Humber/Ontario Real Estate Course 1 Exam Practice

A seller signs a listing agreement providing for an unspecified type of compensation to the brokerage upon sale. What is likely the most valid term in such a case?

1. A flat fee compensatory term

2. A commission based on a percentage of the sale price

3. Compensation based on performance incentives

4. A post-sale negotiation for commission

5. A hourly rate for services rendered

6. A donation to the brokerage upon sale

The correct answer is: A commission based on a percentage of the sale price

The most valid term in a situation where a seller signs a listing agreement that specifies an unspecified type of compensation is a commission based on a percentage of the sale price. This approach is widely used within the real estate industry, as it aligns the interests of the seller and the brokerage. It provides a clear incentive for the brokerage to maximize the sale price, since their compensation directly correlates with the outcome of the sale. A percentage-based commission is also customary and expected in most real estate transactions, helping to ensure clarity and fairness in compensation. This method is commonly understood by all parties involved, making it a straightforward and legally sound practice. In contrast, other compensation structures might introduce ambiguity or may not be standard practice in the real estate sector. For instance, a flat fee could limit the brokerage's motivation to pursue a higher selling price, performance incentives may complicate the compensation structure without clear alignment, hourly rates aren't typical for sales transactions, and post-sale negotiation could lead to disputes or uncertainty. Donations, while possible, deviate significantly from the established norm and could raise ethical questions. Overall, a commission on the sale price remains the most logical and valid term, ensuring that both the seller and the brokerage are effectively working toward a successful sale.