotiations take place, and once an agreement is reached, the buyer proceeds to fulfil conditions such as obtaining mortgage approval and arranging for a home inspection within the specified timeframe.

11-Once all conditions are satisfied, the transaction becomes firm, leading to the signing of the deed of sale with a notary.

12-Once the sale is finalized, the listing broker’s agency receives all real estate commissions and splits them with the collaborating broker’s agency.

The respective agencies pay each broker their share of the commission.

The seller determines commission structures when signing the brokerage contract with the listing broker. Typically, the total commission ranges between 4% and 5% of the sale price and is split evenly between the listing broker and the collaborating broker. The commission being offered to a buyer’s broker is included in the listing information when the property goes up for sale, usually 2%-2.5%. 

When the above process unfolds as expected, the buyer's broker can justifiably claim to have been the “effective cause of sale,” that is, their efforts directly led to the buyer submitting an offer and completing the purchase. However, not all transactions proceed so smoothly, leading to disputes over the amount of commission entitlement.

When “Effective Cause of Sale” Is Contested

Not all real estate transactions follow the ideal process. Situations frequently arise where the buyer’s broker’s involvement in the transaction is diminished or bypassed altogether, sometimes unintentionally, and at other times because of questionable professional practices. Consider the following scenarios:

1. The Buyer Bypasses Their Own Broker

Even when they are under contract with a broker, buyers often assume they can interact freely with any broker without affecting their own broker's compensation. A common occurrence is when a buyer, after spotting a listing, contacts the listing broker directly. A frequent rationalization we hear for this is that they didn’t want to waste their own broker’s time, or perhaps that their broker was unreachable for some reason. The buyer may schedule a visit with the listing broker, obtain information, and sometimes even revisit the property multiple times. Only when ready to submit an offer do they bring their own broker into the loop.

In such cases, the listing broker can argue that they, rather than the buyer's broker, were the “effective cause of sale,” because they were the one who showed the property to the buyer, provided them with details, scheduled visits, and answered key questions leading to the purchase decision. Admittedly, there was a considerable amount of time and effort invested by the listing broker. On the other hand, the buyer’s broker may have already visited dozens of properties over several months, having invested way more time than the listing broker, who showed only them this one home. Despite this, the listing broker can still claim to be the “effective cause of sale,” and refuse to pay the buyer’s broker’s share of the commission after the signing of the deed of sale. In some cases, the collaborating broker literally gets no compensation whatsoever if they failed to show the property to the buyer. 

At Team Broady, we realize that most of the general public are completely unaware of how this all works, and more often than not these mistakes are made unintentionally, but can cost their hard-working broker thousands of dollars in lost revenues. 

Despite our best efforts to explain this to our buyer clients, we’ve still lost commissions when they innocently book a visit with a listing broker directly, and then only let us know after the fact. “Sorry, we forgot!”

When this happens, the best hope we have for claiming our commission is to schedule another visit to the property with our client before they submit an offer. From that point on, we are fully involved in representing our buyer throughout the entire process of the transaction, including being present at the building inspection and ensuring the mortgage application is approved. Even then, the listing broker can still refuse to pay us our full share of the commission and we end up having to fight for it through a conciliation and arbitration process in front of the real estate board. When this happens, it can take up to a year before the dispute is resolved and we sometimes must settle for only half our usual compensation. 

2. The Buyer’s Broker Fails to Fulfil Their Role

In some instances, collaborating brokers fail to properly represent their clients, either through negligence or deliberately taking shortcuts. Examples include:

Collaborating brokers who book visits but intentionally don't show up, leaving buyers to tour the property alone, or with the listing broker directly. This happens often with properties in cottage country where a buyer’s broker doesn’t want to spend many hours on the road to visit one property.

Brokers who send unlicensed assistants to conduct showings, violating ethical and professional guidelines.

When such lapses occur, listing brokers have valid grounds to challenge the buyer’s broker’s commission claim. After all, if the collaborating broker has contributed little to the transaction, should they still be entitled to compensation?

3. Multiple Brokers Involved

In some cases, buyers refuse to sign a contract with one broker and prefer to engage with multiple brokers. A buyer may start their search with one broker, visit properties with them, and then switch to another broker who ultimately writes the offer. This can lead to disputes over who was the “effective cause of sale.” If the first broker conducted showings, provided market insights, and played a significant role in guiding the buyer, they may contest the commission allocation.

Why Public Awareness Matters

Many buyers and sellers are unaware of how real estate brokers are compensated and the disputes that can arise over commissions. This lack of awareness can lead to misunderstandings and unintended consequences, such as buyers jeopardizing their own broker’s earnings by interacting freely with listing brokers.

For buyers, working closely with their own broker and adhering to the proper real estate transaction guidelines ensures they receive the full benefits of representation. A buyer’s broker does more than just submit offers; they provide valuable market insights, negotiate favourable terms, and protect their client’s interests while minimizing their exposure to risk. When buyers bypass their broker, they lose this invaluable professional guidance and protection.

Striking a Fair Balance

The concept of “effective cause of sale” highlights the importance of proper ethical and professional conduct in real estate transactions. While it is crucial to ensure that hardworking brokers are fairly compensated, it is equally important to recognize and address situations where brokers fail to fulfil their duties.

To avoid disputes and ensure fair dealings:

Buyers should always involve their broker from the outset. Contacting the listing broker directly can have unintended consequences, in addition to jeopardizing the collaborating broker’s ability to claim their rightful commission.

Brokers should uphold professional standards. The buyer’s broker must actively participate in showings, negotiations, and due diligence to justify their role in the transaction.

By fostering greater public awareness of how commissions are earned and what constitutes “effective cause of sale,” we can help create a more transparent and fair real estate market, one in which buyers, sellers, and their brokers all benefit from a system that rewards professionalism and integrity. If you or someone you know is thinking of buying or selling, please reach out by phone at 514-613-2988 or by email at info@teambroady.ca.